May 31, 2018 / 2:44 AM / 3 months ago

Korean Air raided by prosecutors over suspected embezzlement by founding family

SEOUL (Reuters) - South Korean prosecutors raided the headquarters of Korean Air Lines Co Ltd on Thursday over suspected tax evasion, embezzlement and breach of trust by members of its founding family, in what has become the broadest-ever chaebol probe.

FILE PHOTO: The logo of Korean Airlines is seen on a B787-9 plane at its aviation shed in Incheon, South Korea, February 27, 2017. REUTERS/Kim Hong-Ji/File Photo

The investigation is the latest involving the family-controlled conglomerate, or chaebol, after a tantrum in April by the chairman’s youngest daughter re-ignited public resentment toward the perceived unchecked behavior of chaebols’ powerful family-owners.

Cho Hyun-min’s alleged throwing of a drink at a business meeting attendee sparked protests which, coupled with a liberal government willing to pursue wrongdoing among the elite, has led to an unprecedented number of family members being subject to multiple investigated simultaneously, analysts said.

Cho Hyun-min is the younger sister of Heather Cho. The elder Cho was jailed in 2014 for demanding a Korean Air Lines plane return to its gate at a New York airport, after losing her temper over the way she was served nuts in a first class cabin.

Meanwhile separately on Thursday, police sought an arrest warrant for matriarch Lee Myung-hee on assault charges.

Park Sang-in, an economics professor at Seoul National University, said workers at Korean Air Lines coming forward against the owner-family has particularly fueled the probes.

“The family appears to have a lot of issues, as one investigation is leading to another, supported by testimonies from workers,” Park said.

FILE PHOTO: Korean Air Lines Chairman Cho Yang-ho arrives to testify at the second court hearing of his daughter Cho Hyun-ah, also known as Heather Cho, at the Seoul Western District court in Seoul January 30, 2015. REUTERS/Kim Hong-Ji/File Photo

Korean Air Lines workers this month held rallies in Seoul calling for Chairman Cho Yang-ho to step down.

Days later, authorities considered cancelling the license of budget airline Jin Air Co Ltd because Cho’s younger daughter had been a board member despite being a U.S. national - a potential regulatory breach. Chairman Cho subsequently stepped down as Jin Air’s co-chief executive.

“Unless the chairman himself is found guilty of any severe financial crime, for instance, the ongoing probes will have little impact on the family’s control,” Park said. “Even so, members of families running conglomerates are now more cautious about any emperor-style management.”

The Seoul Southern District Prosecutors’ Office began investigating suspected tax evasion after the tax agency questioned whether Chairman Cho paid tax on overseas assets inherited from his father, Yonhap News Agency reported earlier on Thursday.

The prosecutors’ office is also tracking money flows within accounts of Cho family members and associates, a prosecution official told Reuters.

A Korean Air Lines spokesman told Reuters prosecutors’ investigators were at the headquarters but declined further comment.

Separately, Seoul Metropolitan Police Agency said it has sought an arrest warrant for Chairman Cho’s wife, Lee Myung-hee, after securing testimony from 11 people claiming to have been assaulted or verbally abused by Lee.

Shares in Korean Air Lines fell as much as 1.1 percent in Thursday trade, compared with a 0.6 percent rise in the benchmark index. Shares in Jin Air fell as much as 2.1 percent.

“Due to uncertainty concerning the founding family, Korean Air shares are undervalued,” said analyst Choi Chi-hyun at Meritz Securities. “Once the governance risk passes, the attractive valuation will come to the fore.”

Reporting by Haejin Choi and Joyce Lee; Additional reporting by Ju-min Park; Editing by Stephen Coates and Christopher Cushing

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