[THE INVESTOR] South Korean prosecutors may seek a joint probe with investigators in Japan to expand its investigation into Lotte’s alleged creation of slush funds and embezzlement, according to reports Thursday quoting officials with the prosecution.
Lotte’s subsidiaries in Japan are running relatively smaller businesses than the group’s operations in Korea. But when looking at its corporate governance structure, most of Lotte’s affiliates in Korea are being controlled by Tokyo-based Lotte Holdings, raising suspicions that massive slush funds may have been created through intercompany asset trading.
Lotte Group chairman Shin Dong-bin (left) looks around the Lotte duty free store in Tokyo on March 31. Lotte Group
The prosecution has been looking into allegations that Lotte may have sent its secret funds to unlisted subsidiaries in Japan that are not obliged to publish its business operations.
Korean investigators may seek cooperation from their Japanese counterparts to secure evidences to prove Lotte’s alleged creation of slush funds through its affiliates in Japan.
The prosecution’s widening probe may threaten Lotte chairman
Shin Dong-bin’s control over the group, market watchers say, as investigators are seeking to prove the shady relationship between Lotte Holdings and other affiliates both in South Korea and Japan.
Shin, the current chief of Lotte Holdings, could be held responsible for the crisis and also possibly lose his control over the group’s operations in South Korea, they added. His elder brother
Shin Dong-joo is not immune from accountability over the crisis, as he served as vice chairman of Lotte Holdings for seven years dating to 2009.
Lotte Holdings controls 38 affiliates in Japan and six units overseas. Its corporate governance structure has remained in the shades as none of Lotte’s affiliates in Japan are listed on the stock market.
Lotte Group chairman Shin Dong-bin (center) takes part in a cake-cutting ceremony after the opening of the duty free store in Tokyo on March 31. Lotte Group
Lotte Chemical is suspected of siphoning off its cash by inserting a trading unit of Lotte Japan in the process of purchasing raw materials including mixed xylene from petrochemical suppliers.
The prosecution believes that the group raised slush funds through Lotte Chemical and transferred the money to its subsidiaries in Japan.
Investigators are also looking into allegations that Lotte lobbied government officials in exchange of business favor, particularly during the Lee Myung-bak administration.
The Lee government approved Lotte’s controversial skyscraper project in Jamsil, southern Seoul, despite lingering safety concerns over flight paths, including the presidential jet, heading to the nearby Seongnam Air Base.
The military had disapproved of the plan for years. But Lotte won approval from the Lee government on condition of shifting one of the air base’s runway by 3 degrees. Speculation has remained that Lotte may have lobbied high-ranking officials in the military, Cheong Wa Dae and political circles close to the then-president to get the greenlight.
Some have speculated as to the political motives behind the investigation, saying it might target aides of the former president.
In 2010, the Fair Trade Commission approved Lotte’s acquisition of AK Duty Free, despite concerns over its market monopoly.
By Cho Chung-un (
christory@heraldcorp.com)