The Story Behind SK hynix’s AAA-Rated Global Compliance Program

In an era where technology has the means of creating power and leverage, the correct handling and export of technological products is not just about managing corporate risks. It is now also related to protecting a country’s economic security in addition to promoting human rights and international peace.

Consequently, the Global Compliance team at SK hynix has invested significantly in establishing a management system for controlling the export of strategic items¹. Although the company has been recognized for its robust export ecosystem, it is not resting on its laurels and is committed to further strengthening its capabilities in the field of export transactions.

¹ Strategic items: Goods that require restrictions such as export permits for the sake of maintaining national security and international peace.

Developing a AAA-Rated Export Ecosystem for Semiconductors

To understand why semiconductors are deemed to be strategic items in this day and age, it is important to consider their potential applications. As semiconductors can be implemented in the manufacturing, development, and use of weapons of mass destruction if exported through the wrong channel, a thorough and systematic export control on these products is needed. As such, the international community has established a multilateral export control system to prevent the proliferation of nuclear and conventional weapons. Moreover, the United Nations (UN) enforces the control of strategic items for all member states through a Security Council resolution. As for members of SK hynix’s Global Compliance team, they are making various efforts in this area, including establishing a company-wide system for strategic items and export control in addition to educating stakeholders.

▲Vice President Youn-wook Kim of the Corporate Sustainability Management team pictured with the ministerial award he accepted on behalf of SK hynix

 

As a result, the team received the AAA certification, the highest rating for a compliance program² (CP), from South Korea’s Ministry of Trade, Industry, and Energy (MOTIE) in July 2023. SK hynix also received the ministerial award from MOTIE at the Trade and Security 2023 event in recognition of its contributions to national trade security.

² Compliance Program: An independent system within a company that can evaluate and review its exports, so companies are able to conduct trade transactions with minimal administrative burden and strenuous procedures.

To find out more about the work required to achieve the rating, SK hynix’s Newsroom met with Global Compliance team members Juwon Hwang, Donghyeon Kim, Yangyoo Lee, and Jaewoo Cho. The interviewees provided insights into their journey to the AAA rating, including the development of the company’s nationally distinguished strategic items and export control management system.

Navigating Towards the Future With a Top-Rated Strategic Items and Export Control Management System

The Global Compliance team has become one of the busiest groups at the company as the management of semiconductors has changed greatly over the years. Widely used in various industries, semiconductors are now a key technology and a strategic commodity that need to be managed at the national level as they are closely tied with operations that can power everyday machinery to high-tech weaponry. It is the Global Compliance team that is responsible for handling and controlling the export of such important products.

▲(From left) Global Compliance team members Jaewoo Cho, Donghyeon Kim, Juwon Hwang, and Yangyoo Lee

 

The team monitors foreign countries’ regulations, provides consultations, and responds to related issues. In essence, the team created a stable export ecosystem by ensuring that SK hynix’s transactions comply with the various regulations of foreign governments, including domestic and international trade laws such as the U.S. Export Administration Regulations (EAR).

More specifically, the Global Compliance team’s work scope includes: export control of strategic items, sanctions monitoring of the Denied Persons List³, preventing anti-trust and anti-corruption activities, personal data protection, and M&A reporting. According to team member Jaewoo Cho, controlling the export of strategic items and monitoring the Denied Persons List are two of the team’s bigger tasks. These duties are also directly connected to obtaining an AAA certification for a CP.

³ Denied Persons List: Individuals or entities whose transactions are restricted or require caution in the interest of international security and world peace.

▲Jaewoo Cho (right) explains the process of establishing various programs to achieve the AAA certification for its compliance program

 

“As the importance of managing strategic items and export controls has heightened, SK hynix has been enhancing its capabilities to create a system that is compatible with these developments,” Cho said. “After being approved by the government to run the autonomous compliance program in 2005, we obtained an AA rating in 2014. Over the last two to three years, we strengthened our efforts in this area and finally received the highest CP rating of AAA in July 2023.”

To reach this milestone, standards for foreign trade laws such as the U.S. EAR were applied when the company classified its strategic items. In addition, SK hynix developed a network for handling strategic items and export control called the Global Compliance Management System (GCMS). As the system classifies strategic items and the Denied Persons List, it helps the company’s stakeholders including its employees and partner organizations to legally conduct transactions.

Global Compliance team members also undertook various measures such as running training sessions for the entire company’s workforce and its partners who supply major equipment for strategic items. Through the company’s internal and external efforts that included taking part in reforming the government’s compliance system, SK hynix was able to meet the requirements to achieve the AAA rating.

▲Juwon Hwang (center) explains the importance of managing strategic items and export controls

 

Team leader Juwon Hwang believes that the results achieved by the team will go a long way toward creating a robust export ecosystem during a time of increased competition in the global semiconductor market.

“The status of semiconductors has changed to the point where they can be used to leverage power and keep other countries in check. As competition for superiority in the global semiconductor market is also fierce, it has become an important task to manage semiconductor technology and equipment without violating foreign regulations,” Hwang said. “Through GCMS, SK hynix will manage strategic items and export control while contributing to international peace and the promotion of human rights by preventing strategic items from being exported to unethical groups or parties on the Denied Persons List.”

GCMS Elevates Management of Strategic Items and Export Control

As GCMS is an intricate system with various components and functions, its implementation was one of the most crucial and arduous tasks for the Global Compliance team on its road to achieving the AAA certification.

“In addition to classifying strategic items from all assets that are bought, sold, or disposed of by the company, the system also refers to foreign regulations to identify parties on the Denied Persons List,” Jaewoo Cho explained. “Simply put, it is a system that monitors the risks of conducting business with another party in real time and even restrains transactions when necessary.”

GCMS can identify nearly 300,000 types of materials at SK hynix to determine if they are strategic items and whether these items have violated any regulations related to export control management. When GCMS rejects an export permit, SK hynix cannot proceed with the export. The system also provides financial protection as all transactions with an opposing party are blocked until it is confirmed they are not on the Denied Persons List—which is automatically updated daily.

▲(From left) Donghyeon Kim and Yangyoo Lee discuss the importance of compliance operations

 

Yangyoo Lee revealed that as GCMS incorporates the entire company’s compliance work, it took two years to build—highlighting the significant time and money invested in the project. In particular, a lot of effort was taken to coordinate the operations with various departments and to communicate the importance of the compliance system to all stakeholders.

“We wanted to understand operations in the respective internal and external sites before integrating their operations into the system. We also visited our partners to explain the need to implement GCMS,” Lee said. “Although work practices could have felt more stringent after the introduction of GCMS strengthened regulations and procedures, most of the employees have fortunately been very accepting of the changes.”

Donghyeon Kim also stressed the importance of all parties coming to a consensus on the issue.

“We want all employees to be vigilant against regulation violations and actively engaged in compliance operations and training,” Kim stressed, “In response, our Global Compliance team will work harder to develop GCMS into a world-renowned management system for export control and strategic items.”

AAA Certification to Enhance Public Trust and Competitive Edge

SK hynix’s AAA-rated CP is expected to provide the company with an edge in the semiconductor export market. Hwang stresses that this achievement means the company has been recognized by the government for its trade security credentials. In particular, he believes that this public trust will only further enhance the company’s competitiveness in the future.

▲Team Leader Juwon Hwang (center) explains the process of obtaining the AAA certification and its importance to the company

 

“Overseas regulatory authorities will increasingly trust SK hynix’s CP over other companies, and we will be able to export equipment to countries such as the U.S. and China more quickly through a shortened export permit process,” Hwang said. “All of this will lead to improved competitiveness for the company.”

While the Global Compliance team is proud of taking its successful first steps, members agree that “they are just getting started.”

“We are proud that our management system for strategic items and export control has been recognized as one of the best in the country,” Kim said. “We still have the task of spreading the system to our overseas subsidiaries, so we will be even busier in the second half of 2023.”

Accordingly, the next phase for the team is entering the international stage. As the current GCMS is designed with a focus on the company’s headquarters and operations in South Korea, applying the system to overseas subsidiaries requires closer analysis and incorporation of foreign regulations. In the second half of 2023, the team will further refine the GCMS in its headquarters while also working to expand the system to its overseas subsidiaries starting with the Chinese headquarters in Wuxi.

▲ On behalf of SK hynix, Vice President Youn-wook Kim receives the ministerial award from MOTIE at Trade and Security 2023

 

The team also has a strong backing from SK hynix’s Vice President Youn-wook Kim.

“Thanks to the hard work of our members in the Global Compliance team, I received the ministerial award at Trade and Security 2023 on behalf of the company,” Kim said. “I believe the years of hard work in building GCMS and establishing our management system for strategic items and export control have paid off. I would like to express my gratitude to the team members for their hard work.”

After SK hynix received such recognition from regulators and authorities, Kim expressed his ambition to support building an advanced compliance system within a company and to become a role model for strategic item management and export control.

“SK hynix will continue to focus its attention on building a globally-recognized compliance system, where we will comply with domestic and international laws and regulations to safeguard the company’s position in the global market,” Kim said.