Lotte under scrutiny

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Lotte under scrutiny

As many as 200 investigators from the Seoul Central District Prosecutors’ Office barged into the office of Lotte Group founder Shin Kyuk-ho and the home of his second son — the conglomerate’s chairman, Shin Dong-bin — over the weekend. Judging from the unprecedented scale and scope, the probe could not have been launched without a go-ahead from the Blue House.

The spectacle looks awkwardly orchestrated. Prosecution probes of large companies, which were once sporadic, suddenly seem run of the mill. The Lotte investigation comes as all-out efforts are being made to rebuild the economy, with the government, central bank and financial authorities working on a corporate restructuring agenda, starting with the troubled shipping and shipbuilding industries and with the Bank of Korea cutting interest rates to a new all-time low. It is no wonder that business circles were taken aback by the aggression of the law enforcement authority.

The latest anticorruption clampdown and chaebol-bashing has been clumsy and contrived. While investigating former Hanjin Shipping Chairwoman Choi Eun-young for insider trading, financial authorities accused Dongbu Group Chairman Kim Jun-ki of similar misconduct for his selling of Dongbu E&C shares before the builder applied for court receivership. He sold 620,000 shares out of his holdings of 14 million shares.

Dongbu claimed that if the sale had been intended to get money out before the stock value plunged, Kim would have sold all his holdings and not a fraction. Moreover, Kim used all of the proceeds of the sale, worth 730 million won ($623,000), to help the troubled company. The authorities staked their own credibility and lost it.

For Lotte, prosecutors leaked that they wanted to find out whether the group had siphoned money offshore and illegally lobbied to get a license to erect the country’s tallest skyscraper in southern Seoul. Lotte, which has a de facto holding company based in Tokyo, came under tax scrutiny by Japanese authorities in 2005. It was questioned why it did not bring any returns to Japan when it had established a business in Korea in 1967. It also asked why it had not paid any interest on a loan that Hotel Lotte took from Lotte Group in Japan during the Asian financial crisis of the late 1990s.

Japanese authorities suspected that Lotte was taking money illegally out of their country to park in Korea. Since then, Lotte has been appropriating 1 percent of the profit it makes on Korean operations to its Japanese holding company. In 2014, Lotte’s operation in Korea paid its counterpart in Japan 34.1 billion won in dividends — slightly over 1 percent of the 3.2 trillion won profit earned from Korean operations. Prosecutors will have to study if any of the 300 billion won funneled to Japan over the last decade was illegitimate.

Prosecutors are convinced that they smell something fishy about how Lotte got approval to build the Lotte World Tower. The plan to build the tallest building in Korea had been opposed by local authorities for a decade over concerns about aircraft landings at a nearby Air Force landing strip. But just two months after President Lee Myung-bak took office, authorities were told to review the plan within a set deadline. The Air Force runaway was rebuilt to alter its angle.

Yet it was not just the 123-story Lotte Tower that was approved. The government also endorsed construction of skyscrapers with more than 100 floors on six sites across the nation. But the other five skyscraper projects collapsed after the 2008 financial meltdown.

Since President Park Geun-hye came into office in 2013, prosecutors have scrutinized the irregularities of key aides of her predecessor, including possible corruption related to the new Lotte building, but nothing was uncovered.

Suspicious incidents must be investigated and any wrongdoings should be punished. But if the probe is motivated to tame the chaebol, there could be a strong backlash. The probe on Posco was a major waste of resources. Prosecutors raided Posco offices soon after then-Prime Minister Lee Wan-koo announced a campaign against corporate corruption. After eight months of investigation, though, they merely detained 10 working-level officials. Arrest warrants for key figures were all rejected.

Prosecutors purportedly have amassed materials to prove irregularities at Lotte Group amid the power struggle over management control between two brothers. Most are said to be slush funds for family members. The fact that prosecutors have been given warrants to search the founder’s offices and chairman’s home suggest they have confidence in their case.

If they are that convinced, they must act fast. Instead of leaking information, they must build a real case. The government cannot be Janus-faced — trying to save the economy while bashing the chaebol — for long. We wonder if there is a single command center for economic policy in this administration.


JoongAng Ilbo, June 13, Page 30
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