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Korea Will Probe Chaebol Executives Named in Tax-Evasion Reports

Photographer: SeongJoon Cho/Bloomberg

Tax authorities yesterday raided the life insurance unit of Hanwha Group. Close

Tax authorities yesterday raided the life insurance unit of Hanwha Group.

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Photographer: SeongJoon Cho/Bloomberg

Tax authorities yesterday raided the life insurance unit of Hanwha Group.

South Korea’s financial regulator said it will open a probe into possible illicit fund transfers after a media group reported it uncovered hundreds of people who opened paper companies in offshore havens.

“We will investigate every one of them,” Lee Gyeong Su, an official at the Financial Supervisory Service’s foreign exchange team, said by phone in Seoul yesterday. “When doing capital transactions, they’re required to report to the authorities prior to the trades, so now we are investigating whether they violated the law.”

President Park Geun Hye’s government has pledged to crack down on tax evasion to fund her pledges to boost welfare spending. In separate probes, prosecutors on May 29 searched the home of CJ Group Chairman Lee Jay Hyun and tax authorities yesterday raided the life insurance unit of Hanwha Group.

“This is part of Park’s plan to uncover the underground economy and it looks like this is only the beginning,” said Kang Byung Goo, an economics professor researching tax reforms at Inha University in Incheon. “The Park government needs to come up with 135 trillion won during her term to finance welfare and other pledges made during the presidential election.”

The Korea Center for Investigative Journalism said on May 22 that it found 245 South Koreans established paper companies in tax havens including the British Virgin Islands and Cook Islands from 1995 through 2009.

The names released so far by the news organization haven’t included executives from CJ Group and Hanwha Life.

People’s Happiness

Among those that have been identified are executives of Samsung Group, Hanjin Shipping Co. (117930) and a former executive at Daewoo International (047050) Corp.

Samsung Group had no comment, spokeswoman Lim Bo Mi said by phone.

The Hanjin executive ended the relationship with the paper company in November 2011, according to an e-mailed statement from the shipping firm.

Daewoo International has no documents or records related to the company mentioned on the list and has had no history of transactions with the company since its establishment, it said yesterday in an e-mailed response to queries.

President Park has promised to usher in a “People’s Happiness Era,” bolstering the middle class to 70 percent of the 50 million population, from 67.7 percent. Pledges include funds to help prevent loan defaults by people on low incomes.

Her father, the dictator Park Chung Hee, had backed the family-controlled industrial groups referred to as chaebols.

Underground Economy

The Finance Ministry in April said that the government will need 135 trillion won ($120 billion) to finance her pledges as the government seeks to increase state support of public welfare, entrepreneurs and possible unification. While 84.1 trillion won, or 62 percent, will come from reducing spending, the rest will be financed through tackling tax evaders and uncovering hidden funds, the ministry said.

South Korea’s tax agency began investigations into 23 businesses and individuals suspected of evading taxes through paper companies established in tax havens, the National Tax Service said in a statement yesterday. The investigation is part of government efforts to regulate the “underground economy” and push for “fair tax justice,” according to the statement.

The tax agency yesterday raided the life insurance unit of Hanwha Group, Kim Myoung Hwan, a spokesman at Hanwha Life Insurance Co. (088350), said by phone.

“The NTS doesn’t comment about the private matters of individual taxpayers,” said Song Gi Bong, a spokesman for the tax service.

CJ Group will cooperate and explain if needed, the company said in an e-mail after being asked to comment on a Yonhap report that prosecutors searched the residence of group chairman Lee.

To contact the reporters on this story: Sungwoo Park in Seoul at spark47@bloomberg.net; Cynthia Kim in Seoul at ckim170@bloomberg.net; Jungah Lee in Seoul at jlee1361@bloomberg.net

To contact the editor responsible for this story: Bret Okeson at bokeson@bloomberg.net

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