18.04.2015 Author: Konstantin Asmolov

A new Round in the Anti-corruption Drive in South Korea

anticorruption_teaserThe South Korean government approved ratification of a new anti-corruption law passed by parliament on March 24, 2015, already informally been dubbed the “Kim Young-ran Act” after its author, the former chairmen of the Anti-Corruption and Civil Rights Commission. This law that has been debated since the beginning of the year has provoked big arguments and its critics claim that it violates certain constitutional rights of citizens of the Republic of Korea. What has the public so worried and how is this law connected to the general political line of President Park Geun-hye?

Under the Kim Young-ran Act civil servants who accept bribes and also use their authority for the benefit of individuals or organizations can be prosecuted. Equally, in the case of receiving third-party money or gifts of more than 1 million won (about $900), a civil servant may be sentenced to a term of up to three years of imprisonment or a fine of five times the amount of the bribe, regardless of why he/she was given the money. A civil servant is subject to a fine of up to five times the amount of the bribe in the event of a sum of less than 1 million won and an established link between the money received and the activities of the civil servant.

The law does not only apply to civil servants but also private school teachers, employees in the justice system, the media as well as their relatives. Its adoption was repeatedly postponed because in its earlier version it was required of family members of the recipient to report the bribes to authorities. As a result of the refusal of the “Pavlik Morozov” amendment the law extends only to the closest relatives of the guilty party taking bribes.

At about the same time, on March 18 officials from the Seoul Central District Prosecutors’ office led searches at the main office complex of the construction company “Kyonnam” and the Korean National Oil Corporation (KNOC). Both used to be part of a consortium which owned a total 45% of shares in the exploration and test drilling on the continental shelf of western Kamchatka project (KNOC owned 27.5%, “Kyonnam” owned 10%: SK Gas – 7.5%). The remainder of the shares belonged to Rosneft but has since been transferred to Gazprom. The Koreans eventually left the project after nearly five years of operations between 2005 and 2009. Investigators have already confiscated a significant amount of documentation, having carried out several arrests on the suspicion of embezzlement of funds to the amount of $266 million.

The former head of the metallurgical company “POSCO”, Chung Dong-hwa and several other former and current employees are prohibited from leaving the country as they are under investigation on suspicion of misappropriating funds of the company POSCO Engineering & Construction abroad. Chung Dong-hwa became the CEO in 2009 and left on his own volition in 2013. When headed the company, he led an aggressive marketing policy resulting in the opening of about 30 subsidiaries. However, this led to negative results because of the unprofitableness of the “POSCO Engineering & Construction” subsidiaries. The company’s debt that stood at nearly $8 billion in 2008 rose to $12.3 billion in 2012.

Particular attention is paid to the events in Vietnam where the cost of a highway construction project was grossly overstated. Within “POSCO” it is claimed that “additional expenses” were spent on “kickbacks” (as they say in Russia) to Vietnamese contractors and officials but the prosecutor’s office believes that the head of the Vietnamese branch of “POSCO E&C” set up a “secret fund” of nearly $4 million and disposed these funds for personal use.

Contracts in the defense sector are also looked at. The starting point of the investigation came from affirmation from a businessman of the company “SK Engineering & Construction” who paid an official from the US Armed Forces Command in Korea nearly $0.5 million in order to obtain the contract for the expansion of the American base in Pyeongtaek.  While representatives of the US military command in Korea refused to comment, the public prosecutor arrested Former Chief of Naval Operations Hwang Ki-chul at once on the charges of approving a supplier company of costly equipment for the salvage ship “Tongyeong” without inspection. Businessmen allegedly paid solid kickbacks to the command of the fleet and the Agency for Defense Development but the equipment was considered of poor quality and because of all this gerrymandering the ship, that cost more than $140 million, failed to be deployed to help support the rescue operations of the sunken Sewol ferry in April, 2014.

Searches and interrogations are underway in one of the divisions of the “Lotte-Lotte Shopping” conglomerate where management is suspected of using the personal accounts of employees to form “secret financial funds” for personal gain.

Add this to the statements of President Park Geun-hye at a cabinet meeting. She said that the “weed of corruption” that has spread in Korean society must be eradicated. To achieve this, tough and decisive actions must be developed and adopted because corruption in government undermines discipline in the public sector, leading to such consequences as the embezzlement of taxes during a time that people have had to tighten their belts. If the problem cannot be solved then the economy will made no headway, no matter what efforts were made to develop it. Speaking of which, the President focused on corruption in the defense industry, saying that keeping the status quo endangers first and foremost the people and this is not possible.. Park Geun-hye emphasized that an uncorrupted government ought to be the key to economic development. It seems that the prosecutor has been “given the green light” to act and not be hindered because of big names.

Here we have to consider the following. On the one hand, corruption is perceived in the Far East as one of the major social ills and on the other, the traditional system in many respects encourage it. Especially since the classical corruption scheme involves more than an envelope in exchange for a service, but rather a situation where the official is courted for a long time and gifts are given tying him to informal commitments so that when he is finally approached with a request he cannot refuse on moral grounds. It is precisely why there is such inflexibility regarding gifts since gifts have a tendency to accumulate.

Under Kim Dae-jung and his successor Kim Young-sam the anti-corruption drive was a dynamic tool of political struggle, and the precursor of Lee Myung-bak’s self-destruction was connected with the fact that the president, who stressed his incorruptibility and special zeal in fight against bribe takers, was directly involved in a very serious scandal with large sums of bribes. However, under Lee Myung-bak the degree of the anti-corruption drive sharply decreased and the government body that was charged with this segment of state policy was bureaucratized, reorganized and lost its former value. This is not surprising seeing as how according to official data Lee Myung-bak was the richest president of the Republic of Korea and his older brother Lee Sang-deuk, who was called “the president’s right hand”, received a prison sentence for corruption.

The Lee presidency is remembered by a multitude of ambitious economic projects of which the social and ecological consequences are reminiscent of the Soviet “Northern River Reversal”. The major beneficiaries turned out to be businessmen who were “serendipitously” part of Lee Myung-bak’s Protestant parish. None of these projects were fully completed due to public criticism, including the so called “Resource Diplomacy”. Within the scope of such patriotic businessmen, public money actively went into foreign projects, attempting to gain access to major strategic natural resource fields, the procurement of which played a key role in the South Korean economy.

It is clear today that these foreign projects presented as “big successes” and the acquisitions realized of South Korean companies either at inflated prices or deposit fields bought at great expense had insufficient reserves or did not have a fundamental importance to the development of the economy. According to some estimates, Seoul lost more than $30 billion as a result.

Take the example of the story of oil in Kamchatka. The Koreans were warned beforehand of the high risks involved but it was disregarded. Furthermore, in order to form the consortium and join the project, three companies received state funding of which a part was misappropriated by members of management.

In this connection experts believe that the investigation into the company “Kyonnam” is the beginning of an investigation into corruption in relation to all foreign projects carried out during Lee Myung-bak’s time in power. There are many questions in particular on the legitimacy of the sale of shares of the company “Kyonnam” in 2010 in the nickel extraction project in Madagascar of the Korea Resources Corporation.

Therefore, it is most likely that all who were privy to the “Resource diplomacy”, like “Korea Resources Corporation”, and the highly suspicious motive for collaborating with “Kyonnom” already in difficulty situation will become targets of the investigation.

Of course Park Geun-hye is pursuing several goals in continuing the anti-corruption drive. First, it improves her reputation in the eyes of the nation. Secondly, she is cracking down on people surrounding Lee Myung-bak, that might become the objects of a parliamentary investigation (and then, perhaps, it will go all the way to the ex-president himself). Thirdly, she is trying to re-structure economic policy towards a more realistic approach. Strengthening the domestic policy situation in this manner will be well received.

Konstantin Asmolov, candidate of historical sciences, senior researcher at the Institute of Oriental Studies of the Russian Academy of Sciences, exclusively for the online magazine “New Eastern Outlook”.