[VIEWPOINT]A better way to say goodbyeThe prosecution’s investigation into suspected irregularities in the purchase of Korea Exchange Bank by an American equity fund, Lone Star, is not making much progress. The court has already rejected four warrant petitions for the arrest of key suspects in the case. A senior prosecutor in charge of investigation planning at the Supreme Public Prosecutors Office said he felt as if he was “peeling off the skin of an onion.” As it is difficult to identify the key figures who violated the law, the investigation seems to be concentrating on finding out mistakes committed in the course of making policy decisions on the sale.
Nowadays, foreign equity funds behave in a very smart way. When evidence is traced, they try to hide from the law by claiming their innocence, presenting air tickets or hotel receipts that prove they were not present at the scene. They are also ready to sacrifice their own branches, if necessary, to evade supervision by the United States Federal Reserve Board. The American equity funds Lone Star and New Bridge Capital closed down the U.S. branches of the Korea Exchange Bank and Korea First Bank, respectively.
It is not that easy to summon the former head of Lone Star Korea, Steven Lee, who holds the key to the investigation. Still, the Supreme Prosecutors Office pins high hopes on his arrest, assuming that a young man like him can’t remain in hiding for a long time. Still, the chances of his voluntarily returning home seem remote. In the meantime, the United States has shown reluctance whenever the prosecution has requested the extradition of suspected lawbreakers. Instead, Washington demands that Seoul “first hand over culprits who violated U.S. financial laws and escaped to South Korea.”
It’s time we consider what attitude we have to take when we say goodbye to Lone Star. It is natural that we do not have good feelings toward Lone Star as it runs away with huge profits from the resale of Korea Exchange Bank.
The so-called “advanced finance technique” they boasted of was, in retrospect, a trifle. It was nothing but recklessly sacking employees and concentrating on lending money while holding a mortgage on the house. And then it used a technique of “window dressing the performance of the bank” so that it could sell the bank at a higher price. In retrospect, we cannot but envy their brutal instincts. They select prey that no one pays attention to and then gain huge amounts of profit by raising the stakes through aggressive betting.
Of course, the tax authority should exercise its right to levy taxes on them, if there are any they must pay. But it would be wise for the tax service to refrain from bashing foreign investors as a way of venting its anger. If we cool-headedly calculate the gains and losses from the sale, I think what we gained was not insignificant. As Korea Exchange Bank was saved from insolvency, Hynix and Hyundai Engineering and Construction Company can also be revived. It makes us feel dizzy to imagine what could have happened if Lone Star insisted on selling Hynix to Micron of the United States. In spite of what happened, we can console ourselves with the fact that we can at least save the competitive manufacturing industries.
In Japan, too, there have been many foreign equity funds that ran away with windfall profits made in the midst of economic confusion during Japan’s long recession.
Lone Star bought Tokyo Star Bank and made a profit of about 250 billion yen ($2.9 billion), six times more than its investment, in five years. Last year, the U.S.-based Ripplewood Holdings earned five-fold profits from the resale of Shinsei Bank, which an international group led by Ripplewood bought in March 2000. Overseas speculative funds buy love hotels, golf clubs and buildings at random and gain windfall profits continuously.
Of course, the Japanese people have bad national sentiments toward them. So the Japanese government organized special investigation teams and traced their irregularities. As a result, Citibank had to stop its private banking business and Lone Star had to pay 140 billion won ($146 million) in taxes. Still, Japan did not treat them emotionally. At one stage, Japan considered levying a 20-percent tax on the profits foreign companies made from sales of stocks, but it withdrew the idea on the ground that it was “much too unfair” to foreign investors.
Even if we don’t like each other, when we have to say goodbye, we must do it properly. Japanese people observe the etiquette of attending funerals, even of enemies. It is common practice in Japan to treat to a “farewell dinner” a rival who leaves one with uncomfortable feelings. Nowadays, international venture capitals are rushing to India, China and Russia. Meanwhile there is no guarantee that the Korean economy will not get worse in the future. Instead of taking out our grudge on foreign investors, it may be better, for the long term, to let them cherish the sweet memory of success here. In international financial markets, a rumor is said to be spreading that South Korea is too emotionally charged against foreign investors.
This is worrisome, for we could lose not only money, but also the support of international society.
* The writer is an editorial writer of the JoongAng Ilbo.
by Lee Chul-ho