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Korea's big firms face off against government
Publication Date : 17-01-2014
Business group heads accused of financial misconduct are struggling under government crackdowns that aim to enforce fundamental economic principles.
Under increasing pressure from a policy President Park Geun-hye calls “normalising the abnormal,” former and current top executives of KT Corp., CJ, Tong Yang and Hyosung are facing charges ranging from embezzlement to tax evasion.
Prosecutors on Thursday released from custody Lee Seok-chae, the former chairman of telecom giant KT, after the Seoul Central District Court denied an arrest warrant.
Lee faces charges of embezzling and misappropriating company funds of up to 15 billion won (US$14.1 million) in unprofitable real estate purchases and money laundering. Prosecutors will continue investigations into Lee.
Officials on Tuesday formally asked judges to sentence CJ Group chairman Lee Jay-hyun to six years in prison and a fine of 110 billion won. The Seoul court will make a decision next month.
Lee, head of the nation’s fourteenth largest conglomerate, is accused of embezzling and evading taxes of more than 160 billion won. He was indicted in July last year after authorities discovered offshore ghost companies holding illicit CJ funds.
The clampdowns on the two Lees are parts of a larger effort by President Park to rein in corporate malpractice among both public and private companies, and collect much-needed funds for welfare projects from tax evaders, although critics charge they will fall well short of the required amounts.
In her “three-year economic innovation plan” unveiled during her New Year’s speech on January 6, Park said she would not tolerate eschewers of the law.
“To create an economy with strong foundations, we must reform public companies, and continue with government finance and tax reforms,” she said. “I will make an economy that follows the rules.”
Park’s policy is expected to be welcomed according to polls as more high-profile executives face charges for financial fraud. A November poll by Research and Research, an opinion survey company, showed that more than 20 percent of citizens picked “financial mishap by conglomerate executives” as the main reason for the bad image of Korean big businesses.
Earlier this month, Hyun Jae-hyun, former chairman of Tong Yang Group, was detained with three company executives by law enforcement officials for fraud while Hyosung Group chairman Cho Suk-rae was indicted for illegal use of company funds exceeding 790 billion won, according to sources. Cho is accused of failing to pay 150 billion won in taxes and embezzling more than 60 billion won.
Tong Yang issued bonds and commercial paper in 2013 without having the means to repay its additional debts. As Tong Yang experienced liquidity problems, the business issued thousands of new debt without notifying lenders of the new transactions’ high risk.
When Tong Yang applied for court receivership in late September 2013, effectively declaring it could not repay most of its debt which some sources said amounted to over 3.5 trillion won, lenders were infuriated.
By Thursday, the Financial Supervisory Service reported over 20,000 lenders having applied for court mediation in the Tong Yang case.