Slush fund case sucks in two Dohwa affiliates

Prosecutors have raided the offices of Dohwa Engineering’s two affiliates as part of their probe into allegations that the civil engineering company created slush funds worth hundreds of billions of won at the time it was participating in the Lee Myung-bak administration’s controversial four-rivers restoration project.

The Seoul Central District Prosecutors’ Office said yesterday it raided Kunhwa and Hanjo Engineering, both based in Yeoksam-dong, southern Seoul, on Thursday for allegedly helping Dohwa create slush funds. The prosecution said accounting books and computer hard drives were seized as evidence. It also suspects Kunhwa created its own slush funds separately.

The prosecutors said the heads of Kunhwa and Hanjo have been charged with embezzlement as they suspect that the two might have created slush funds in a way similar to Dohwa by embezzling the company’s funds.

Earlier this month, Dohwa Chairman Kim Young-yoon, 68, was detained for allegedly creating about 93 billion won ($83.5 million) in slush funds by embezzling company funds. Kim also is suspected of using company funds to bribe construction conglomerates in the river project to give Dohwa the design contract for Haman Reservoir on the Nakdong River. About 400 million won in cash allegedly was given to Daewoo Engineering & Construction CEO Seo Jong-uk, who admitted to taking the bribe July 31.

The renovation project was supposed to restore and revitalize areas surrounding Korea’s four major rivers - the Han, Geum, Yeongsan and Nakdong - at a cost of 22 trillion won. After obtaining the contract, Dohwa became the country’s No. 1 civil engineering company with total revenue of 300 billion won in 2009. It obtained many government-issued construction projects over the past five years, raising suspicions that it was being favored by the former administration.

The prosecution said Kunhwa participated in the four rivers refurbishment project as a design firm for Hapcheon and Changnyeong reservoirs. It also owns 11 percent of Channel A shares with Dohwa.

Prosecution sources said investigators have identified the circumstances under which the big construction companies colluded to win the bids and divvy up the project. They then distributed different pieces of work to subcontractors like Dohwa, prosecutors say.

BY KWON SANG-SOO [sakwon80@joongang.co.kr]