Ex-DSME head accused of handing out bonuses

Former shipping magnate Ko Jae-ho allegedly spent 490 billion won ($423 million) on bonus salaries for his executives even while his company’s business continued to suffer, according to an announcement by prosecutors on Thursday.

Ko, the former head of Daewoo Shipbuilding and Marine Engineering (DSME) from 2012 to 2015, already faces charges of having committed 5.4 trillion won in accounting fraud and is awaiting an arrest warrant trial today for violating the Act on External Audit of Stock Companies.

“Even while the company was suffering losses, he messed with the numbers and reported fake profits,” said a prosecution official, who added that, “we’ve reported this finding in our arrest warrant request.”

The Board of Audit and Inspection of Korea also reported last month that DSME spent 290 billion won in doling out bonus payments to its employees from 2013 to 2014.

The accounting fraud case began to unravel in March when the Financial Supervisory Service announced that DSME revised its financial statements. It changed its 440.9 billion won operating profit, reported in 2013, to an operating loss of 778.4 billion won, and revised a 471.1 billion won operating profit in 2014 to a 742.9 billion won loss. The losses are now revised to 683 billion won in 2013 and 863 billion won in 2014.

If Ko is found guilty of handing out 490 billion won in bonuses to executives and employees, it would mean that one employee received an average of some 38 million won as bonus payments from 2012 to 2014, when the company was clearly in debt.

“We are investigating whether Ko handed out bonuses to stop employees from reporting on cases of corruption within the company,” said the official. “The investigation will determine whether Ko wasted away all the taxpayers’ money this way.”

The company received 4.2 trillion won as government funds last year to salvage it from heavy business losses.

Prosecutors also suspect that DSME took out some 45 trillion won in loans from the Korea Development Bank and others by way of accounting fraud. Korea Development Bank (KDB) holds 49.7 percent of DSME shares and is the main creditor and the largest stakeholder in DSME.

They will investigate whether KDB knew about DSME’s accounting fraud, as well as whether Deloitte Anjin, the external auditor of DSME, was involved in the fraud.

“I don’t think the people will be very understanding toward KDB if it turns out it was completely unaware whether its subsidiary company was making money or not,” said another prosecution official. “If Ko is arrested, the investigations into KDB and Deloitte and other stakeholders will take off swiftly.”

BY CHOI SUN-WOOK [chung.juhee@joongang.co.kr]