Prosecutors are poised to trace the financial accounts of former POSCO chairman Chung Joon-yang’s relatives amid allegations that he engaged in irregular funding through companies owned by some of his relatives.

According to the investigators on Monday, the relatives’ firms are suspected of having been used to create political slush funds during the Lee Myung-bak administration.

The same accusation was raised by opposition lawmakers about five years ago. They had alleged that Chung could take office as POSCO head in February 2009 on the backing of former vice knowledge-economy minister Park Young-joon, a close confidante of Lee.

Huge funds raised by Chung’s relatives’ firms reportedly trickled into the “Yeongpo Line,” a group of Lee Myung-bak’s closest allies, according to some lawmakers from the Democratic Party, the main opposition party at the time.

Chung’s relatives’ firms are also suspected to have enjoyed business favors from POSCO.

When Chung was working as an executive in the steelmaking group, Powercom, whose biggest shareholder was Chung’s brother-in-law, surnamed Lee, garnered a parts supplier contract with POSCO in 2007.

Powercom saw its sales soar from 450 million won ($409,000) in 2007 to 3 billion won in 2008 via the monopolistic deals.

Further, while Chung’s served as the chief of Gwangyang Steel Mill, a subcontractor affiliated with Chung’s brother, he was able to rake in irregular gains of 20.5 billion won, then-Democratic Party lawmaker Woo Je-chang alleged. Woo had claimed the subcontractor also enjoyed a monopolistic status thanks to Chung.

The ex-POSCO chairman, who stepped down of his post in March 2014, has been banned from traveling overseas. Over the allegations of involving possibly stashed-away funds, embezzlement at overseas operations and tax dodging, Chung and other core executives faced a summons from the Seoul Central District Prosecutors’ Office.

Meanwhile, POSCO’s incumbent chairman Kwon Oh-joon was quoted by his spokesman on Monday, as saying that the company “would resolve allegations as early as possible by sincerely cooperating with the prosecution’s investigation.”

Kwon also reportedly told group executives that POSCO would strive to gain credibility from the public and minimize feasible negative effects on the group operations.

The ongoing probe started from the allegation that its builder unit POSCO E&C fostered 10 billion won in slush funds during its Vietnam project.

Apart from the prosecutors’ move to widen its target to the whole conglomerate, the National Tax Service is also reviewing its earlier investigation results.

In September 2013, a group of state tax inspectors raided POSCO headquarters in Seoul and two steel mills in Pohang, North Gyeongsang Province, and Gwangyang, South Jeolla Province.

As the company was subject to regular tax probes in 2005 and 2010, the 2013 probe was seen by market insiders as an extraordinary and full-fledged investigation aimed at revealing possible irregularities.

By Kim Yon-se (kys@heraldcorp.com)