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Categorized | Financial

S Korea seeks warrant for Lotte chairman

Posted on September 26, 2016

epa05548553 Shin Dong-Bin (C), CEO of Lotte Group, receives questions from journalists as he appears before the Seoul Central District Prosecutors' Office to undergo questioning over suspected embezzlement in Seoul, South Korea, 20 September 2016. EPA/JEON HEON-KYUN©EPA

South Korean prosecutors said they were seeking an arrest warrant for Shin Dong-bin, Lotte Group chairman, over allegations of embezzlement and breach of trust concerning Won170bn ($153m) amid a corruption probe into the group.

The country’s fifth-largest conglomerate has been plagued by several corruption scandals this year, following an acrimonious succession feud among members of the founding family.

    Mr Shin, who was questioned by prosecutors last week over the scandals, has denied most of the allegations, according to Seoul’s state-run Yonhap News. A court hearing on whether to issue an arrest warrant for Mr Shin, 61, will be held this week. 

    Authorities allege that Mr Shin orchestrated unfair intragroup business deals and created a slush fund at the group’s construction unit. His siblings have also been questioned by prosecutors over allegations they received huge salaries from Lotte group companies without working there, while Mr Shin’s father was investigated for allegedly dodging inheritance taxes.

    Mr Shin’s family members under investigation were unavailable for comment. Lotte, on behalf of Mr Shin, said he would co-operate with the probe.

    The investigation, which began in June, is taking a toll on the group’s business deals. The retail-to-chemicals company scrapped a $4.5bn initial public offering of its hotel unit and abandoned a $3.1bn bid for US chemicals producer Axiall.

    Last month, Lee In-won, vice-chairman and Mr Shin’s top lieutenant, committed suicide a day before he was due to appear before prosecutors for questioning over the scandals.

    Hotel Lotte lost a duty-free licence last year for one of its main shops as Mr Shin was embroiled in a family succession battle. The boardroom tussle and the latest corruption scandals have sparked a public backlash against Lotte as it has highlighted poor governance at the country’s family-run conglomerates known as chaebol. 

    “I don’t think such problems are just limited to Lotte. I suspect most chaebol groups are involved in similar business practices such as shady intragroup deals,” said Chung Sun-sup, head of corporate analysis group “It is still common for chaebol controlling family members to misuse company funds through unjustified salaries and irregular bookkeeping.”

    Shares of Lotte Group companies fell on Monday, with Lotte Shopping down 1.9 per cent and Lotte Chemical off 0.5 per cent, while the broader market was down 0.25 per cent. 

    Mr Chung noted that South Korean judges have favoured suspended sentences for business figures convicted of white-collar crimes, followed by presidential pardons in the name of their contributions to the economy. Such a tendency has added to investors’ concerns over the lack of accountability of the families that control chaebol.