BUSINESS

Prosecutors indict five Lotte family members

By Sohn Ji-young
  • Published : Oct 19, 2016 - 16:28
  • Updated : Oct 19, 2016 - 22:05

South Korean prosecutors concluded its four-month probe into irregularities at Lotte Group on Wednesday, indicting group chairman Shin Dong-bin, four other family members and company executives on charges of embezzlement, tax evasion and corporate malpractice.

But the prosecution failed to address other core suspicions surrounding Lotte -- such as the existence of a large-scale slush fund and bribery involved in scoring approval to build the Lotte World Tower in southern Seoul.

The prosecution also failed to acquire a warrant to arrest the incumbent Lotte chairman due to insufficient evidence.

Nonetheless, the Seoul Central District Prosecutors' Office has revealed that Lotte’s founding family and executives together engaged in criminal activities worth 375.5 billion won ($335 million), according to its investigation.

Of this, around 146.2 billion won pertained to funds allegedly embezzled by 94-year-old Lotte founder Shin Kyuk-ho, his two sons Dong-bin and Dong-joo, his daughter Shin Young-ja and his mistress Seo Mi-kyung.

Lotte Group chairman Shin Dong-bin (second from right) enters the Lotte headquarters in central Seoul on Wednesday. (Yonhap)

“The investigation unveiled extremely severe misconduct that treated corporate assets and funds as the family‘s private property, made possible by an opaque holding structure,” the Seoul Central District Prosecutors’ Office said in a statement.

Considering the scale of the embezzlement in question, the total weight of Lotte’s criminal charges could increase to 545.6 billion won during the upcoming trials, the prosecution said.

Lotte Group apologized for causing public concern and vowed to “sincerely explain its position in the forthcoming trials,” in a statement on Wednesday.

The criminal charges against the Lotte management include evading 115.6 billion won worth of inheritance tax, avoiding corporate taxes worth 22 billion won through procedural fraud at its chemicals unit and creating slush funds worth 30.2 billion won at its construction unit.

According to the prosecution, Shin Kyuk-ho was found to have formed paper companies abroad to evade some 115.6 billion won in taxes while passing on his stake in Japan-based Lotte Holdings to his daughter Young-ja and common-law wife Seo.

Led by CEO Huh Soo-young, Lotte Chemical was found to have avoided corporate taxes worth 22 billion won through multiple fraudulent accounting practices as well as bribery to a tax regulator, the prosecution said.

Lotte Engineering & Construction, meanwhile, is alleged to have systematically formed slush funds worth 30.2 billion won by overpaying its suppliers and later reclaiming the difference.

Moreover, Shin Kyuk-ho and Shin Dong-bin were charged with handing over some 50 billion won to family members including Shin Dong-joo, Seo Mi-kyung by listing them as board members of Lotte affiliates without assigning any responsibilities -- considered a form of embezzlement.

The two are accused of causing damages worth 77.8 billion won to Lotte Shopping by selling the operational rights to Lotte Cinema stores at below-market prices to Seo Mi-kyung and Shin Young-ja.

Shin Dong-bin, 61, was charged with causing some 43.2 billion won in damages to three Lotte affiliates by forcing them to make unfavorable investments in financially-strained Lotte PS Net.

Looking ahead, the prosecution is likely to wage a fierce battle against the Lotte chairman’s legal representative Kim & Chang, Korea’s top law firm defending Shin against the state prosecution.

The prosecution is set to weigh as much responsibility as possible on the group’s current leader Shin Dong-bin, who succeeded his father as chairman after winning a bitter fraternal battle over control of the Korean-Japanese retail conglomerate last year.

Meanwhile, Kim & Chang is expected to push the argument that many of the wrongdoings at Lotte took place in the past under the leadership of the group’s founder Shin Kyuk-ho, rather than his son, according to industry watchers.

The large-scale probe into Lotte Group has dealt a severe blow to the market value of Lotte’s listed affiliates, while freezing the group’s core agendas scheduled for this year.

Since the probe began on June 10, seven of Lotte’s nine listed affiliates saw their market value decline significantly. The combined market value of the seven Lotte units plunged 15.8 percent from 9.26 trillion won on June 9 to 7.75 trillion won as of Tuesday.

The investigation also led Lotte to scrap its plans for a $4.5 billion initial public offering of the group’s hotel unit Hotel Lotte and halt its push to expand its business globally through strategic mergers and acquisitions, among other setbacks.

By Sohn Ji-young (jys@heraldcorp.com)



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