Slush fund allegations hit POSCO

Former POSCO chairman Chung Joon-yang

Ex-CEO banned from traveling overseas

By Kim Rahn

Prosecutors have banned ex-POSCO Group Chairman Chung Joon-yang and several other former and incumbent executives from leaving the country as part of an investigation into allegations of slush funds surrounding the steel giant’s construction arm.

The executives now face a summons for questioning as early as this week.

The investigation is likely to expand to the entire group over possible tax evasion and dubious deals related to its acquisitions of other companies.

Prosecutors at the Seoul Central District Prosecutors’ Office said Sunday they imposed a travel ban on several key executives.

The ban follows a raid on the head office of POSCO Engineering & Construction in Songdo, Incheon, on Friday. Investigators also raided the homes of several executives.

Some of the construction unit’s executives in charge of projects in Southeast Asia allegedly created slush funds worth 10 billion won ($8.9 million) by inflating the costs of building expressways in Vietnam from 2009 to 2012 in collusion with local subcontractors.

The company said it detected the funds during its own inspection earlier and took disciplinary action against those involved, saying the money was used as kickbacks to contractors there.

However, the prosecution is looking into the possibility that the group was involved in the slush fund systematically and that part of the money was transferred to Korea _ which POSCO denies.

“We are examining seized documents and computer files,” a prosecutor said. “We’ll also trace money flows on bank accounts of those involved and look into the company’s audit documents.

“We are also talking with some of the executives about when to summon them. We may quiz some as early as this week about exactly how much the slush fund was and for what it was spent.”

There is speculation that the probe may expand to corruption allegations across the group. The National Tax Service filed a complaint with the prosecution against the group last year for allegedly inflating sales in deals among group affiliates.

POSCO has also faced allegations that it paid excessively huge sums in merging and acquiring about several companies under the leadership of Chung, a close aide to the then President Lee Myung-bak.

“Eighteen out of the group’s 41 affiliates that were newly added during Chung’s reign, have had poor financial conditions,” the prosecutor said, hinting at an investigation into alleged improper takeover deals.

It is also expected the investigation into POSCO can widen into corruption allegations involving other conglomerates during the Lee administration. The probe may include ranking officials.

The speculation is in line with Prime Minister Lee Wan-koo’s declaration on Thursday of an “all-out war” against corruption after a series of graft scandals related to energy diplomacy and defense procurement.