Raids hit Hyosung homes, officesThe prosecution yesterday raided the homes and offices of top executives of Hyosung Group in an investigation into allegations that the country’s 26th largest conglomerate has engaged in tax evasion and breach of trust for about a decade.
Around 60 prosecutors and investigators from the Seoul Central District Prosecutors’ Office were sent to 10 locations yesterday morning for the raids. The headquarters of Hyosung Group and its financial arm, Hyosung Capital, as well as the homes of Hyosung Chairman Cho Suck-rai and other senior executives, were raided starting at about 7:30 a.m.
Searches and seizures also took place at the homes and offices of Cho’s three sons. The eldest son, Cho Hyun-joon, is president of Hyosung Group; the third son is the vice president. The second son, Cho Hyun-moon, resigned from his job as vice president of the group in February.
The nation’s tax agency charged the 79-year-old tycoon with leading tax evasion schemes and creating massive overseas slush funds. After conducting tax audits since May, the Seoul Regional Tax Office concluded that the conglomerate had committed corporate tax evasion on a massive scale.
The National Tax Service said it suspected that Hyosung had been cooking its books for a decade to cover up losses incurred during the 1997 foreign exchange crisis. Through 1 trillion won ($933.5 million) worth of creative accounting, the group allegedly evaded hundreds of billions of won in corporate taxes.
The tax service last month asked the prosecution to investigate; prosecutors obtained the data compiled by the tax agency on Monday.
Prosecutors also believe that the conglomerate used its overseas branches to hide tens of millions of dollars that it borrowed from Korean banks, using accounts in tax havens. The hidden funds were used to deal in stocks in the Korean market, and the conglomerate also evaded the capital gains taxes on the profits.
During this process, Cho family private funds were mixed in with the corporate money and slush funds were raised, the prosecutors believe. The tycoon’s family was also allegedly involved in a series of illegal financial transactions using third parties’ names.
Hyosung Capital, the group’s financial arm, is also suspected of providing up to 30 billion won of illegal loans to the Cho family and to other senior executives.
With more than 11 trillion won of assets, Hyosung is the country’s 26th largest conglomerate. Chairman Cho’s younger brother, Cho Yang-rai, is Hankook Tire’s chairman and is related by marriage to Korea’s former President Lee Myung-bak.
Hyosung Group yesterday issued a statement saying it would cooperate with the prosecution’s investigation but denied allegations that the Cho family had managed slush funds of over 100 billion won since the 1990s. The group said the family had owned shares in the conglomerate in other people’s names since the 1970s in order to protect themselves from a possible hostile takeover attempt.
The group also said the charges of a 10-year-long accounting scam were linked to its efforts to turn around its business without receiving bailout funds.
The conglomerate said it tried to use its profits over the decade to make up for the losses incurred during the financial crisis and argued that no proceeds from the transactions were used for private gain by the owner’s family.
BY SHIM SAE-ROM, SER MYO-JA [firstname.lastname@example.org]