By Lee Kyung-min
The prosecution searched five subcontractors of Korea Aerospace Industries (KAI), Tuesday, as part of its ongoing investigation into defense industry corruption.
Investigators from the Seoul Central District Prosecutors’ Office searched five companies offering services or supplying parts for trainer and combat aircraft, the office said. They secured accounting books, computer hard disks, documents and mobile phones of key officials.
The prosecution suspects KAI received tens of millions of won in kickbacks in return for helping the companies land government contracts to manufacture parts for helicopters and other aircraft.
This came four days after the prosecution searched KAI headquarters in Sacheon, South Gyeongsang Province, and its office in Seoul over allegations company officials manipulated accounting books by inflating the costs of parts.
The prosecution is already looking into allegations KAI President and CEO Ha Sung-yong created a slush fund of 1 billion won ($890,000).
Under his watch, the prosecution added, more than 1.7 billion won worth of gift certificates were used for unclear purposes, some of which it believes were for lobbying political figures to have his two-year term extended.
Appointments of KAI presidents are influenced by its major shareholder, the Korea Development Bank (KDB), a public financial institution. The makeup of key KDB posts changes in accordance with the incumbent administration.
The prosecution said Ha is suspected of creating the slush fund by asking his former coworkers at Daewoo Heavy Industries & Machinery and Sungdong Shipbuilding & Marine to return some of their profits after helping them inflate manufacturing costs.
Of the five firms searched, one of them, set up by a former KAI official surnamed Cho immediately after Ha became the KAI CEO, still had most of its profits coming from sales contracts with KAI. The firm posted annual sales of 9.2 billion won ($8.1 million) last year, more than double the 3.9 billion won it posted in 2014.
Another slush fund was set up by a former KAI official who owned an 83 percent stake in Cho’s company. Earlier, the Board of Audit and Inspection (BAI) asked the prosecution to investigate the Defense Acquisition Program Administration (DAPA) chief and two officials for failing to supervise KAI’s development procedures.
The BAI audit discovered DAPA pushed for the deployment of the Surion utility helicopters despite a series of defects including engine problems.