CJ hit by slush fund probe
Reporters wait at the head office of CJ Group in downtown Seoul, Tuesday, as prosecutors raid the food and entertainment conglomerate to investigate allegations that the group dodged taxes by creating a slush fund overseas. / Yonhap
Prosecutors target chairman, raid offices
By Kim Jae-won
Lee Jay-hyun CJ Group Chairman
Prosecutors on Tuesday raided CJ Group’s main office and affiliate firms, along with the homes of a number of executives in what appears to be an investigation targeting Chairman Lee Jay-hyun who is suspected of running a slush fund.
It is the first such raid against a big conglomerate by the Park Geun-hye government and could spread to include other chaebol firms. CJ was originally a part of the Samsung Group. It has business activities in food, media and entertainment.
Lee is suspected of siphoning off 7 billion won in slush funds through bogus transactions using its overseas operations in order to channel the money home.
“We are looking into slush fund allegations involving the group,” said Hong Hyo-soon, an official of the prosecutors’ office. Dozens of investigators from the Seoul Central District Prosecutors’ Office participated in the raid, hauling away computer files and disks, financial ledgers and documents.
The prosecutors are focused on establishing whether and how the group dodged corporate and income taxes while bringing money from the slush fund into the country. They believe that the group created the funds through front companies which the company set up in foreign countries.
A prosecutor confirmed that the ongoing investigation is targeting individuals involved in tax dodging schemes, implying that they are after Chairman Lee.
If Lee is the target, he will once again become the subject of probe by prosecutors. He was also believed to be behind litigation aimed last year at disputing an inheritance received by Samsung leader Lee Kun-hee, who is the younger brother of Maeng-hee. Lee is the only son of Lee Maeng-hee, the oldest son of the late Samsung Group founder Lee Byung-chull.
He was also at the center of a bizarre attempted murder case involving his financial assistant, who allegedly managed Lee’s money to the tune of 170 billion won.
The assistant invested some of the money in developing hot springs but when the deal went sour, the assistant allegedly hired a hit man to kill a partner out of fears that he would divulge the source of the money.
The case went to the Supreme Court but whether the funds were part of Lee’s slush funds was not clearly established.
This time, the Korea Financial Intelligence Unit, the state financial information agency, detected odd trails of money between CJ and its paper firms and alerted prosecutors about them.
The prosecution suspects the group raised slush funds by forging trade documents and invoices through front companies set up overseas, disguised as if they bought products and raw materials from CJ group units in Seoul.
The food and entertainment conglomerate is also suspected of having used borrowed-name bank accounts for dubious financial deals. This would be a breach of the real name financial law, introduced in 1993, that requires the use of real names in all financial transactions.
Meanwhile, industry watchers fear that the CJ investigations will be the start of a sweeping probe against conglomerates, saying that there are already rumors about who will be next in line.