Korean firm used H.K. to hide $700M from KCS

A Korean trading company has been found to have been involved in illegal foreign exchange transactions worth 762.5 billion won ($701.5 million), according to the Korea Customs Service (KCS) yesterday.

The agency accused the company of tax evasion and money laundering, in a case filed at the Supreme Prosecutors’ Office in Seoul.

It is the biggest illegal foreign financial transaction involving a tax haven since the KCS and the National Tax Service launched a “war on tax havens” in 2007.

The case was sent to prosecutors on June 14 for violation of foreign exchange laws. It is accused of founding a paper company in Hong Kong under a different name and fabricating documents to make it look as if the paper company was involved in trading. Profits were attributed to another paper company based in Singapore for money laundering and hiding assets.

The company was involved in the intermediary trade and import of refined petrochemical products. It has been involved in illegal foreign currency transactions for five years, according to authorities.

“After a preliminary investigation, we’ve discovered the company was involved in various illegal transactions including money laundering and hiding away assets,” said a Korea Customs Service official.

The irregularities were uncovered after the KCS strengthened its oversight on tax evasion in cooperation with Hong Kong’s tax authority.

The case also shows that Hong Kong is a major route for tax evasion by Korean companies.

The amount of illegal foreign exchange transactions through Hong Kong increased 140 percent to 556.3 billion won last year from the previous year, said Korea’s tax authority.

According to the country’s foreign exchange authority, tax havens including Singapore, Hong Kong, Switzerland and Malaysia are being used to hide assets through export-import transactions to evade taxes.

The amount of capital hidden from developing countries often exceeds the foreign investment in those countries, creating a serious problem for them and damaging their economic growth potential.

“There are endless reports of Koreans concealing assets through paper companies in Hong Kong and laundering money by disguising it as foreign investment,” the official said. “We’re carefully scrutinizing 62 tax haven countries considered by the Organization of Economic Cooperation and Development.”

Hong Kong is a hub for trade and a gateway to China. Between 2008 and last year, illegal foreign exchange including money laundering amounted to 1.2 trillion won.

“The fact that the case was sent to the prosecutors shows that there is a high chance an illegality occurred,” said an official who works for National Assembly Representative Kim Sung-sik.

By Limb Jae-un [jbiz91@joongang.co.kr]