hankyoreh

The prosecution on March 26 raided the Seoul headquarters of Glovis Co., a subsidiary of Hyundai, finding a secret vault behind a fake wall. The raid was the first confirmation that a conglomerate has a place to stash away its slush funds, and the discovery probably represents the most important piece of evidence in the prosecution's case against Hyundai Motor Group.

"The secret vault was 10 pyeong (33 square meters) in size and was built in 2003," a former Hyundai official said. "A wall was built to make space for the vault, which was disguised by a moving chest; within it was a bag intended for money transfers. They always stored around 5-6 billion won (5-6 million USD) in the vault."


When the prosecution opened the vault, they reportedly found 7 billion won worth of cash, checks, and certificates of deposit.


Since the investigation started, the prosecution has found a total of 121.3 billion won in slush funds, which break down to 46 billion won at Hyundai Motor Co., 68.2 billion won at Hyundai Mobis Co., Kia Motors Corp., and Wia Corp., and 7.1 billion won at Glovis. Hyundai Motor Group is suspected of having created the slush funds mainly through bogus business transactions or receipt manipulation.



The slush funds were immediately stashed in the vault once they reached amounts of tens of millions of won. If an order from above came, Lee Ju-eun, president of Glovis, took unspecified amounts of money out of the vault.


"The creation of slush funds was mostly ordered by Hyundai Motor Vice Chairman Kim Dong-jin, with Lee [Ju-eun] serving as a delivery guy," a prosecution official said. Both men are currently under investigation by the prosecution.


Samsung Group was no difference, a source said. "Samsung also had a secret vault in its restructuring office, located in the headquarters building in central Seoul," a former Samsung official recalled. "Just as the one at Hyundai, the vault was disguised by a wall. It was full of cash, bonds, certificates of deposit, and gift certificates."


Slush funds were funneled to support loss-making affiliates or for personal use by Chairman Lee Kun-hee's family, he added.


"Now that Hyundai Group is under the prosecution's probe, it is anyone's guess whether Samsung still maintains the secret vault," he said.


It is not unusual that only a few high-ranking group officials knew about the existence of the secret vault. Prosecution's investigation also failed to get to the bottom of the slush funds. It has been like a slowly unfolding puzzle, market observers said.


The Hankyoreh found that the typical way of creating slush funds is to inflate the cost of purchase of certain items. "For example, when buying an item priced at 100 won, you manipulate the receipt to show you bought it for 130 won. The difference of 25 won will now be available to place in a slush fund," a former Samsung official said.


Samsung Corporation, a trading arm of Samsung Group, is suspected of having been at the center of the slush fund creation.


"Samsung Corporation was deeply involved in creating the group's slush fund," a former ranking official of Samsung Group said.


The prosecution also set its sights on the trading firm in 2004, when some of President Roh Moo-hyun's aides were under investigation on charges of influence peddling. But it stopped short of getting to the bottom of the group's alleged slush fund, leaving the charges unresolved. "Chairman Lee's personal assets, managed by the finance team of the Restructuring Headquarters, total 1 trillion won," Kim In-ju, former chief executive of Samsung’s restructuring office, once testified in court. "I was given discretionary power to use the money without reporting to the chairman as long as it would be good for Samsung."


These allegations by former top aides were likely made in order to escape heavy punishment for breach of trust and embezzlement in case the funds were found to have come from the company's coffers. Nonetheless, industry insiders maintain that these allegations may hold some truth. A former Samsung executive comments that the entire restructuring headquarters staff is held captive by the misconception that anything related to Samsung belongs to the chairman, and that secret funds formed illegally by its subsidiaries should also be regarded as the chairman's personal assets.


The role of forming and managing illegal funds does not seem to be confined to Samsung's local operations. Samsung Japan includes a branch chapter of its restructuring headquarters. In light of the widely-accepted industry rule that the size of slush funds usually runs parallel with that of the operation's purchasing budget, it is worth noting that Samsung Japan is a big-budget importer, a former restructuring headquarters official said.


It is widely believed that a great deal of Samsung's slush funds have been managed in the form of bank accounts or stock holdings registered either under the names of its board members or under fictitious names. Even these board members who lent their names have little idea about the size and location of such money registered under their names.


Samsung's core division dealing with corporate strategy and planning has access to the personal seals of its executives and copies of their national ID cards with a view to facilitating slush fund management, industry insiders said. "I was shocked to learn that more than 1 billion won had been placed under my name," said a former Samsung board member. "The moment I received my tax bill, members of the restructuring headquarters visited me to pick it up."


Yet, operating funds under borrowed names runs the risk of schemes to steal the money, despite a set of measures in place to ensure the funds' safe management. Given the massive size of the funds and their complex management procedure, some might be tempted to breach faith and claim their right to the illegal funds saved under their name. There are other cases when these people go as far as to threaten the company with blowing the whistle.


Others with funds under their name have reported the "loss" of their bankbooks, in order to renew the account with a new name seal to withdraw the money. In some cases, name donors have died suddenly and left the illegal funds behind as inheritance to family members.


A few years ago, Samsung was forced to give away a certain portion of its illegal funds to the president of one subsidiary who claimed his right to the money, sources in the matter said. A senior accountant at another Samsung subsidiary was able to extort more than 1 billion won from Samsung after having transferred the slush funds under his wife's name and threatening to seize all the funds, the sources said.