Lotte Group faces corruption probe

Prosecutors are investigating a subsidiary of South Korea’s leading retailer, the Lotte Group for allegedly creating a slush fund.
The Seoul Central District Prosecutors’ Office said it is tracing suspicious money flows involving the subsidiary, Lotte Shopping, after tips from the Korea Financial Intelligence Unit (KoFIU). KoFIU is an executive government agency charged with the prevention of money laundering and the financing of terrorism.

Lotte Shopping is among several companies being examined in a widening corruption investigation. Prosecutors earlier said they are looking into suspicious deals involving POSCO, the Korea National Oil Corp. (KNOC) and Keangnam Enterprises.

According to the prosecution, billions of won was sent from Lotte Shopping’s head office to affiliated businesses — Lotte Department Store, Lotte Mart, Lotte Super, and Lotte Cinema — between 2011 and 2012. Why the money was transferred was unclear. The money was later withdrawn in cash.

Prosecutors have looked into bank accounts of several workers of the company since the end of last year. They also called in five of them earlier this year for questioning over why the money was transferred and what it was spent on.

Officials from Lotte Shopping denied the allegations and said the money was spent for proper purposes, such as expenses for workers’ transportation fees and dinners.

An employee questioned by the prosecutors said there might have been a misunderstanding because the money was sent from the corporate bank account to individual workers’ accounts.

He said the company’s four business units — department stores, markets, cinemas and supermarkets — are all run separately, and money transactions between them are impossible.

However, the prosecution is not ruling out the possibility of a slush fund, because other companies have already been caught creating such funds using employees’ personal bank accounts.

This not the first time Lotte Shopping has been in trouble. In 2013, the firm was found guilty of tax evasion and was fined KRW 60 billion.

There has been open speculation for some time that Lotte would be the target of investigators.

The company obtained extraordinary and unexpected business favours under the previous Lee Myung-bak administration, including approval for the highly controversial construction of the Lotte World Tower skyscraper, South Korea’s tallest building. Citing safety concerns, the authorities have so far refused permission for large sections of the building to open.

Prosecutors are now investigating various corruption allegations relating to large scale projects that were initiated under the Lee government.