[Exclusive] Tax Evasion Allegations Against Democratic Party's Lee Sang-jik, 'National Tax Service Special Division' Investigation Request Received

Suspicion of Illicit Transfer of Eastar Jet Shares to Children

Members of the Korean Confederation of Trade Unions Public Transport Workers' Union and the Eastar Jet Pilots' Union held a press conference on the 29th at the Southern District Prosecutors' Office in Yangcheon-gu, Seoul, to file a complaint against Lee Sang-jik, a member of the Democratic Party of Korea, and his family. Considering the ongoing uncertainty surrounding the M&A, they had been weighing the timing, but following the final cancellation of the stock purchase agreement (SPA) with Jeju Air last week, they decided to accuse the prosecution of suspicions of illicit succession involving his children and various paper company allegations. Photo by Kim Hyun-min kimhyun81@

[Asia Economy Reporter Park Cheol-eung] The National Tax Service (NTS) is expected to launch an investigation into tax evasion allegations against Lee Sang-jik, founder of Eastar Jet and a member of the Democratic Party of Korea. The NTS is reviewing the case after accepting a request from a civic group as a 'tax evasion tip-off.' The Democratic Party has remained silent without issuing any statements since the allegations surfaced.

According to the People's Solidarity for Participatory Democracy on the 14th, the request for an investigation into Lee’s tax evasion, submitted to the NTS earlier last month, was received by the 4th Investigation Division of the Seoul Regional Tax Office, known as the NTS’s special investigation unit. The NTS recently sent a reply to the civic group confirming that it accepted the matter as a 'tax evasion tip-off.'

The civic group alleged that Lee transferred shares to his children through a paper company called Eastar Holdings, raising suspicions of tax evasion during the process. They requested the NTS to "thoroughly examine the related matters to uphold economic and tax justice." The NTS regarded this as a tip-off regarding tax evasion and accepted it as a request for a tax audit. The NTS stated that it is "currently reviewing whether to conduct an investigation."

The 4th Investigation Division of the Seoul Regional Tax Office is responsible for special investigations, including politically related cases such as former President Lee Myung-bak’s 'Das' case and tax audits of large corporate groups, rather than routine audits.

In the investigation request, the civic group claimed, "There is a high possibility that Lee indirectly supported his children’s acquisition of Eastar Jet shares through low-price sales of Eastar Jet stock, loans via private equity funds, and advance payment support methods," adding, "This appears to violate the Inheritance and Gift Tax Act, resulting in tax evasion."

Lee issued a statement at the end of June, saying, "The process and procedures for Eastar Holdings’ acquisition of Eastar Jet shares were lawful, and all related taxes were properly paid." He also said, "If there are any aspects that do not meet the public’s expectations, I sincerely apologize. My family has decided to donate all shares of Eastar Jet owned through Eastar Holdings to the company."

However, the Eastar Jet Pilots’ Union and the Korean Public Service and Transport Workers’ Union under the Korean Confederation of Trade Unions filed a complaint against Lee at the Seoul Southern District Prosecutors’ Office at the end of last month. The unions stated, "We are filing charges for tax evasion and false statements under the Public Official Election Act, alleging that a paper company was created to evade taxes through illicit gifting and that property declarations were deliberately omitted during the 21st general election."

The United Future Party also launched the "Lee Sang-jik Member of Parliament-Eastar Corruption Allegations Truth Investigation Task Force (TF)" on the 4th. Regarding Eastar Holdings’ acquisition of Eastar Jet shares using 8 billion KRW borrowed from the Serae No.1 Association, the party claimed, "This is a typical leveraged buyout without capital," and argued that it must be clarified whether there was any unfair gain from unfair trading or violations of the Capital Markets Act.

They also said, "There are suspicions that Lee used the 'Dad’s chance' to illicitly gift shares to his children. It should also be clarified whether Lee properly paid related taxes such as inheritance and gift taxes."

TF member Representative Yoon Chang-hyun told Asia Economy in a phone interview, "We are receiving tip-offs along with conducting investigations," adding, "It is understood to be at the level of a private fund rather than a private equity fund. We are also considering a visit schedule to urge the prosecution for a strict investigation."

The Democratic Party still has not issued any statements. A Democratic Party official said, "There are circumstances that raise suspicions, but we need to wait and see how the investigation proceeds," and added, "I think the new leadership (after the party convention on the 19th) should make a judgment."