Investigation zeroes in on CJ chairman

The main office of CJ Group in Namdaemun, downtown Seoul. The prosecution banned CJ Group Chairman Lee Jay-hyun from leaving the country for allegedly “orchestrating” the creation of a 500 billion won slush fund at home and abroad under “borrowed name” bank accounts. / Korea Times photo by Hong In-ki

Prosecutors to summon Lee soon

By Kim Jae-won

The prosecution banned CJ Group Chairman Lee Jay-hyun from leaving the country over alleged tax evasions estimated to reach into the tens of billions of won.

Sources in the Seoul Central District Prosecutors’ Office (SCDPO) said Thursday that prosecutors suspect Lee “orchestrated” the creation of a 500 billion won ($450 million) slush fund at home and abroad in evading corporate and income taxes.

Three former and current executives of the group ― identified only by their surnames Sung, Shin and Lee ― were also prohibited from leaving the country for allegedly managing the fund. The prosecution questioned the three Wednesday.

The prosecution is expected to summon the CJ chairman and other top executives in the near future.

Prosecutors suspect Chairman Lee has been deeply involved in the process of sending money overseas and then repatriating it secretly, a bid to make it hard to trace the source of the funds.

He is suspected of having used it to buy artwork to use as tools to pass on wealth to his children.

The prosecution’s investigation is focused on how Lee raised the funds domestically, how they were sent overseas and what they were used for at home.

Sources from the prosecution say that Lee is unlikely to have used the money to accumulate more stocks to strengthen management rights to group units, which means he used them for irregularities such as transferring his wealth to the next generation.

Evidence collection

SCDPO investigators widened the probe into the group by seizing financial and tax documents related to it. They raided the Seoul Tax Office, Wednesday, to collect documents related to an audit of the group in 2008.

At the time, the tax authorities uncovered a slush fund worth 400 billion won hidden under “borrowed name” bank accounts and imposed 170 billion won in fines and back taxes for evading corporate and income taxes.

Under the Real Name Financial Transaction Law introduced in 1993, it is illegal to use such accounts for financial transactions. However, the tax office did not report the case to the prosecutors’ office, raising suspicions they were pressured by the group not to do so.

The tax authorities confirmed that investigators raided its Seoul office, but denied suspicions that they gave favors to the company.

“We handed over documents on the CJ tax audit to investigators because they had seizure warrants. The raid was done not because we committed something wrong but because investigators were following due legal process,” said a spokesman of the National Tax Service.

According to the National Tax Basic Law, the tax office can only hand over documents if investigators have the appropriate warrants.

CJ group allegedly established special purpose companies in foreign tax havens to evade taxes and create the slush fund, according to prosecution sources. They say there were two such special purpose companies in the British Virgin Islands. Prosecutors also suspect the group transferred the money into a “paper company” established in Hong Kong.

This company allegedly purchased stock in the group worth 7 billion won and sold the shares about a year later without paying taxes, they said.