The South Korean government is on the defensive against charges that Asia's third largest economy is hostile to foreign investors, forcing them to step through a minefield of arbitrary legislation.
At the center of debate are new disclosure regulations introduced last week that the government maintains are even-handed in tightening oversight of both domestic and foreign investors.
Under the new rules, shareholders acquiring more than five percent of a South Korean company must disclose whether they intend to influence the company's management.
Investors also have to declare their legal status and management structure, the name of their largest backers and how they raised the capital for their investment.
While some foreign investors complained that the new requirements are aimed at tightening control over them, government officials say South Korea would be tough but fair in delaying with domestic and foreign investors.
"We will actively attract foreign funds but their illegal activities will be punished under strict rules [just] like domestic investors," Finance and Economy Minister Han Duck-Soo said last week.
However, some foreign investors say the new requirements reflect an increasingly hostile climate here towards foreign funds. They also argue the new laws could be selectively applied.
"It is true that they demand the same information from foreign and South Korean investors but it is also true that the government is very hostile to the notion of an [investment] fund in general and [local] society is anti-fund," said Brendon Carr, an attorney at Aurora Law Offices in Seoul.
"What kind of message does it send to foreign investors? -- we want you to bring your money here but we don't want you to make profit and we don't want you to exercise your rights as shareholders which our laws give you."
Financial regulators acknowledged their action is defensive, seeking to keep hot money or speculative funds away from national treasures.
"Tools are needed to check [hostile] attackers in mergers and acquisitions," Chun Hong-Ryul, vice chief of the government's Financial Supervisory Service, told financial news provider Informax.
Those tools are digging the grave of South Korea's free market, say some foreign investors.
"The new regulation collides head-on with a fundamental premise of a stock market," Market Force Company chief James Rooney told the Korea Times.
"By definition of their ownership of shares in a company, shareholders have also acquired an absolute right to exert influence and control over the management of the invested company."
South Korea has steadily introduced a series of rules in response to calls by firms here that they should be better protected from hostile takeover bids by foreign investors.
A bill, under discussion in parliament, calls for domestic banks to fill half of their boards with South Korean citizens.
The latest set of changes followed an onslaught by the South Korean media on huge profits earned by western funds from selling stakes in South Korean banks.
Newbridge Capital gained one billion US dollars when it sold its stake in Korea First Bank last year but did not pay tax because of a double taxation agreement.
"That hostility toward funds and offshore entities using tax treaties to avoid tax legally is very amateur and immature," Carr said.
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