Recently, the business community has been on edge due to a massive prosecution investigation targeting corporate owners. Insiders say, "The prosecution's investigation digs in so deeply that it hurts," expressing astonishment. There are even remarks that it "feels like a war." In particular, the prosecution's investigation into Cho Hyun-beom, chairman of Hankook Tire & Technology (Hankook Tire), who was indicted and detained last month on charges of unfair support to affiliates, embezzlement, and breach of trust, appears to have caused some shock.
On the 15th, the business and legal communities described the prosecution's investigation into Chairman Cho as "unprecedented." Cho is accused of causing approximately 13.1 billion KRW in damages to the company by unfairly supporting the affiliate Hankook Precision Works (MKT). The Fair Trade Commission (FTC) filed a complaint with the prosecution against Cho in January solely on this matter, but the prosecution expanded the investigation on its own accord, uncovering personal corruption by Cho from 2017 to 2022, including using company funds to purchase furniture for his residence and foreign luxury cars. This case is analyzed as an example of how extensively the prosecution is investigating corporate-related cases.
Due to such prosecution investigations, the business community is reportedly managing their companies in a state of daily tension. A chairman in the food service industry, feeling heightened awareness from the continuous news of corporate owners being detained, is said to be increasing social contribution activities and focusing all efforts on image rehabilitation. From the corporate perspective, the situation is like a minefield. The Fair Trade Investigation Division of the Seoul Central District Prosecutors' Office (Chief Prosecutor Lee Jeong-seop) is handling multiple unfair trade cases involving various companies and conducting large-scale investigations. Investigations initially targeting companies may soon extend to owners. The Joint Financial and Securities Crime Investigation Team of the Seoul Southern District Prosecutors' Office (Team Leader Dan Seong-han) is also closely monitoring companies.
The Central District Prosecutors' Office's Fair Trade Cooperation Division is taking on the role of the 'Grim Reaper' for companies. After indicting Chairman Cho Hyun-beom, on the 11th, it received related materials from the FTC on a voluntary submission basis regarding former KT CEO Koo Hyun-mo's suspected 'preferential treatment' of certain businesses. The materials reportedly contain details of the FTC's investigation into KT Telecop conducted in December last year concerning this suspicion.
The Tax Crime Investigation Division of the Seoul Central District Prosecutors' Office (Chief Prosecutor Min Kyung-ho) also dispatched prosecutors and investigators to 10 locations, including the headquarters in Yeonsu-gu, Incheon, the office in Jung-gu, Seoul, and the residences of Lee Sang-young, chairman of Daewoo Industrial Development, and former CEO Han Jae-jun, on the 13th to secure accounting documents. Daewoo Industrial Development is suspected of colluding with accounting firms to engage in fraudulent accounting involving hundreds of billions of KRW. Former CEO Han is suspected of causing company losses by subcontracting to a subcontractor representative, Bang, through construction contract bids.
Kim Yong-bin, Chairman of Daewoo Shipbuilding & Marine Engineering Construction Photo by Yonhap News
The Joint Financial and Securities Crime Investigation Team of the Southern District Prosecutors' Office is also accelerating its investigation after detaining Kim Yong-bin, chairman of Daewoo Shipbuilding & Marine Engineering Construction, on charges of breach of trust and embezzlement on the 28th of last month. The Southern District Prosecutors' Office reportedly expanded the investigation beyond the initial complaint, uncovering that Chairman Kim embezzled about 100 million KRW of company funds by using corporate credit cards for personal expenses. Earlier, in February last year, Kim was sued by minority shareholders of Korea Corporation for violations including the Capital Markets Act. The allegations include repaying borrowed funds used to pay for a capital increase during Korea Corporation's rights offering in 2018 by withdrawing funds after the completion of the rights offering. There is also suspicion that just before Korea Corporation's stock trading was suspended in March 2020, Kim obtained undisclosed material information in advance and sold held shares to avoid losses.
The legal community expects this trend of prosecution investigations to continue for the time being. Investigations currently limited to corporate entities are highly likely to expand to include owners. It is expected to start with suspicions of bid-rigging among furniture companies. The Supreme Prosecutors' Office requested the FTC to file a complaint regarding this case the day before. After preliminary investigations confirm the allegations, the prosecution can formally request the FTC to file charges. This case reportedly involves eight furniture companies, including Hanssem and Enex, and about ten executives and employees. Once the FTC files charges, the prosecution will officially hold investigative authority and can conduct comprehensive investigations.
Meanwhile, prosecution investigations into violations of the Serious Accident Punishment Act have also heightened corporate tension. Currently, 14 companies have been indicted for violations of this law, and SK Geocentric, Hyundai Steel, Yeochun NCC, and Ssangyong C&E are under investigation by the prosecution. There is keen interest in whether the prosecution's scrutiny will extend to group heads. The court's ruling on Jeong Do-won, chairman of Sampyo Group, who was indicted last month, is seen as a crucial benchmark by the business community. The court is expected to conclude on the scope of managerial responsibility under the Serious Accident Punishment Act in its judgment on Chairman Jeong. The prosecution believes that group chairmen should also be held accountable and has indicted Chairman Jeong along with the company. Earlier, on the 6th, the Uijeongbu District Court recognized the management responsibility of the CEO of Onyu Partners and sentenced him to 1 year and 6 months in prison with a 3-year probation.
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