Korean Tycoons Dodge A Bullet

The New York Times, December 8 1995

SEOUL, South Korea, Dec. 6— With South Korea caught in the grip of a monumental corruption scandal, knuckles are white in boardrooms across the country.

Seven captains of Korean business were indicted this week for giving bribes, and many more are under scrutiny. But executives are breathing a bit easier now because the Government has allowed the indicted tycoons to remain at liberty while awaiting trial.

Many South Koreans believe that the Government shrank at the last minute from a step that could have sown disorder and instability in the economy. Remarkably, the Government was more reluctant to jail industrialists than to imprison former President Roh Tae Woo, who is to go on trial on Dec. 18 on charges of taking hundreds of millions of dollars in bribes for a slush fund.

As the tycoons grow more confident that they will be able to retain control over their chaebol, as the conglomerates are known, talk is waning about major changes in the Korean business world.

"The economic impact of the slush fund has been exaggerated a bit," said a Western diplomat in Seoul who spoke on the condition of anonymity. "I think people have overestimated the possibility that the Government would move against the chaebol in any major way. I just don't see the Government killing the goose that lays the golden egg."

The diplomat added that even if the corporate chiefs were imprisoned, changes would not necessarily be great. "If worst came to worst, they could probably run their companies from their jail cells," he said.

Among those who were indicted on Tuesday were Lee Kun Hee, chairman of the Samsung Group; Kim Woo Choong, head of Daewoo, and Choi Won Suk, head of the Dong Ah group. The heads of four other big companies -- Dongbu, Jinro, Daelim and Daeho -- were also indicted, along with the former head of the Hangyang Group.

People like Mr. Lee of Samsung and Mr. Kim of Daewoo are household names in Korea and are well known throughout Asia. They wield enormous power, in part because they control the conglomerates more as family concerns than as stockholder-owned companies.

One tycoon, Chung Tae Soo, chairman of the Hanbo group, was imprisoned before the latest indictments and remains in jail on bribery charges.

"I don't think that this will have an overall significant effect on the economy or on the chaebol of Korea," said S. J. Kim, head of Korea research for Daewoo Securities, which is part of the Daewoo conglomerate.

The tycoons are suspected of each giving as much as $30 million or more to Roh Tae Woo while he was President from 1988 to 1993 in exchange for lucrative contracts and other favors. Kim Woo Choong of Daewoo, for example, is suspected of meeting Mr. Roh in the presidential office and agreeing to pay $13 million in exchange for a contract to build a submarine base and other benefits.

South Korea has a reputation as one of the most corrupt countries in a region known for corruption. Analysts say bureaucratic controls are so widespread that bribes are the most efficient way for a company to get some breathing space.

"To some extent, to grow is to bribe, because of all these regulations," said Cho Dong Sung, a professor of business administration at Seoul National University.

Much more than most other countries in Asia, South Korea is dominated by its large companies. By some estimates, 40 conglomerates control half or more of the country's industrial output, and there are periodic calls for the government to help smaller businesses instead.

Mr. Roh has acknowledged collecting a slush fund, though he has denied that the money was paid as bribes, and in any case investigators have not been able to identify all the sources of the slush fund. That has fueled speculation that other companies, perhaps foreign ones, have given bribes as well.

In particular, prosecutors this week are interrogating former defense ministers and other senior officials to check on allegations that General Dynamics, the American military contractor, paid bribes to win a huge contract in 1991. The company has denied the charges.

The suspicions arise because South Korea had been planning to buy F/A-18 fighter aircraft from McDonnell-Douglas. Then at the last minute, reportedly at the suggestion of President Roh, South Korea switched and gave General Dynamics a $5.2 billion contract to buy 120 of its F-16 fighters.

By most accounts, South Korea has cracked down on bribes in the last few years, in part because President Kim Young Sam has banned bank accounts that do not carry the owner's true name. Samsung Group said in a statement that it had made "donations" to politicians in the past, but that it had stopped after Mr. Kim came to power in 1993 as the first civilian president since 1961.

Nicholas Kristoff



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