Former POSCO chairman indicted without detention

The months-long investigation into alleged corruption involving the nation’s biggest steelmaker and its subcontractors came to a close Wednesday with the prosecution indicting former POSCO chairman Chung Joon-yang without detention.

The Seoul Central District Prosecutors’ Office filed charges against the 67-year-old Chung for taking bribes and breaching his duties by causing financial losses to the nation’s biggest steelmaker, it said in a press briefing Wednesday morning.

Chung Joon-yang (Yonhap)

The prosecution also indicted other key figures -- former POSCO vice chairman Chung Dong-hwa, 63, and Dongyang Construction chairman Bae Sung-ro, 60 -- without detention for their involvement in embezzlement, bribery and breach of trust.

The move came seven months after the prosecution launched a probe in March into POSCO’s alleged corruption upon a tip-off the steel giant had dubious deals with subcontractors, affiliates and high-profile politicians.

Chung is suspected of masterminding dubious mergers and acquisitions deals during his term as chairman between 2009 and 2014, allegedly causing 159 billion won ($137.5 million) in losses to POSCO. In one example from 2011, he led the acquisition of a stake in plant equipment firm Sungin Geotec, owned by a close friend, for well over market value. 

Chung also allegedly exerted undue influence in getting a family member a job as a high-level official at Kosteel, a partner company of POSCO. Kosteel has been suspected of helping POSCO evade taxes by doctoring transaction records and creating slush funds.

Lee Sang-deuk (Yonhap)

 The prosecution additionally accused him of offering deals worth 1.2 billion won to small maintenance company TM Tech, run by a close aid of former President Lee Myung-bak’s elder brother Lee Sang-deuk.

In return, the 79-year-old former ruling Saenuri Party lawmaker allegedly exerted influence on government officials to appoint Chung as POSCO chairman and to lift planning restrictions so the company could resume its construction of a new steel factory in 2011. He was indicted without detention on influence peddling charges.

The prosecution indicted former POSCO vice chairman Dong-hwa for creating a slush fund worth $5 million in Vietnam during his term in the office and embezzling a total of 1 billion won. He allegedly took kickbacks including cash and golf trips from the subcontractor in return for granting it business deals. He also gave an executive position at POSCO to a high-ranking government official’s high school friend in early 2011.

Bae Sung-ro, another key figure at the center of the corruption scandal, was indicted on charges of fraud. The former chairman of Dongyang Construction allegedly covered up his company’s financial records to win construction bids and loans from state-run banks. He allegedly received preferential treatment from POSCO leaders in exchange for kickbacks and creating slush funds for POSCO and its affiliates.

As a result of the probe, the prosecution shed light on widespread corruption cases stemming from the formerly state-run POSCO’s heavy reliance on the government, its leadership’s cozy relations with politicians and lax management.

POSCO, which was established under the rule of former President Park Chung-hee and run by the government since then, began its privatization process in 1998 in the face of the Asian financial crisis.

Though POSCO was completely privatized in 2000, its operation and appointment of the chief executives have been greatly swayed by the government.

“As POSCO doesn’t have a family owner, there were cases in which company executives with only a limited term colluded with politicians and gave favors to certain subcontractors (in connection with them),” an official from the prosecution said.

But prosecutors came under fire for dragging out the probe over months without a visible outcome, possibly taking a toll on the steel giant’s business. Their multiple requests for detention warrants for Chung and Bae were rejected in the process due to a lack of evidence.

The prosecution indicted a total of 32 people, mostly from POSCO and its subcontractors. Among them, 17 were detained.

It plans to continue probing the six-term lawmaker Lee Byung-suk of the ruling Saenuri Party to see whether he was involved in the corruption case.

By Ock Hyun-ju (laeticia.ock@heraldcorp.com)