Prosecutors raided on Tuesday a state-owned oil firm as part of the expanding probe into alleged corruption and misuse of taxpayers’ money in overseas resource projects during the former Lee Myung-bak administration.

Some 30 investigators stormed into the head office of the Korea National Oil Corporation, the residence of its ex-president Kang Young-won and the Seoul office of investment bank Merrill Lynch on Tuesday morning to secure evidence related to the probe, according to the Seoul Central District Prosecutors’ Office.

The raid came amid allegations that state-run companies wasted a huge amount of public funds in the overseas projects, with some lost to corruption.

KNOC was suspected of acquiring a Canadian oil company Harvest Operations and its major subsidiary North Atlantic Refining Limited in 2009 without properly analyzing their values as part of ex-President Lee’s “energy diplomacy.”

KNOC allegedly paid 1.2 trillion won ($1.1 billion) ― a lot more than the market price ― to acquire NARL without any value assessment. The state-controlled company, however, ended up selling it last year at about 34 billion won to tackle mounting company debts.

Kang, then-president of KNOC, led the company’s dubious acquisition, allegedly causing a financial loss worth 1 trillion won to KNOC. Merrill Lynch was adviser to KNOC for the acquisition deal at the time.

During Lee’s presidency from 2008-2013, the government encouraged Korean companies to take part in overseas projects to secure energy resources needed to boost economic growth, calling it “energy diplomacy.”

While KNOC played a key role in pushing for the projects, some 86 companies allegedly took part in the resource drive.

But the state audit agency, Board of Audit and Inspection of Korea, estimated in April that state-run companies, including KNOC, suffered losses of 3.4 trillion won by carrying out the projects.

The investigation into the waste and corruption in the overseas development projects under the Lee administration appeared to lose steam as all eyes were on the high-profile bribery scandal surrounding late business tycoon Sung Woan-jong and President Park Geun-hye’s close aides who Sung claimed had bribed before his apparent suicide. But it will likely gain pace following the raid, sources said.

As part of widening probe, there is also a possibility that the prosecution will call in Finance Minister Choi Kyung-hwan for questioning. Choi, who headed the Ministry of Knowledge Economy, a precursor to Ministry of Trade, Industry and Energy, allegedly made the final decisions on KNOC’s Canadian acquisition deals. 

By Ock Hyun-ju (laeticia.ock@heraldcorp.com)