Lotte Group Headquarters Raid May Be Politically Motivated To Harass Allies of Former South Korean President

Lotte Group, South Korea’s fifth largest conglomerates and several of its affiliates have been raided by the government prosecutors on June 10. The raid has been conducted as part of a bribe probe which appears as further big blow for the planned IPO of Lotte’s hotel division. Around 200 officials have taken part in raiding Lotte headquarters in Seoul and residence of key executives.

The planned IPO has been represented as the world’s biggest one for this year. But Hotel Lotte, has slashed the IPO size to $4.6 billion (£3.2 billion) on June 7 and rescheduled for July following launching of a bribery probe into a director. Despite slashing the size, the IPO will still emerge as the largest one in South Korea, reports BBC.

The bribery probe poses fresh bout of turbulence for the big family run business giant dominating Asia’s fourth largest economy. Last year, the group has to withstand immense pressure developed from succession feud. During Friday’s raid, 17 locations have been searched including residence of group chairman, Shin Dong-bin, reports Reuters citing Seoul Central Prosecutor’s office and local news agency Yonhap as the sources.

Investigators have confiscated computer hard disks, accounting books and asset transfer records during the raid. An emergency traveling embargo has been imposed on Lotte executives including a vice chairman with surname Lee. He has been represented as the second most powerful man within the group. Chairman Shin has been in the US on a business trip during the raid, according to a report published in The Korea Herald.

Lotte has been raided on the suspicion of amassing black fund through its asset trading process among its subsidiaries. The embezzlement and malpractice allegations involve key executives, informs an official at Seoul Central Prosecutor’s office.

The investigators have been probing suspicious capital flow in between Lotte’s policy coordination division and its key units like Hotel Lotte, Lotte Shopping and Lotte Home Shopping. Lotte executives have allegedly amassed secret funds through purchasing at inflated prices from their subcontractors.

Prosecutors have also been investigating laundering of funds to owner families or to the unlisted companies in Japan. Those unlisted companies allegedly control Lotte Group’s Korea operation using a cross shareholding structure.

Investigators involved in the probe consider the event as laundering of national wealth. Prosecutors are also working to unearth the relation between Hotel Lotte and some Japanese companies collectively owning 99% shares in group’s hotel unit.

Hotel Lotte has paid ₩121.3 billion ($104.1 million) in cash dividends during the last five years. Around 99% of the revenue earnings reroute to Japanese affiliates like Lotte Holdings and Kojunsha, comment analysts while observing the cross ownership structure.

These Lotte units are not listed in Japan and hence are not in obligation to report their activities or ownership structures. The prosecution intends to make public Lotte’s opaque governance structures while unearthing any committed irregularities.

The ongoing investigation also searches for any undue favor from Lee Myung-bak administration that Lotte enjoys illegally in exchange of business favors. However, some analysts observe political motive behind the probe targeting close allies of the former president.