The DSME money pit

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The DSME money pit

A special investigation team from the prosecution on Wednesday raided Daewoo Shipbuilding & Marine Engineering’s Seoul headquarters and its Okpo shipyard in Geoje Island for seizure and search to look into the embattled shipbuilder’s alleged accounting fraud and corruption among the management. The investigation signals the start of government-led restructuring of many insolvent enterprizes in Korea. Given the investigation unit’s unrivalled authority in digging out organized and large-scale crimes, the probe carries great significance.

DSME’s corruption and malpractices are nothing new. The shipbuilder has repeatedly manipulated accounting records about offshore plants to turn its massive deficits into a surplus. Receiving bribes from contractors in return for granting contracts took place endlessly, not to mention suspicions on its former CEOs over mismanagement of the ailing company. Prosecutors must get to the bottom of the case involving the largest-ever insolvency as an individual company.

The prosecution must find out how the Industrial Bank of Korea — DSME’s biggest shareholder — neglected its oversight of the bankrupt shipbuilder. The bank appointed many of its retirees as executives of the company like chief financial officers. But they could not disclose widespread corruptions in the management or stopped them. That’s a dereliction of duties. Accounting firms also joined forces in the massive fraud. If prosecutors cannot expose — and correct — the loopholes in the management, the company cannot succeed in restructuring or restore its past reputation in the shipbuilding area.

The government also must be held accountable. In Wednesday’s interview, Hong Ky-tack, former chairman of the Korea Development Bank Financial Group, said that market principles could not be applied from the beginning as the bank’s 4.2 trillion won ($3.63 billion) bailout was determined by the Blue House, the Ministry of Strategy and Finance and other financial authorities. He said IBK only followed the instructions from the top — including then-Deputy Prime Minister for the Economy Choi Kyung-hwan — to decide how to lend the money. Hong also said that two thirds of the “parachute appointments” were decided by the Blue House and financial authorities. If proven true, his allegations lay bare huge political influence in restructuring. The prosecution’s investigation is essential to raise the transparency.

DSME has so far received 6.5 trillion won from government coffers. Much of the 12 trillion won the government promised to raise to subsidize embattled state-owned banks is expected to go to DSME. The government must convince the public why it must use taxpayers money.


JoongAng Ilbo, Jun. 9

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