Corruption probes frighten many, convince few

The most curious thing about prosecutors’ probes of major corporations, which began with Posco Engineering and Construction and Keangnam Enterprises, is where the investigations seem to be heading.

At this moment, only a few companies are officially subject to investigation, including Posco’s subsidiary and Keangnam. But that number is expected to expand rapidly and in unexpected directions.

Initially, the targets appeared to be companies with connections to the administration of former President Lee Myung-bak. But the scope of the probes seems to be growing.

The Seoul Central District Prosecutors’ Office officially launched its probes with a raid on Posco E&C on March 13 on an allegation that it built up a 10.7 billion won ($96 million) slush fund in Vietnam. Then it raided Heungwoo Industrial, one of Posco E&C’s subcontractors on March 17.

The focus of the investigation into Posco E&C, the country’s top steelmaker’s engineering and construction arm, is to figure out how the slush fund was spent. Prosecutors suspect some of the money was possibly given to politicians and government officials in the former Lee administration.

Other prosecutors are looking into shady deals done in the name of resources diplomacy, a key Lee initiative, which was an attempt to secure natural resources for Korea through large investments overseas. Many of the investments are now considered to have been expensive duds that cost the nation but benefitted individuals and companies.

The special division of the Seoul Central District Prosecutors’ Office raided Keangnam Enterprises on March 18, suspecting it embezzled some of the 33 billion won given by the government for oil drilling overseas. The company is suspected of using that embezzled money to lobby finance authorities when it was in debt workout programs in 1999, 2009 and 2013.

Keangnam Enterprises, however, said “the allegation of lobbying financial authorities is groundless because the workout programs were conducted with rightful procedures such as inspections by creditors.”

Another company being investigated for its resources diplomacy investments is Korean National Oil Corporation (KNOC). Under President Kang Young-won, KNOC acquired Canada-based North Atlantic Refining Limited at a steep price in 2009, possibly due to pressure from bigwigs in the former government.

The prosecution’s probe has already gone into the defense industry. Chairman Lee Kyu-tae of Ilkwang Group was detained earlier this month after he was suspected to have overstated the price of an electronic warfare training system by more than 50 billion won. Lee is suspected to have lobbied politicians and high officials.

Prosecutors are also investigating the Shinsegae Group, Dongbu Group and Lotte Shopping. Shinsegae is thought to have siphoned off some of its corporate capital to the owner family. Dongbu Group is suspected to have offered money to the owner’s children by creating slush funds. Lotte Shopping is believed to have accumulated secret funds through its affiliate Lotte Mart.

Prosecutors are known to have acquired financial transaction data on those companies from the Financial Intelligence Unit and National Tax Service.

Many companies are fearful that they will come under investigation. Government relations officers as well as investor relations workers are doing their best to deal with suspicions related to their companies because probes can have a serious impact on a company’s planned investments and stock price.

“Prosecutors are only investigating corruptions based on evidence, not conducting overall investigations on businesses or specific persons,” said a prosecutor.

Some companies believe the probes are being conducted to prop up the low approval ratings of President Park Geun-hye, who is now in the third year of her presidency, the time at which previous presidents also suffered with low approval ratings and took the offensive against corruption.

Park’s government had 60 percent approval ratings in its first year, but they came down after the tragic Sewol ferry accident last year.

Two of her candidates to become prime minister had to withdraw because of skeletons in their closets, and Park was embroiled in a scandal with Chung Yoon-hoi, a former key aide suspected of exerting undue influence behind the scenes. A tobacco price increase that began this year didn’t help and neither did changes to the tax code that boosted many people’s tax bills.

This is why politicians have criticized the president, saying the investigations in the name of an anti-corruption drive are only a distraction.

Opinions in the ruling Saenuri Party are polarized as well.

“People applaud when the government says it will deal with corruption,” a lawmaker said, “and it is not easy to find other ways to minimize the lame-duck phenomenon.”

“It appears presidents suddenly get a sense that they need to change the political situation and correct wrongdoings of the past in their third year,” said Ka Sang-joon, a political science professor of Dankook University. “[The investigations] may increase her approval ratings, but [the president] seems to be not aware of boomerang-like effects.”

BY KIM BAEK-KI, LEE Soo-KI AND LEE YOO-JEONG [kim.bongmoon@joongang.co.kr]