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SOUTH KOREA: Daewoo Founder Is Sentenced for Fraud Charges

by Choe Sang-HunInternational Herald Tribune
May 30th, 2006

Kim Woo Choong, whose career as the rags-to-riches founder of Daewoo Group ended in South Korea's biggest corporate fraud scandal, was sentenced today to 10 years in prison and ordered to forfeit 21.4 trillion won, or $22.57 billion. In convicting Kim on charges including accounting fraud and embezzlement, the Seoul Central District Court said the penalty should serve as a warning to other businesses.

Mr. Kim, who is 69 and ailing, plans to appeal the verdict, his lawyers said.

The forfeiture was largely symbolic, since it exceeds his net worth. He was also fined 10 million won, or about $10,000. Prosecutors had sought a prison term of 15 years and a forfeiture of 23.2 trillion won.

Mr. Kim arrived at court in an ambulance, with an intravenous drip attached to his arm. He did not comment on the ruling. The court allowed him to continue to stay in a Seoul hospital where he has received treatment since heart surgery last August.

The court's penalty may reflect an emerging hard line among judges, who have often been accused of being too lenient on business executives accused of economic crimes, some analysts said.

The presiding judge, Hwang Hyun Joo, wrote in his verdict: "A severe punishment is inevitable for Mr. Kim because he abandoned corporate ethics and circumvented the law, pushing Daewoo Group to bankruptcy. This damaged banks that lent money to Daewoo and caused a burden to the people because a tremendous amount of taxpayer money was used to clean up his companies."

Mr. Kim was once revered as the man who built a small textile house into South Korea's second-largest industrial conglomerate, after Samsung. His legend unraveled when Daewoo crumbled under $80 billion in debt in 1998 at the height of the Asian financial turmoil.

After living six years as a fugitive abroad, Mr. Kim returned home in June last year, saying he wanted to make peace with his past and die at home. Prosecutors immediately arrested and indicted him on charges of illegally procuring loans of 9.8 trillion won, or about $10 million, by manipulating books and forging export-import documents.

He was also charged with misallocating $20 billion in Daewoo funds through overseas accounts and helping falsify Daewoo's books.

In its verdict, the court recognized Kim's role as a "locomotive" for South Korea's economic growth. It also said Kim's legendary "diligence and passion" had set an example for millions of South Koreans. But it excoriated him for "not admitting to his wrongdoing" and "trying to justify them by describing them as management decisions and as part of a widespread practice of his times."

The investigation of the collapse of Daewoo in 1998 has symbolized South Korea's resolve to clean up its family-controlled industrial groups, known as chaebol, whose headlong expansion fueled the country's rapid economic growth but also sowed the seeds for a financial crisis in the late 1990s.

South Korea has recovered with the help of a $57 billion bailout from the International Monetary Fund. But experts say that much of the country's long-term economic health will depend on how the government fares in its campaign to change Hyundai, Samsung and other conglomerates that had resisted pressure to improve corporate governance.

Daewoo came to symbolize the excesses of the chaebol, which still form the basis of much of the economy. They have been accused of expanding on borrowed money and bribing past governments, which nurtured them into the engine of an export-driven economy. Another high-profile businessman, Chung Mong Koo, chairman of Hyundai-Kia Automotive Group, is on trial on charges of embezzling and misusing company funds.

Mr. Kim personified the belief that South Korea, a country with few natural resources, had to export to survive. In the 1990s, he ignored warnings that he was overstretching his empire and went on a worldwide shopping spree, buying dilapidated auto and home appliance plants in former Communist countries.

By 1997, Daewoo had 40 affiliates at home and 396 subsidiaries overseas. The conglomerate generated annual revenue of 62 trillion won in such areas as cars, ships, refrigerators, television sets and financial services.

Daewoo's flagship company, Daewoo Motor, was renamed as GM Daewoo Auto & Technology after its acquisition by General Motors in 2002.

"I think some of the plans they had for Daewoo were very good, farsighted," GM Daewoo's chief executive, Nick Reilly, said at a recent news conference.

"However, the implementation of those plans was not well executed. Perhaps his strength as a leader was too much because it didn't seem that other opinions could be heard."





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