LG: Corporate Rap Sheet

LG

by Philip Mattera

LG Corporation is the parent entity for one of the big conglomerates (known as chaebol) that control much of the South Korean economy. LG Electronics, its largest and best known affiliate, is a leading global producer of consumer electronics and home appliances. Another affiliate, LG Chem, is primarily known as the manufacturer of batteries used in products ranging from notebook computers to plug-in electric cars.

Originally named Lucky-Goldstar, the LG group thrived during the period of authoritarian rule in its home country and evolved from a producer of second-rate TVs and air conditioners to a brand known around the world. It has production facilities in countries such as China, India, Mexico, Brazil, Poland and Russia.

In recent years, LG's reputation has been tarnished by its involvement in numerous price-fixing scandals, especially those involving flat-panel displays for computers and televisions. Fines and settlements in various countries--including the United States, where LG has faced criminal antitrust charges as well as civil class action suits --have amounted to hundreds of millions of dollars. Home appliances made by LG Electronics have been involved in numerous recalls.


From Face Cream to Semiconductors

LG dates back to 1947, when In-Hwoi Koo founded the Lucky Chemical Company. Its early products included face creams, toothpaste and laundry detergent. From this modest base LG decided to emulate the Japanese and enter the business of manufacturing and exporting electrical products. In 1958 it formed Goldstar Company, which soon became the first Korean company to produce radios, albeit unsophisticated ones sold at first only to the domestic market.  Both Goldstar and Lucky Chemical, which had expanded into petrochemicals and plastics, developed close ties to the authoritarian regime of President Park Chung Hee.

By the mid-1960s Goldstar, enjoying government loans and strict import controls, was also making the first television sets and refrigerators to be produced in the country. Washing machines and air conditioners soon followed. Once its products became more sophisticated, Goldstar started to export them, especially to countries such as the United States, where they were initially supplied to retailers which sold them under their own brand names. By the late 1970s Goldstar, the most outward oriented of the Lucky-Goldstar companies, was exporting the equivalent of more than $100 million a year.

In later years, Goldstar accelerated its growth by forming a series of joint ventures with companies such as AT&T (which helped it get into semiconductors, though the business was later sold) and Siemens. Again following the lead of Japanese companies, Goldstar began opening overseas manufacturing facilities, beginning with a television assembly plant in Huntsville, Alabama, which opened in 1983 but was later moved to Mexico.

During the early 1980s Goldstar was the first Korean company to manufacture personal computers, compact disc players and camcorders. Yet it was not known as an innovator. Its VCR, for example, came about through reverse engineering of Japanese models and some assistance from RCA. In 1991 Goldstar sought to give itself a boost by acquiring a 5-percent share in Zenith Electronics, which had long promoted itself as the only remaining U.S.-owned producer of television sets. Goldstar developed close ties with Zenith and later took control of the company, using it as a springboard to become a leading producer of high definition televisions and liquid crystal displays for TVs as well as computers. The company changed its name to LG Electronics in 1995 as the chaebol was reorganized as LG Group (in 2003 it was restructured into a holding company with the name LG Corporation).

Meanwhile, the rest of the LG group had moved into a variety of other fields, such as oil refining, coal, pharmaceuticals, construction and insurance. Starting in the late 1980s, LG and the other chaebol came under increasing criticism for their domination of the economy. After the Korean government called on the chaebol to focus their activities, LG decided to specialize in consumer electronics, telecommunications and petrochemicals.

 

Price-Fixing and Other Antitrust Issues

In July 1998 the Korea Fair Trade Commission (KFTC) imposed heavy fines on LG and the other chaebol for providing illegal preferential financial assistance to their weak companies. LG's share of the fines was 10.2 billion won, or about $7 million (Korea Times, July 29, 1998). Later that year the commission imposed more fines for improper inter-subsidiary transactions, with LG paying about $1.6 million more (Korea Times, November 12, 1998). Yet more fines totaling about $170 million were imposed against five chaebol in 2002; LG’s share was not reported (Korea Times, September 30, 2002). In another round of fines in 2003, LG’s share was about $570,000 (Korea Herald, October 7, 2003).

In 1999 the KFTC imposed a fine of about $9.5 million on LG Electronics for colluding with Samsung Electronics (which was also fined) in bidding on contracts to supply air conditioners to the government’s Office of Supply (Korea Herald, October 22, 1999).

In 2002 the KFTC fined LG Card about $5.4 million for colluding with other credit card companies to fix interest rates and for other violations such as issuing cards to under-age customers (Korea Times, April 26, 2002).

Also in 2002, the KFTC fined LG-Caltex about $1.1 million for colluding with SK Gas to fix the price of liquefied petroleum gas (Korea Times, October 14, 2002). LG later sold its interest in the LG-Caltex oil refining joint venture to the GS Group.

In yet another 2002 case, the KFTC fined LG Telecom about $300,000 for misleading advertisements for cell phone services (Korea Times, November 8, 2002).

In 2006 the KFTC fined LG Telecom about $2 million for fixing the price of voice telephony services (Korea Times, July 28, 2006).

In 2007 the KFTC fined LG Chem about $14 million for its part in a conspiracy to fix the prices of petrochemicals. 

In 2008 the U.S. Department of Justice announced that LG Display Co. Ltd, Sharp Corp. and Chunghwa Picture Tubes Ltd. had agreed to plead guilty and pay a total of $585 million in criminal fines for their roles in conspiracies to fix prices in the sale of thin-film-transistor liquid crystal display (TFT-LCD) panels used in computer monitors, televisions, cellphones and other electronic devices. Of that amount, LG was to pay $400 million, which DOJ said was the second highest criminal fine ever imposed by the Department's Antitrust Division. At the time of the conspiracy (September 2001-June 2006), LG Display was part of a joint venture with Philips Electronics.

The Justice Department alleged that LG carried out the conspiracy by:

  • Participating in meetings, conversations, and communications in Taiwan, Korea and the United States to discuss the prices of TFT-LCD panels;
  • Agreeing during those meetings, conversations and communications to charge prices of TFT-LCD panels at certain pre-determined levels;
  • Issuing price quotations in accordance with the agreements reached; and
  • Exchanging information on sales of TFT-LCD panels, for the purpose of monitoring and enforcing adherence to the agreed-upon prices.

In 2009 a high-level executive at LG Display, agreed to plead guilty to a one-count felony charge and serve a year in jail in the United States for participating in the TFT-LCD price-fixing conspiracy.

In 2010 the European Commission fined LG Display 215 million euros for its role in LCD price fixing. The KFTC later imposed fines totaling about $59 million on three LG Display subsidiaries relating to their participation in the TFT-LCD cartel (KFTC press release dated October 28, 2011). LG Display subsequently agreed to pay $380 million to settle an LCD price fixing class action case in the United States.

Also in 2011 the U.S. Justice Department announced that Hitachi-LG Data Storage, a joint venture of Hitachi Ltd and LG Electronics, had agreed to plead guilty and pay a $21.1 million criminal fine for its participation in a series of conspiracies to rig bids and fix prices for the sale of optical disk drives to customers such as Dell, Hewlett-Packard and Microsoft. As part of its plea agreement, the company also agreed to assist DOJ in its ongoing investigation of the industry.

Later that year, three Hitachi-LG Data Storage executives agreed to plead guilty to felony charges and serve prison time in the United States for their role in the optical disk drive price-fixing conspiracy. In 2012 another Hitachi-LG Data Storage executive agreed to plead guilty to a four-count felony charge in the same investigation. Hitachi-LG Data Storage later agreed to pay $26 million to settle a class-action antitrust suit.

Also in 2012, the KFTC fined LG about $16 million for conspiring with Samsung to fix the prices of home appliances; the agency then said it would assist a related consumer class action lawsuit because the fines it was able to impose were not high enough.

That same year, LG Uplus was one of a group of mobile phone carriers and manufactures fined a total of about $40 million for price fixing and consumer fraud.  And a few months after that, the KFTC fined LG Electronics about $75,000 for attempting to hide or destroy evidence relating to an investigation of its dealings with appliance retailers.

In yet another 2012 ruling, the European Commission fined LG Electronics a total of 295 million euros for its role in two long-running illegal cartels that “fixed prices, shared markets, allocated customers between themselves and restricted their output.” One of the cartels involved cathode ray tubes for televisions and the other CRTs for computer monitors.

In 2013 Chinese authorities fined LG Display about $19 million for LCD price fixing.

Also in 2013, the U.S. Justice Department announced that LG Chem Ltd had agreed to plead guilty and pay a $1.056 million criminal fine for price fixing involving lithium-ion battery cells used in notebook computers. The company is now facing numerous class action lawsuits over the issue.

LG Uplus has been cited numerous times by the Korea Communications Commission for providing illegal financial incentives to smartphone customers. In December 2012 the company was fined about $2 million and barred from signing up new customers for 24 days. In November 2013 there were reports that the agency was considering additional fines of about $165 million.


Trade Violations

In 1998 the U.S. Commerce Department imposed a 9.3 percent tariff on dynamic random access memory (DRAM) computer chips made by LG Semiconductor after finding that the company was dumping the components in the U.S. market at below the cost of production.

In 2002 the European Commission imposed a 15 percent anti-dumping duty on color televisions produced by LG Electronics as well as Samsung and Daewoo (Korea Herald, September 2, 2002).

In 2012 the Commerce Department determined that LG Electronics was one of several large foreign producers that were dumping residential washing machines in the U.S. market. An anti-dumping duty of 13.02 percent was imposed on LG’s products.

 

False Claims

In February 2013 the Office of the Inspector General of the U.S. Department of Energy issued a report questioning up to $842,000 in reimbursements for labor charges submitted by LG Chem under its Recovery Act grant (see below). The investigation, carried out in response to a complaint, found that LG Chem was charging the federal government for time that employees spent “volunteering at local non-profit organizations, playing games and watching movies during regular working hours.” Those activities were apparently meant to keep employees busy during a delay in initiating manufacturing activities at the plant. Energy Inspector General Gregory Friedman said that LG Chem’s grant “had not been managed effectively.”

Later in 2013, the U.S. Attorney for the Western District of Michigan announced that LG Chem’s Michigan subsidiary would pay $1.2 million to settle False Claim Act allegations in connection with the case. The company finally began shipping batteries in November 2013.

 

Illegal Campaign Contributions

In 2003 LG, along with the other large chaebol, became embroiled in a scandal involving illegal campaign contributions to South Korea’s major political parties. The group’s vice chairman, Kang Yu-sik was questioned by prosecutors (Korea Times, November 13, 2003) and the offices of an LG subsidiary were raided by investigators (Korea Times, November 19, 2003). In 2004 Kang received an 18-month suspended prison sentence in connection with some $13 million in illegal contributions to the Grand National Party during the 2002 presidential campaign (Korea Times, May 12, 2004).

 

Bribery

In 2004 Korean prosecutors indicted 48 employees of IBM Corp. and its LG IBM joint venture for bribing public officials to win government contracts (Korea Times, January 5, 2004). Some of the employees were subsequently convicted, and in 2011 IBM agreed to pay $120 million to settle foreign bribery charges brought by the U.S. Securities and Exchange Commission. The SEC did not charge LG. The joint venture was dissolved.

 

Grants, Subsidies and Tax Avoidance

In 1996 LG Electronics received a £247 million subsidy from the Welsh Development Agency in connection with its plan to open a semiconductor fabrication facility and a television display plant in Wales that were together supposed to create more than 6,000 jobs. The operation never came close to that employment level. The chip facility never opened at all and the TV plant was closed in 2003. 

In 2010 LG Chem and its Compact Power subsidiary were awarded $151.4 million in federal Recovery Act funding to help construct a battery cell manufacturing plant in Michigan. In addition, the state of Michigan provided a $198 million subsidy package consisting of corporate tax credits and other forms of financial assistance for the project.

A 2013 analysis by the website Chaebul.com found that LG was one of the chaebol that had subsidiaries and affiliates in tax haven countries such as the Cayman Islands and Panama. LG’s assets in those countries were estimated at about $300 million.

 

Environment, Workplace Safety and Product Safety

In 2001 the U.S. Consumer Products Safety Commission (CPSC) announced a recall of portable dehumidifiers made by LG Electronics because of an overheating hazard. There were additional LG dehumidifier recalls in 2009, 2010, 2011, 2012 and 2013.

In 2005, the CPSC announced a recall of three-door refrigerators made by LG Electronics because a faulty component in the condenser fan motor could cause overheating and a fire hazard.

Also in 2005 the CPSC announced a recall of rechargeable batteries produced by LG Chem and used in Apple iBook G4 and Powerbook G4 computers because of overheating hazards.

In 2007 a proposed class action suit was filed in federal court in New Jersey alleging that the water dispensed by LG Electronics refrigerators contained toxic chemicals (Palmeri v. LG Electronics USA). The case was later settled out of court; the terms were not announced.

In 2008 the U.S. Department of Energy announced that various refrigerator-freezer models produced by LG Electronics would be removed from the federal government's Energy Star labeling program because they did not meet the program's energy efficiency standards. The company was also penalized in Australia because some of its air conditioners did not comply with the energy efficiency values claimed on labels; LG had to make available up to A$3.1 million in rebates.

Also in 2008, Russian authorities fined LG Electronics about $9,200 for environmental violations at the company's plant in the Ruza region near Moscow.

In 2009 the CPSC announced a recall of certain LG cell phones because of difficulties in poor voice quality in 911 emergency calls.

A 2012 article in The Guardian listed LG as one of the companies using tin mined in environmentally hazardous ways on the Indonesian island of Bangka. Under pressure from groups such as Friends of the Earth, LG and several of the other firms vowed to rectify the problem.

Also in 2012, the CPSC announced a recall of certain models of LG Electronics dryers because their gas valve could fail to shut off properly. Several months later, the CPSC announced a recall of certain LG Electronics electric ranges because their burners sometimes failed to turn off properly. And shortly after that, the CPSC announced a recall of certain LG Electronics top-loading washers because of reports of machines that were shaking excessively, thus posing a safety hazard. That same year, LG settled a class action suit involving 600,000 customers related to the fact that the lights inside some of its refrigerators failed to turn off when the door was closed, leading to food spoilage.

In February 2013 LG Chem appeared on a list of more than 160 companies found by the Korea Environmental Ministry to have dumped waste water tainted with toxic substances.

In March 2013 there were reports of a hydrofluoric acid leak at a plant operated by LG Siltron, a producer of semiconductor wafers, in the Korean city of Gumi. Later that month there was another acid leak at the plant.

In September 2013 LG Chem temporarily suspended production of lithium-ion batteries at its plant in Michigan after it was discovered that one of the chemicals used in production was not properly registered with the Environmental Protection Agency.

LG Electronics was long embroiled in an environmental and land-use controversy over its plan to build a new 143-foot high U.S. headquarters in New Jersey directly across the Hudson River from the Cloisters museum. In 2015 the company bowed to public pressure and reduced the height of the building to a level that would not block the view.

 

Labor Issues

LG, like the other Korean chaebol, was assisted in its growth by government policies that suppressed unionization of workers and encouraged low wages. That repressive system began to collapse with the strike wave that swept South Korea beginning in 1987. There were walkouts at Goldstar’s electronics operations, including some violent clashes between workers and policy. Goldstar responded by shifting some of its production to lower-wage bastions in Thailand and the Philippines.

Goldstar also sought to smooth over relations with unions by giving them more internal information about the company's finances. However, when workers at an oil refinery owned by the LG-Caltex joint venture went on strike in 2004, the company threatened severe consequences if they did not return to work (Korea Herald, July 27, 2004). Faced with that ultimatum, the workers ended their walkout.

A 2008 report by the Dutch group SOMO and the Swedish group SwedWatch found poor working conditions and repressive labor practices at LG suppliers in China and the Philippines.

In late 2011 thousands of workers at an LG Display plant in eastern China walked off the job in a dispute over year-end bonuses.  

In recent years, LG Electronics has been encouraging its domestic labor unions to adopt a “socially responsible” posture.

 

Human Rights

A 2008 report by the Danish group DanWatch found that LG mobile phone batteries contained cobalt from the Democratic Republic of Congo and warned that the company was thus “running the risk of supporting illegal export and unfair mining practices, which often involves severe human rights abuses.” Under pressure from non-governmental organizations, LG subsequently took steps to avoid sourcing conflict minerals.

 

Other

In 2008 LG Electronics signed a consent decree with the U.S. Federal Communications Commission and paid $1.7 million to resolve allegations that the company violated regulations requiring TV producers to include V-Chips enabling parents to block certain types of programming.

In 2011 the Los Angeles County District Attorney announced that LG Electronics and four other TV producers would contribute a total of $1.125 million in audio-visual equipment to California schools as part of a settlement of a case in which the companies were accused of irregularities in the way they stated the screen size of television sets.

In 2013 LG Electronics was reported to have offered to pay a journalist at the TechCrunch website to write a favorable review of one of its smartphones. The company claimed it was a misunderstanding.

Also in 2013, there were reports that some LG televisions were sending data to the manufacturer about the owner’s viewing habits even if users chose privacy settings that were supposed to block such transmissions.

 

Other Information Sources

Violation Tracker summary page

 

Watchdog Groups and Campaigns

Asia Monitor Resource Centre

Chaebul.com

DanWatch

Finnwatch

Korea Confederation of Trade Unions

Korea Federation for Environmental Movement

SOMO (Centre for Research on Multinational Corporations)

SwedWatch

 

Key Books and Reports

Bad Connections: How Your Mobile Phone is Linked to Abuse, Fraud and Unfair Mining Practices in the DR Congo (DanWatch, May 2008).

From Congo with (No) Blood: Recent Developments Relating to the Sourcing of Conflict-Free Minerals from the Democratic Republic of Congo (FinnWatch & SwedWatch, December 2012).

The High Cost of Calling: Critical Issues in the Mobile Phone Industry (SOMO, November 2006).

Mobile Phone Production in China: A Follow-Up Report on Two Suppliers in Guangdong (SwedWatch & SOMO, December 2009).

Silenced to Deliver: Mobile Phone Manufacturing in China and the Philippines (SOMO and SwedWatch, September 2008).

Special Report: The Department of Energy’s Management of the Award of a $150 Million Recovery Act Grant to LG Chem Michigan Inc., OAS-RA-13-10 (U.S. Department of Energy Office of Inspector General, February 2013).

Taking Conflict Out of Consumer Gadgets: Company Rankings on Conflict Minerals 2012 (Enough Project, August 2012).

 

Last updated July 9, 2015