Board of Audit and Inspection: "Gimpo Hangang Cinepolis Preferential Corruption, 25.9 Billion KRW Must Be Recovered"

Audit on Local Government Real Estate Development Projects Status

Audit results from the Board of Audit and Inspection revealed that some local governments in Gyeonggi Province, including Gimpo City and Uiwang City, provided undue preferential treatment to private businesses in real estate development projects carried out with private participants.

On the 6th, the Board of Audit and Inspection disclosed the main audit results of the "Real Estate Development Projects Involving Local Governments" and notified the relevant parties to prepare measures such as recovering the undue benefits provided to private businesses.

According to the Board of Audit and Inspection, Gimpo City in Gyeonggi Province caused a total loss of approximately 25.9 billion KRW due to selecting private participants who submitted false business plans during the construction of the Hangang Cinepolis Industrial Complex and due to negligence in supervising and managing the project equity investment vehicle (PEV).

Employee A of the Industrial Bank of Korea and employee B of IBK Investment & Securities decided to participate in the project with construction contractor C, whom they knew personally, and formed a consortium with company D, newly established by C, to apply for the selection of the preferred negotiation candidate. Although they agreed that company D would be the actual consortium representative, they falsely prepared and submitted the business plan by presenting a reputable construction company, resulting in their selection through the public offering.

The Gimpo Urban Management Corporation invested 20% equity and jointly formed the project executor PEV with the consortium, and company D was entrusted with all PEV operations, including asset management. During this process, consortium representative C received unnecessary incentives totaling 20.9 billion KRW or had settlement payments of 14.7 billion KRW reimbursed on his behalf, and pushed for contracts unfavorable to PEV, such as sales agency, project management, and research services, to be signed with his own companies.

Two employees of Gimpo Urban Management Corporation, who were directors of PEV, agreed to these problematic contracts, and the corporation was negligent in supervising PEV, the Board of Audit and Inspection pointed out. Additionally, employees A and B of the Industrial Bank of Korea and IBK Investment & Securities received a total of approximately 3.43 million KRW from C for overseas travel accommodation and golf expenses.

The Board of Audit and Inspection notified that it would claim damages for the total undue benefits of approximately 25.9 billion KRW earned by the private participants and prepare measures such as refunding the total of approximately 3.1 billion KRW in sales amounts unfairly passed on to buyers. It also ordered Gimpo Urban Management Corporation and IBK Investment & Securities to discipline the relevant personnel, including suspension, and to thoroughly supervise future real estate development projects.

An official from the Board of Audit and Inspection explained, "Regarding former Gimpo Mayor Jeong Ha-young, we requested an investigation on charges of abuse of authority for demanding resignations from corporation executives and ordering employees to stop work related to urban development projects."

Furthermore, in Uiwang City, the audit revealed that a private participant who did not meet the public offering requirements was selected as the preferred negotiation candidate during the E Industrial Complex development project, and logistics facility land was supplied by private contract. In particular, Uiwang City was found to have excessively calculated the industrial land sale price by approximately 3.1 billion KRW at the request of a specific company, passing the cost onto tenant companies.

The audit covered 13 development projects jointly promoted by local governments and private parties in Seoul and Gyeonggi Province over about five years from 2017 to April 2022. The Board of Audit and Inspection stated, "due to public suspicion arising over real estate development projects jointly promoted by local governments and private participants, the need for an audit was raised, leading to this audit." This follows the 2021 'Daejang-dong preferential development' incident, aiming to inspect local governments' real estate projects comprehensively.

[Image source=Yonhap News]

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