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Arrest warrant sought for Taekwang CEO

The prosecution Wednesday filed an arrest warrant for Lee Ho-jin, chairman of Taekwang Group, over illegal transfer of wealth, creation of slush funds and breach of trust.

The investigation is expected to serve as a warning to other conglomerates including Hanwha, the nation’s 13th-largest chaebol.

According to the Seoul Western District Prosecutors’ Office, Lee has amassed a slush fund of more than 300 billion won ($270 million) with some 7,000 borrowed-name accounts at Goryo Savings Bank, one of Taekwang’s affiliates. Lee has reportedly manipulated production records and omitted tax invoices to hoard 42.4 billion won. He reportedly misappropriated petty cash, such as garment and housing fees for staff workers.

The chairman, who also heads the nation’s largest cable TV network service operator, has allegedly made 25.6 billion won by receiving shares from unlisted cable TV program providers in exchange for allotting “premium” channel numbers.

Lee is accused of buying a golf practice range from his own company, Taekwang CC, for a bargain price and inflicting damages worth 8.9 billion won on the firm, the nation’s 40th-largest conglomerate. He also bought stocks of one of Taekwang’s affiliates for one-fourteenth the market price under his son’s name, which incurred 29.3 billion won in losses to the company.

Lee has also reportedly evaded 3.9 billion won in taxes.

The findings were revealed after prosecutors raided the offices of Taekwang and its affiliates, interrogated Lee three times and called in his mother Lee Seon-ae, executive managing director of Taekwang Industrial.

However, the investigators did not confirm the allegations that Lee had provided kickbacks to tax officials, financial administrators and politicians, among others.

Taekwang has 52 affiliates and total assets worth 4.8 trillion won.

Observers forecast that the crackdown will be just the beginning of the administration’s “audit and inspection” to tame the rich and powerful.

Since transferring wealth and power to heirs through borrowed name accounts and unlisted firms’ stocks is quite commonly detected in Korea ― the nation’s largest chaebol Samsung was accused of doing so several years ago ― more may be targeted for thorough investigation, observers say.

Currently, Hanwha is also under investigation over its chairman Kim Seung-youn’s suspected illicit wealth transfer to his son. The prosecution has interrogated Kim.

The National Tax Service is also auditing Dongkuk Steel.

Business circles have complained about the government “blitz.” According to local news wire Newsis, business tycoons have complained to the investigators and administrators that the non-regular tax audits, summons and raids have damaged their businesses.

It quoted an insider saying the wealthy men regard the accused irregularities as “merely necessary and reasonable business decisions.”

By Bae Ji-sook (baejisook@heraldcorp.com)
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