Korean Trial Puts Spotlight on Enron-Style Corruption ; the Former Head of Daewoo Was Indicted Friday on Charges Amounting to $70 Billion in Accounting Fraud

By Donald Kirk Correspondent of The Christian Science Monitor | The Christian Science Monitor, July 5, 2005 | Go to article overview

Korean Trial Puts Spotlight on Enron-Style Corruption ; the Former Head of Daewoo Was Indicted Friday on Charges Amounting to $70 Billion in Accounting Fraud


Donald Kirk Correspondent of The Christian Science Monitor, The Christian Science Monitor


As Kim Woo Choong awaits trial in one of history's biggest corporate scandals, prosecutors face a nagging question. Should they make an example of Mr. Kim, whose Daewoo group collapsed under debts of $80 billion six years ago, or ask for leniency?

"It's almost certain he'll be sentenced severely," says Lee Ji Soo, a lawyer involved in securities cases here, "but he's trying to get exoneration, making the excuse he's very ill." In the end, Mr. Lee predicts, Kim, who is suffering from poor health, "won't have to go to jail."

Before Kim is released, however, he will have to face charges amounting to $70 billion in accounting fraud, diversion of funds, and bribery. Although indicted Friday, he was arrested three weeks ago upon returning to Korea from six years overseas. He fled as his corporate dream shattered in a nightmare of debts after the Korean economic crisis in 1997 and 1998.

But the greater significance of Kim's case - the dimensions of which are greater than the scandals at Enron and WorldCom - will be the degree to which it puts the spotlight on reforming South Korean conglomerates, known as chaebol.

Despite backsliding, many analysts say the chaebol, family- dominated groups that evolved from the rubble of the Korean War and directly or indirectly control most major industries, have vastly raised standards since the dark days of the economic crisis. At that time, almost all of them were weighed down by debts totaling at least five or six times their equity.

But as prosecutors ask Kim about political payoffs, the case will certainly raise troubling questions about the degree to which the chaebol have changed since the economic crisis that forced the government to appeal to the International Monetary Fund for bailout loans of nearly $60 billion.

"Corporate governance reform has retreated for the past five years," says Kim Sang Jo, executive director of People's Solidarity for Participatory Democracy, which targets corruption and mismanagement at the top levels of the chaebol. Mr. Kim sees the trend as "getting worse and worse" as the biggest chaebol challenge "the power of the government," gradually weakening, according to him, any resolve to insist on more far-reaching reform. …

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