As the prosecution delves deeper into slush fund allegations against CJ Group involving chairman Lee Jay-hyun, the nation’s major conglomerates are nervous they might be next.

Rumors that three more business groups are under the prosecution’s scrutiny are adding weight to the view that CJ is the just the beginning of a major clampdown on chaebol under the Park Geun-hye administration’s strong pitch for “economic democratization.”

With the heads of SK Group and Hanwha Group having been sentenced to jail terms for embezzlement and breach of trust, chaebol are anxious over the exposure of CJ’s possible wrongdoings, which they believe would make the entire chaebol community look bad.

“The mere fact that a company is under prosecutorial inquiry could deal a blow to its reputation and business,” said an official at one of the major conglomerates.

“The prosecution should look into a tycoon’s illegal acts, but the probe must not have any political purposes and should be carried out quietly and quickly.”

CJ, which sells food products, runs restaurants and multiplex cinemas, has lately been the target of fresh regulations aimed at helping out small- and medium-sized firms.

The prosecution’s search of CJ offices and the residence of an ex-CJ official on Tuesday hinted that it confirmed much of the suspicions raised over the Lee family’s secret funds.

Lee is suspected of evading taxes for his earnings from stock and bond investments using borrowed accounts, in addition to evading taxes by laundering money through offshore tax havens.

CJ Group on Wednesday denied media speculation that its two firms in the British Virgin Islands were paper companies set up to evade taxes or create slush funds.

“The two corporations were handed over (to CJ) in the merger and acquisition process (of other companies) and therefore have nothing to do with tax evasion or slush funds,” the conglomerate said in a statement.

Envoy Media Partners is the holding company of Megastar, Vietnam’s largest multiplex which CJ CGV acquired in 2011, according to CJ.

W.P.W.L. is the developer of a Libyan waterway project of Korea Express which CJ took over in 2012, CJ said.

CJ has been under prosecutorial scrutiny ever since a CJ official surnamed Lee was indicted in 2008 over charges that he hired a hit man to kill a loan shark who borrowed from the CJ chairman’s slush funds that Lee was managing.

The man was acquitted in court due to a lack of evidence, but the prosecution started tracking down the chairman’s hidden assets under borrowed accounts, albeit with little progress.

The prosecution’s central investigation unit continued to gather information on CJ despite interruptions caused by the suicide of former president Roh Moo-hyun in 2009 and the political movement to shut down the unit last year.

By Kim So-hyun (sophie@heraldcorp.com)