The Fair Trade Commission has slapped a subsidiary of Lotte Group with a 650 million won ($562,000) fine for providing unfair financial support to a zombie sister company.

The fine was imposed on Lotte PS Net, an affiliate that takes care of automatic teller machines installed at the group’s department stores and discount stores.

According to the commission, Lotte PS Net purchased a total of 3,534 ATMs between September 2009 and last month. The acquisition was made not directly from the manufacturer but through an intermediary ― Lotte Aluminum, a debt-ridden company that had nothing to do with ATMs.

Lotte Aluminum purchased the ATMs for 66.6 billion won and resold them to Lotte PS Net for 70.7 billion won, earning a profit of 4.1 billion won through the deal.

The commission rightly viewed the transaction as an example of a chaebol unit providing unwarranted financial support to a distressed sister company.

This type of transaction should not be allowed as it involves expropriation from the minority shareholders of the benefactor company.

Had Lotte PS Net directly purchased the ATMs, the cost would have been 66.6 billion won. The 4.1 billion won paid to Lotte Aluminum would have gone to its shareholders.

Lotte PS Net is only 55 percent owned by Lotte Group, which means the group’s share of the company’s profit is 55 percent, with the remainder distributed to other shareholders. Instead of sharing the 4.1 billion won with other shareholders, the company chose to use all of it to support a zombie sister firm. Thus the company’s controlling shareholder expropriated funds from its minority shareholders.

Sweet deals between chaebol units also distort the market. In an efficient market, a nonviable company ceases to exist, creating the room for efficient companies to grow. But this mechanism does not apply to a chaebol group’s distressed affiliate.

In 2008, Lotte Aluminum, then called Lotte Engineering and Machinery, had a debt-to-equity ratio of 5,300 percent. In 2009, it was made to undergo a debt workout program. A company with such a high debt ratio should have been liquidated. But through support from Lotte’s other subsidiaries, the company managed to survive. The playing field was not level.

The FTC’s action against Lotte PS Net signals that the fair trade watchdog will not tolerate any more the long practice of chaebol groups unfairly supporting their weak affiliates by enabling them to collect a tax on other units. The commission needs to step up its monitoring of suspicious deals among chaebol units.