Scandal raises suspicion over duty-free licenses

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Scandal raises suspicion over duty-free licenses

The Korea Customs Service is expected to select three new duty-free locations in Seoul this month, but with an ongoing investigation into a pay-to-play scandal involving President Park Geun-hye and her confidante Choi Soon-sil, the five bidders are now worried their chances of scoring a license in one of the country’s most lucrative retail industries might be shot.

Investigators discovered last month that Lotte Group and SK Group, which both submitted duty-free bids, had donated this year to the K-Sports Foundation, which is linked to Choi. This led to speculation that the two conglomerates had paid up in return for licenses.

During last year’s bid, Lotte and SK both lost out, but then in April, the government announced it would grant more licenses by the end of this year. Suspicion grew that some back-door dealing was responsible for the government’s change of heart.

Lotte Group Chairman Shin Dong-bin refuted the allegations during a parliamentary hearing into the scandal on Tuesday. According to sources from Lotte, the government had already decided to grant three more duty-free licenses this year before Shin privately met with President Park in March and before Lotte donated 7 billion won ($6 million) to the foundation in May.

The company also pointed out that even after it agreed to donate money to the Mi-R Foundation, another scandal-ridden nonprofit linked to Choi, in October last year, it still failed to retain a license for its duty-free shop in Lotte World Tower the following month.

Whether or not the company was involved in the pay-to-play scheme, Lotte now finds itself in a lose-lose situation.

If it fails to win a license this year, it will lose a big cash cow. The 28-year-old Lotte World Tower branch, which closed in June after losing its license, had raked in 400 billion won in sales during the first half of this year.

But if Lotte does gain the license, it will undoubtedly face heavy criticism for using its government connections to win the bid.

SK finds itself in a similar pinch. During Tuesday’s public hearing, its chairman, Chey Tae-won, also denied there were strings attached to his company’s donations to the foundations.

The three other bidders - HDC Shilla, Shinsegae and Hyundai Department Store - are worried the political tides may force the government to hold back on issuing new licenses altogether. Finance Minister Yoo Il-ho suggested during a parliamentary hearing on Monday that he was in contact with the Korea Customs Service about lawmakers’ suspicions over the bidding process.

The Korea Customs Service reaffirmed Wednesday that its plans to announce finalists by mid-December haven’t changed. “If the screening is delayed or canceled due to some allegations, the chaos could grow bigger since other companies that prepared for the bidding will take on the damage,” it said in a statement.

The agency is likely to announce license winners on Dec. 17, according to multiple industry sources.

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