Scope of Posco probe expanded

A large-scale investigation into slush fund allegations surrounding Posco Engineering & Construction (E&C) has shifted its focus on the possible involvement of the group’s executives.

The Seoul Central District Prosecutors’ Office was granted its first detention warrant on Tuesday for a former Posco E&C director, surnamed Park, who is suspected to have played a key role in creating 10.7 billion won ($96 million) slush fund at the company’s branch in Vietnam.

Park is currently being questioned over whether he was ordered by higher officials to open the account, though he maintains he planned it on his own. His successor is also being investigated over the same accusations.

On Tuesday, the president of Posco E&C’s subcontractor, Heungwoo Industrial, was also questioned as a witness by the prosecution.

Heungwoo Industrial’s foreign branches, Heungwoo Vina and Yongha Vina, supplied materials for a highway construction project in Vietnam and are suspected to have contributed to the slush fund.

The main focus of the investigation is now on whether the slush fund was siphoned off to Korea and how that money was spent.

Prosecutors have reportedly acquired evidence that suggests Park embezzled over 4 billion won from the slush fund and transferred it back to Korea, possibly to Posco Group executives, politicians or high government officials under the former Lee Myung-bak administration. The prosecution believes rest of the slush fund has been spent to provide rebates to local ordering authority for the construction projects. It is expected to help authorities determine whether the nation’s top steelmaker was systematically collecting secret funds and if it had corrupt connections to the former Lee government.

The prosecution plans to summon former Posco E&C Vice Chairman Chung Dong-hwa and other executives from Posco E&C affiliates for additional questioning.

Former Posco Group Chairman Chung Joon-yang, who is known to be close to former President Lee, is expected to be questioned over his investment of some trillions of won in questionable mergers and acquisitions and over suspicions that high-ranking officials under the former administration were involved.

Prosecutors suspect Posco E&C’s internal inspectors attempted to conceal the case from authorities and doubt the authenticity of its internal probe into the slush fund, which began in April.

The company discovered over the three-month inspection that 10.7 billion won worth of spending from 2010 to 2012 in Vietnam had no clear purpose, while officials including Park claimed the money had been spent as rebates.

Inspectors concluded the examination by dismissing two officials, including Park, from their positions but did not report the case to the prosecution. Prosecutors have summoned and questioned one inspector in charge of the internal inspection several times and believe the inspection team tried to play down the controversy and conceal the case.

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