Hanwha Chairman Gets Four Years in Jail for Embezzlement

Hanwha Group Chairman Kim Seung Youn was sentenced to four years in jail and fined 5.1 billion won ($4.5 million) for embezzlement amid a presidential election campaign that’s increasing scrutiny of South Korean executives.

A three-judge panel in the Seoul Western District Court found that Kim used funds from the nation’s 10th-largest industrial group to pay the debts of private firms owned under false names. The 60-year-old, who was granted a presidential pardon in 2008 after striking a man with a steel pipe and threatening others with an electric shock device, plans to appeal against today’s ruling.

The Hanwha chairman was taken directly into custody in a break from common practice in Asia’s fourth-biggest economy, where judges have suspended prison terms for corporate leaders including Kim for assault and the chairmen of Samsung Electronics Co. and Hyundai Motor Co. for white-collar offenses. Shares of Hanwha Corp., Hanwha Securities (003530) Co. and Hanwha Chemical Corp. all declined.

“It’s a bit of a surprise,” Charles Lee, a Hong Kong- based research director for North Asia with the Asian Corporate Governance Association, said by phone. “Korea Inc. appears to have taken the first step forward to change its usual political and legal practices.”

Kim had pleaded not guilty and said through his lawyers during the trial that Hanwha companies had not incurred any losses. Investigations began in 2010 into allegations that Kim was involved in embezzling money between 2004 and 2006.

Tougher Laws

With campaigning underway for a presidential election in December, 23 members of the ruling New Frontier Party on July 16 submitted a draft revision to the National Assembly to increase sentences and limit the scope for judges to suspend jail terms for leaders of the chaebol, as the business groups are known in South Korea.

“It’s said money is almighty and that chaebol bosses are protected by people in power,” the group said in the draft.

Since 1990, seven chairmen from the nation’s 10 largest industrial groups have been sentenced to jail, and on every occasion the prison term was ultimately suspended, according to Chaebul.com, a Seoul-based organization that collects information about the conglomerates.

After attacking bar workers in 2007 who’d been involved in a scuffle with his son, Kim was given a three-year jail sentence that was suspended on condition he did 200 hours of community service. The next year he received a presidential pardon.

Explosives, Insurance

Kim succeeded his father as chairman of Hanwha Group in 1981. The conglomerate generates about 60 percent of its revenue from financial services through companies including Korea Life and Hanwha Securities, with much of the remainder coming from explosives, chemicals and construction, according Hanwha Group spokesman Park Jang Woo.

Hyundai Motor Chairman Chung Mong Koo and SK Holdings Co. Chairman Chey Tae Won were among 74 business people pardoned along with Kim in 2008.

“I am aware that there is criticism of the amnesties and personally I oppose them,” President Lee Myung Bak said in a statement at the time. “But I considered slowing investment and decided that businesses may be facing difficulties.”

The chaebol, some of which trace their origins back to the Japanese colonial era which ended in 1945, thrived during the postwar period and helped drive the export-led growth that pulled South Korea out of poverty and into the ranks of the Group of 20 nations.

Surging Revenue

Hanwha Group’s revenue has jumped 47-fold since 1980 to 35 trillion won last year, according to data from the nation’s Fair Trade Commission.

Hanwha Corp. (000880) shares fell 2.6 percent to 30,100 won at the 3 p.m. close of trading in Seoul, while the benchmark Kospi index rose 0.05 percent. Hanwha Securities declined 0.9 percent, Hanwha Chemical dropped 0.5 percent and Korea Life advanced 0.5 percent after earlier sliding as much as 1.6 percent.

Samsung Group, led by Samsung Electronics Chairman Lee Kun Hee, is the largest of South Korea’s chaebol and has sales equivalent to about one-fifth of the nation’s economy. Lee was convicted of tax evasion in 2008, given a suspended three-year prison term and also subsequently pardoned by the president.

Hong Dong Ok, co-chief executive officer of Yeochun NCC Co., an affiliate of Hanwha Chemical, was sentenced to four years in prison today and fined 1 billion won for aiding Kim.

The case is Kim Seung Youn and 15 others 2011 Gohap 25, Seoul Western District Court.

To contact the reporter on this story: Sangim Han in Seoul at sihan@bloomberg.net

To contact the editor responsible for this story: Jason Rogers at jrogers73@bloomberg.net

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