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Hanwha CEO Jailed for Four Years

Posted by Pratap Chatterjee on August 17th, 2012
CorpWatch Blog
Hanwha building photo: riNux Kim Seung-youn photo: Πρωθυπουργός της Ελλάδας. Used under Creative Commons license.

Kim Seung-youn, the CEO of the Hanwha group in South Korea, has been sentenced to four years in prison and fined 5.1 billion won ($4.5 million). The jail time marks an unusual departure for the Korean judiciary who typically issue suspended sentences when prominent business bosses are found guilty.

Hanwha is the tenth largest “chaebol” or business conglomerate in South Korea. Started by Kim Chong-Hee as Korea Explosives Inc. in 1952, it now has an annual revenue of $30 billion and interests as diverse as dairy farming, finance and petrochemicals.

Kim Seung-youn, the son of the founder, has been in trouble with the law several times. In 1993 he was found guilty of smuggling cash to buy a large mansion in Los Angeles and then in 2004 he was found guilty of bribing a politician. In 2007, he was given a suspended sentence for assaulting workers with a steel pipe after his son got in a fight.

This time Kim has been accused of buying and selling shares in employees names to avoid taxes, bailing out his brother’s failing business and forcing his affiliates to sell shares in an oil company to his sister at below market prices.

"As a controlling shareholder of Hanwha Group, the defendant is passing on his responsibility to working-level officials and he has not shown remorse," said Seo Kyung-hwan, one of the three judges on the panel that decided the case. “Considering this, he needs to be strictly punished.”

Most chaebol got their start after the end of the Second World War when the government of Syngman Rhee encouraged entrepreneurs to rebuild the country. During the administration of General Park Chung Hee in the 1960s, the favored chaebol were given easy access to loans, foreign technology and large government contracts in order to rapidly industrialize the country. Today these elite companies – some of which have become global players like Hyundai, LG and Samsung – control much of the South Korean economy.

The chaebol bosses have operated beyond the reach of the law for many years. Take Lee Keun-hee of Samsung who was found guilty in July 2008 of operating a slush fund to bribe politicians, prosecutors and government officials. Lee was fined $109 million and given a five year suspended sentence.

Or Chung Mong-koo of Hyundai who was found guilty of embezzling funds that were funneled to politicians in February 2007 and sentenced to three years in jail. Chung had his sentence suspended on appeal. "The court has been agonising over whether to put the accused in jail or keep him out of prison," said Lee Jae-Hong, the chief judge. "But in consideration of the huge economic impact that could result from imprisonment, it decided to suspend the sentence."

A few brave whistleblowers have risked their careers to speak out against the chaebol. "Our society is so corrupt, and people are blindfolded because everyone is living well and people are greedy,” says Kim Yong-chul, a Samsung whistleblower. “I am not a revolutionary, an ideologue or a revenge. But I am against business as usual.”

Kim wrote a book about his experiences: "Thinking of Samsung" ("Samsungul Sanggak Handa"). The book was never reviewed by the South Korean media and he has been ostracized by the business establishment. “Isn’t this a comedy?” Kim told the New York Times. “I am challenging them to slap my face, to file a libel suit against me, but they don’t. They treat me like a nut case, an invisible man, although I am shouting about the biggest crime in the history of the nation."

Despite the news blackout, his book has become a best seller, promoted solely by Twitter and word-of-mouth. And distrust of the chaebol has been growing among ordinary citizens – indeed a recent poll by a major think tank found that 74 percent of people believed that the conglomerates were not moral.

It is this change in the political mood in the country that anti-corruption advocates are hoping will make sure that Kim Seung-youn serves his sentence