Posted : 2013-06-02 19:10
Updated : 2013-06-02 19:10

Tax haven allegations dog rich and famous

Authorities join to crack down on offshore tax evasion

Lee Soo-young
OCI chairman

Kim Seok-ki
CEO of now-defunct
Joongang Bank
Yoon Suk-hwa

Choi Eun-young
Hanjin Shipping chairwoman

Cho Min-ho
Former CEO of SK Chemical

Cho Joong-geon
Former Korean Air executive

Cho Yong-min
Former Hanjin Shipping executive

Yoo Choon-sik
Ex-CEO of Daewoo Motor Poland
By Kim Tae-jong

Lists disclosed by a local online news outlet have stirred huge controversy, as they accused businessmen and their family members, mostly well-known to the public, of setting up paper companies or accounts in offshore tax havens in an apparent move to create slush funds or avoid paying due taxes.

Newstapa, the Korea Center for Investigative Journalism (KCIJ), came up with the lists after it analyzed data jointly with the International Consortium of Investigative Journalists (ICIJ) and has made a series of announcements.

So far, three lists have been made public separately on May 23, 27 and 30, and the news outlet plans to disclose more, saying it has a total of 245 South Koreans it found were operating paper companies in major tax havens. It is currently reviewing the facts.

The revelation came after the ICIJ dropped a bombshell statement in early April that it had obtained more than 2.5 million documents showing secret bank accounts belonging to high-profile, powerful people around the world in the Virgin Islands.

The first announcement here disclosed five people involving three paper companies in offshore tax havens while the second revealed the names of 12 people setting up seven fake firms. The last list included five people who own 10 paper companies.

The first list named Lee Soo-young, chairman and CEO of OCI, a major chemical firm; Lee's wife; the wife of former Korean Air Vice Chairman Cho Joong-geon; Cho Wook-rae, chairman of a real estate developer DSDL; and Cho's eldest son.

In the second announcement,the ICIJ said that Hanjin Shipping Chairwoman Choi Eun-young and former Hanjin Shipping Holdings CEO Cho Yong-min operated a paper company.

Other high-profile figures are Hwang Yong-deug, president of Hanwha Station Development; Lee Deog-kyu, former director of Daewoo International; Yoo Choon-sik, former chief of Daewoo Motor's local affiliate in Poland; and former SK Securities Vice President Cho Min-ho and his wife Kim Young-hye.

In the third list, Kim Seok-ki, former CEO of the now-defunct Joongang Mutual Savings Bank; his actress wife Yoon Suk-hwa; Lee Soo-hyung, a Samsung executive; Cho Won-pyo, CEO of online marketing firm NBIZ; and Chun Sung-yong, president of Kyungdong University.


All the people in the list have strongly denied the allegations that they intentionally used tax havens to create slush funds or avoid paying due taxes.

The business circle has also expressed concern about the revelation, saying it could produce innocent victims.

Company officials argue that running corporate entities is part of globalization and investment planning.

"It is unfair to conduct a witch-hunt against companies just because they run a corporate entity in tax havens," a company official said, asking not to be named. "There are legitimate purposes for that."

Other officials said it is common to open an account in offshore tax havens, especially for shipping and energy development firms at the request of their foreign customers, when they do business overseas.

"Local firms have to inevitably set up special purpose companies in other countries to make it easier and more effective to do business with foreign partners. It is a convention and not a tactic to dodge taxes," another company official said.

Despite such strong opposition, the government is taking stern action against any illegalities regarding tax evasion through the havens, pledging a thorough investigation.

This is in line with the new government's plans to bring the underground economy into the open in order to normalize "black markets" and expand its tax revenue base to support a welfare budget.

Various government organizations have already launched large-scale probes into companies, businessmen and their family members, who are suspected of tax evasion.

Early this month, the prosecution launched a probe into CJ Group over allegations that its chairman Lee Jay-hyun and his two siblings evaded taxes through offshore tax havens. It was also followed by a separate probe into the group by the Financial Supervisory Service.

The financial watchdog suspected that Lee reaped a huge windfall by manipulating stocks of CJ's affiliates such as CJ Corp., CJ CheilJedang and CJ E&M, using a slush fund hidden in the British Virgin Islands.

The National Tax Service raided the headquarters of the life insurance unit of Hanwha Group, Thursday, to look into its alleged involvement in offshore tax evasion.

Previously, the tax agency had hinted that it would conduct an investigation into firms that appeared on the lists disclosed by the ICIJ.

Popular tax havens

Recent data showed that most major conglomerates set up corporate entities in tax havens and the money transferred to those regions has been increasing in recent years.

According to market researcher, which looked into local private conglomerates with assets worth 1 trillion won or larger, 24 firms hold about 5.7 trillion won worth of assets in nine tax havens such as the Cayman Islands, the British Virgin Islands, Panama, the Marshall Islands, and Labuan.

It also said the number of their entities in those regions stood at 125 as of the end of March.

The nine regions are tax havens designated by the Organization for Economic Cooperation and Development, as they have much lower tax rates and less tax-related regulations, a condition that experts believe could lead to evasion.

Assets held by offshore entities in the Cayman Islands amounted to 2.65 trillion won as of March 2012, while 1.6 trillion won was in Panama.

Assets of local firms in the British Virgin Islands amounted to 1.07 trillion won. In Labuan, a small East Malaysian island, Korean firms set up entities worth 18 billion won.

Hanwha Group was found to be holding 1.68 trillion won worth of assets in four such entities, the largest amount, followed by SK Group with 1.33 trillion won. SK Group, in particular, was found to operate the largest number of corporate entities at 63.

Meanwhile, Samsung Group and LG Group hold 353.6 billion won and 334.2 billion won in assets in the cited regions, respectively, the data showed.

According to the Bank of Korea (BOK), money remittance by Korean companies to offshore tax havens climbed to $1.62 billion last year, up 56 percent from $1.03 billion in 2011, and most of the money was transferred by family-owned conglomerates.

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