South Korean strife set to continue for Diageo

By Neil Merrett

- Last updated on GMT

Related tags Diageo Pernod ricard South korea

Diageo's operations within the lucrative South Korean whisky market
are facing further threats from ongoing investigations into its
practices within the country, the company said today.

The company lost its import license in the country yesterday after Korean tax authorities found it has been dealing with unlicensed wholesalers.

The group said it is now cooperating with prosecutors on an unrelated issue.

The investigations are likely to come as a warning to companies working in foreign markets with local partners to ensure all its practices adhere to regulations, or face strong sanctions on their operations.

Losing its Korean import license will already be a major blow to Diageo, with the country estimated to be the world's fourth largest market for the lucrative whisky segment.

In a statement, though Diageo accepted the charges the tax authorities, it stressed that it was already amending its operations to ensure it was compliant with local legislation.

"We deeply regret that a small number of our employees have engaged in improper transactions with unlicensed wholesalers, in violation of our policies and the conditions of our license," the company stated.

"We have taken a number of different measures to make sure that our employees are now fully compliant with all the laws and regulations of Korea ."

Despite accepting the punishment, the company said that it remained disappointed with the decision by the Korean government to revoke its import license.

"While we acknowledge responsibility for past mistakes, we believe that the cancellation of Diageo Korea 's license is a very severe penalty," the statement added.

Nonetheless, a spokesperson for the distiller told that the decision was unlikely to disrupt supplies of its product to the country, as South Korean officials have granted a period of grace.

This will give Diageo from today up till 26 July to continue selling existing stock.

It added that it had already identified a third party distributor to supply its products during the period it remained prohibited from the market.

Diageo will then move to regain its licence at a later date, the company said.

However, this aim is likely to be further compounded by claims that both itself and rival Pernod Ricard are being investigated in South-Korea over unrelated investigations concerning operations according to The Financial Times newspaper.

Though unable to comment on the nature of the investigation it confirmed that it was continuing to cooperate with authorities in the country over further issues regarding its partners.

"Diageo Korea has been contacted by the Western District Seoul Prosecutor's Office in connection with an investigation by the NTS into one of its suppliers," a spokesperson said.

"Diageo Korea is fully co-operating with the authorities on this investigation."

Pernod Ricard revealed it has also been cooperating with the Korean Prosecutors Office since 1 June regarding the activities of a company called "Trust" , which had been a promotional goods supplier to Pernod Ricard Korea from 2002 until 2004.

Though the Korean market represents three per cent of Pernod Ricard's total sales, company spokesperson Francisco De La Vega said there was no cause for concern regarding the future of its operations in the country.

"We have just been contacted by the authorities as a witness into 'Trust' past activities," he said.

"Our business license in Korea is fully and legally valid."

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