Posco probe widening to possibly reach MB

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Posco probe widening to possibly reach MB

Prosecutors investigating top steelmaker Posco amassing a slush fund in Vietnam are now focusing on former Chairman Chung Joon-yang and his alleged connection to the former Lee Myung-bak government, raising concerns over a possible clash between the former and current administrations.

The case that began after Posco E&C, an engineering and construction arm, was found to have accumulated a big slush fund in Vietnam is expected to grow.

“The investigation will not just cover Posco E&C,” said a prosecutor, “because the slush fund could have been used for lobbying in political or economic fields.”

Prosecutors said the buildup of the slush fund in Vietnam, alleged tax evasions and suspicious mergers and acquisitions all occurred during the 67-year-old Chung’s term as chairman.

Chung was banned from leaving the country on Sunday along with other officials of the company.

The investigation, which included a raid on Posco Friday, began a day after the new Prime Minister Lee Wan-koo said in his first speech as prime minister that he will “do whatever it takes to root out corruption.”

Chung is considered connected to former president Lee Myung-bak since he became chairman of Posco in January 2009. Another candidate for the position, then-Posco President Yoon Seok-man, disclosed in a hearing that Lee’s key aides pressured him to withdraw his candidacy for the job. He named Park Young-joon, then-vice minister of the Ministry of Knowledge Economy; Chun Shin-il, CEO of Sejung Corporation; and Lee Dong-jo, CEO of JN Tech.

It was also discovered by the prosecution that the government illegally audited Yoon to prevent him from becoming chairman.

Chung was reappointed in March 2012 to a three-year term but stepped down after President Park Geun-hye took office in 2013. The government launched an investigation into Posco for possible tax evasion in the same year.

The prosecution also believes that Posco was given special favors from the former administration because many of Posco’s businesses overseas aligned with government projects.

For example, Posco concluded a memorandum of understanding with the Korea Resource Corporation in July 2009 after the government said so-called resource diplomacy - securing natural resources overseas through large investments - would be a top government project in 2008. As soon as President Lee had a summit with Russian President Dmitry Medvedev during the G-20 Summit in Seoul in 2010, Posco agreed on another memorandum of understanding with a Russian mining and metals company Mechel for resources development in the Far East. Posco A&C, an architectural design and inspecting affiliate, also signed a deal to build a housing compound for the Elga coalfield in Siberia in June 2011.

The prosecution believes Chung is also involved in the slush fund in Vietnam. Posco carried out an internal inspection last year and announced last July that 12 employees of its construction arm had accumulated a slush fund worth more than 10 billion won ($8.8 million) over four years by overstating payments for their subcontractors in Vietnam.

Investigators believe the money was siphoned back to Korea and Chung must have been involved. They believe the actual size of the slush fund was probably about 20 billion won.

Chung also orchestrated mergers and acquisitions during his term that allegedly dealt a financial blow to the group. Posco acquired 41 affiliates during Chung’s term but 18 of them are struggling financially, which raises the suspicion that he was in league with the Lee government for the M&As.

The most controversial acquisition was Sungjin Geotec, which was merged into Posco Plantec, an arm that produces steel manufacturing facilities, in 2010 for 160 million won.

An audit from an accounting firm stated that Sungjin Geotec’s sustainability as a company is questionable, but Posco bought its shares, which were worth around 8,300 won per share, for 16,330 won per share. Also, Posco Plantec recorded 290 billion won in losses from 2011 to 2014.

BY KIM BONG-MOON [kim.bongmoon@joongang.co.kr]
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