Hyosung, CJ E&M in tax hole; Cho Suck-rae, chairman of the country’s 26th largest conglomerate Hyosung Group, is likely to be prosecuted for evading hundreds of billions of won in tax

2013-09-27 17:00

Hyosung, CJ E&M in tax hole

By Na Jeong-ju
Cho Suck-rae, chairman of the country’s 26th largest conglomerate Hyosung Group, is likely to be prosecuted for evading hundreds of billions of won in tax.
Sources from the National Tax Service (NTS) said Friday it discovered Cho allegedly dodged paying tax by manipulating account books and setting up a slush fund.
“The case may be referred to the prosecution as early as next week,” an NTS official said on condition of anonymity.CJ E&M, an entertainment arm of CJ Group, is also being investigated by the tax office as part of a broader probe into the country’s 20th largest business group. The entertainment firm is headed by Lee Mi-kyung, the elder sister of CJ Chairman Lee Jae-hyun, who is now facing trial on charges of embezzlement, tax evasion and breach of trust.
On Thursday, a group of NTS officials raided Hyosung’s headquarters in Sangam-dong, Seoul, and seized account books and hard drives containing electronic documents, the official said.
The investigations into Hyosung and CJ suggest the Park Geun-hye administration is stepping up its crackdown on economic crimes committed by chaebol and their owners.
According to sources, the 78-year-old Hyosung owner inherited hidden assets from his parents. He operated a slush fund using these assets and engaged in accounting fraud to conceal them. Cho is also suspected of misappropriating company funds.
In addition, Hyosung allegedly manipulated its accounting records to cover up losses from its overseas businesses in the wake of the 1997-98 Asian financial crisis. The NTS suspect the scheme was directed by Cho.
“The prosecution will bring charges against Cho after conducting further investigations. We’ve already secured evidence showing his involvement in tax evasion and accounting fraud,” another source from the NTS said.
The firm said it failed to pay corporate taxes in the process of readjusting its overseas businesses, but claimed it has never amassed a slush fund.
“We will pay due taxes following our internal audit. That’s our responsibility. However, it is not true that we created a slush fund,” a Hyosung spokesman said.
One of Cho’s nephews, Cho Hyun-bum, an executive of the country’s largest tire maker Hankook Tire, is married to the daughter of former President Lee Myung-bak. Firm Chairman Cho Yang-rae is Cho Suck-rae’s younger brother.
The elder Cho served as chairman of the Federation of Korean Industries, the largest business lobby here, for four years from 2007.
In July, the Hyosung chairman was banned from leaving the country after the NTS launched the tax probe. Two other Hyosung executives may face charges for helping Cho evade taxes.
The claims by NTS officials indicate that Cho is highly likely to become another ill-fated conglomerate owner who may be put on trial and jailed.
Since the launch of the Park administration, firms run by the Cho family have been targeted by prosecutors and tax officials. They have been investigated the possible operation of slush funds and speculative property transactions in foreign countries.
The government has widened tax probes into conglomerates as part of efforts to expand its tax revenue. It has also toughened its stance on deals between chaebol affiliates, which have been blamed for hurting fair competition in the market and have often been abused by owners to expand their business empires.
These moves have drawn protests from the business community.

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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