Prosecutors raid the tax office to probe CJProsecutors yesterday raided the National Tax Service (NTS) as part of their investigation of an alleged slush fund used by CJ Group overseas, allegedly to transfer wealth from CJ Chairman Lee Jay-hyun to his heirs and avoid estate taxes.
Normally prosecutors would request cooperation from the tax service, but in this case it decided to raid its records.
The Seoul Central District Prosecutors’ Office said it sent officials and investigators to the NTS and seized records of tax payments and real estate ownership by Lee and his sister Lee Mie-kyung, who is vice chairwoman of CJ.
“We received its tax payment records from 2008 to present,” a spokesman for the prosecution told the JoongAng Ilbo.
The prosecution said the raid was to secure evidence of the origin of CJ’s alleged slush fund which was first discovered when the prosecution was investigating a man surnamed Lee, 42, for allegedly hiring a hit man in 2008.
Lee, a former finance officer of CJ, is known to manage the chairman’s assets and investments.
The prosecution believes that CJ managed a slush fund of about 400 billion won ($359.2 million) in 400 to 500 bank accounts with phony names, and through overseas branches.
“We suspect that the chairman has been preparing to hand down his wealth to his children by acquiring art and the company’s own stock,” a spokesman for the prosecution said.
CJ Group allegedly bought about 100 billion won worth of art from Hong Song-won, head of Gallery Seomi, an art gallery in Cheongdam-dong, southern Seoul, that is suspected of intentionally not issuing receipts and hiding revenues from selling art since 2007, evading about 3.5 billion won in taxes.
The prosecution now suspects that CJ Group used an offshore tax evasion scheme with shell companies overseas and its own branch offices. The prosecutors came to these suspicions after reviewing documents from the Financial Intelligence Unit which tracks tax evasion and hidden assets of taxpayers, and the NTS.
CJ currently owns two companies in the British Virgin Islands known as a tax haven: Envoy Media Partners and Water Pipeline Works Limited.
“It is not true that Envoy Media Partners is related to slush funds because we acquired it through an M&A to operate a multiplex theater business in Vietnam,” a spokesman from CJ told the JoongAng Ilbo.
“The other company, which we acquired last year, was the operator of the great man-made river project in Libya of CJ Korea Express which previously was Korea Express and merged with CJ in January.
In the process of participating in a consortium with Dong Ah Construction, CJ Korea Express incorporated the entity in the Virgin Islands in accordance with the Libyan government’s suggestion.
The prosecution said it is reviewing businesses in branches in overseas locations with low tax rates, including Singapore and Hong Kong.
On Tuesday, the prosecution said CJ allegedly created a 7 billion won slush fund through a shell company it bought in Hong Kong in 2008.
That company allegedly purchased the group’s stock and sold the shares about a year later at a 30 to 40 percent profit.
CJ currently has eight branches in Hong Kong and five of them are on the same floor of a building in the city-state’s Wan Chai District: CJ China, CJ Global Holdings, CGI Holdings, CMI Holdings and UVD Enterprise.
The prosecution believes that the five are shell companies. There are also four branches in Singapore for logistics and international trade.
“We are tracing the bank account details of some officials and branch offices of CJ after receiving court-issued warrants,” a spokesman for the prosecution said. “We expect we can find the flow of funds of CJ.”
The prosecution also wants to trace how the slush fund was used. It said it has documents showing it was used in Korea investigating Lee, the personal investment manager of the chairman.
The prosecution suspects that CJ might have used the money to bribe bigwigs or used some in the CJ Korea Express merger in January.
By Shim Sae-rom, Lee Dong-hyun [firstname.lastname@example.org]