The court’s guilty verdicts against Hyosung Group chairman Cho Seok-rae and his eldest son, Cho Hyun-joon, have brought relief again to the corporate governance problems prevalent among Korea’s chaebol conglomerates.
A Seoul district court Friday sentenced the elder Cho, 81, to three years in prison and 136.5 billion won ($112.4 million) in fines on charges of tax evasion and accounting fraud.
The junior Cho was given an 18-month jail term, suspended for three years, and 120 hours of volunteer service for embezzling 1.6 billion won from his company.
Prosecutors charged the elder Cho in 2014 with manipulating financial statements involving 501 billion won, evading taxes worth 150 billion won and embezzling 69 billion won from his group. He was also indicted for earning illegal dividend income totaling 50 billion won and misappropriating company assets worth 23 billion won. On these charges, prosecutors demanded 10 years in prison and 300 billion won in fines.
Yet the court found him guilty of only two of these charges, accounting fraud and tax evasion. It also exempted him from immediate detention, citing his old age and contribution to the national economy.
Following the court’s ruling, Hyosung Group released a statement saying that window dressing and tax evasion resulted from a merger process that the group was forced to undertake in the wake of the 1997 Asian financial crisis.
At the time, the statement read, the government and creditor banks had pressured the group to merge four insolvent affiliates into its flagship company, while the group wanted to put them under court receivership.
Yet the court found that the group had systematically committed, under the elder Cho’s instruction, accounting fraud over a long period of time, which involved a large number of officials.
The group’s explanation sounded unconvincing as chairman Cho is also suspected of having transferred the group’s managerial right to his three sons in an expedient way. In 2001, he sold his shares in Nautilus Hyosung to his sons at a price less than one tenth of their face value.
The misconducts committed by chairman Cho and his eldest son could have been prevented if a robust corporate governance structure had been put in place.
Hyosung is not the only company to suffer damage due to the unethical behavior by its owner and his family members.
Despite many reforms, the corporate governance practices of Korean companies have not changed much. The government needs to ensure that corporations improve their governance structures to prevent their owners from lining their pockets with corporate funds.