Taekwang's Top Two Executives Clash Over Responsibility for 'Slush Fund Creation'

Published 11 Mar.2024 14:22(KST)

Accusing the Other Party of Abuse of Authority and Obstruction of Business
Corruption Exposures Continue Outside Investigation as Well

The top executives of Taekwang Group continue to engage in mutual accusations of misconduct. Former Taekwang Group Chairman Lee Hojin, currently under forced investigation by the prosecution and police on charges including breach of trust and embezzlement, and former Taekwang Group Management Council Chairman Kim Giyu, who was once the second-in-command, are embroiled in a legal battle over responsibility.

Lee Hojin (left), former chairman of Taekwang Group, Kim Giyu, former chairman of Taekwang Group Management Council [Image source=Yonhap News]

When Kim’s side hinted at a reversal of testimony in the 'wine and kimchi forced sales suspicion' case, Taekwang countered by stating that it has filed multiple complaints and accusations on charges such as slush fund creation, abuse of authority, and obstruction of business.

Kim was sentenced to a suspended prison term for false testimony in a trial where he was indicted for forcibly selling kimchi and wine produced by a company owned by Lee’s family to affiliated companies.

Last month, the Seoul Central District Court Criminal Division 19 (then Judge Park Hyejung) sentenced Kim to six months in prison with a two-year suspension for perjury. Taekwang’s position is that it cannot trust the one-sided testimony of a person convicted of perjury due to false statements that shifted responsibility onto employees.

"Lee Hojin created a slush fund of 30 million won per month" vs. "Kim Giyu misused corporate cards and gift certificates for personal use"

Kim recently revealed that former Chairman Lee had indeed created a slush fund. He claimed that part of the salaries of executives serving as outside directors at affiliates was embezzled in cash to create the slush fund.

He stated, “When the chairman needed money, he called me. If he said, ‘Please bring me 10 million won,’ I would deliver the money. The chairman demanded 30 million won per month. The total amount delivered is close to 1 billion won.” He reportedly also testified about this to the police. The Anti-Corruption and Public Crime Investigation Unit of the Seoul Metropolitan Police Agency is investigating Lee’s embezzlement of company funds.

They have reportedly secured some evidence of false and duplicate salary payments to executives and employees, which were embezzled as slush funds. However, Taekwang rebutted, “The police questioned that salaries were not paid to employees and that slush funds were created separately, but this is unrelated to the chairman, and all unpaid salaries have been paid.” They then mentioned Kim’s misconduct. Taekwang claims that Kim misappropriated more than 100 million won using the corporate card of Taekwang Industry, where he held no position, for golf course fees, wine purchases, and other expenses.

It was also revealed that Kim used gift certificates worth about 15 million won for personal use in 2016-2017 when he held no position at Taekwang Tourism Development (now TCIS), leading to a criminal complaint. Taekwang also secured evidence that Kim caused a loss of 2.5 billion won to the company by paying 11.7 billion won?more than the appropriate construction cost?to a construction company that handled the expansion of the Taekwang CC clubhouse and the construction of the start house at the golf course owned by Taekwang Tourism Development, where he was CEO in 2014. Furthermore, they filed complaints after discovering that 14 subcontractors were overpaid by 1.1 billion won, resulting in illicit gains, and that about 300 million won in profits were obtained related to other construction projects.

Taekwang’s external audit ongoing

Through an external audit, Taekwang detected evidence that Kim, at the request of an acquaintance who is the CEO of a real estate development company, pressured two savings bank CEOs affiliated with Taekwang to approve loans totaling about 15 billion won. Taekwang claims that despite internal opposition from the bank’s committee citing difficulties in loan recovery, the loans were hastily approved by abusing his position.

It was also found that the person who received the loan was a golf partner of Kim, and that golf expenses were processed as company costs. Kim is specifically exposing corrupt acts he was involved in during his time with the group. Taekwang is continuing the audit on Kim through an external law firm and plans to file complaints only for confirmed misconduct.

A lawyer who is a former chief prosecutor assessed, “The emotional conflict between the two who were once the first and second in command has crossed the point of no return, and there seems to be no solution other than judicial resolution.”