Accounting fraud confirmed at Samsung Heavy

Posted on : 2007-12-28 10:14 KST Modified on : 2007-12-28 10:14 KST
Prosecution found lack of correspondence between insurance payments and output

South Korean prosecutors investigating allegations of slush funds and bribery at Samsung Group said they have found that Samsung Heavy Industries Co. engaged in large-scale accounting fraud.

After seizing and analyzing documents from Samil PricewaterhouseCoopers, an auditor of Samsung Heavy, prosecutors confirmed as fact that the combined premiums and down payments paid out for shipbuilding insurance between 1999 and 2001 did not correspond to the incremental shipbuilding output at Samsung Heavy during the three-year period.

“A shipbuilder is insured for compensation if there is any damage during the shipbuilding period, so a rise in output should signify an increase in insurance payouts,” said an official of the investigation team. “However, documents show that Samsung Heavy’s insurance payouts did not match a rise in shipbuilding output, so there is a high possibility that Samsung Heavy might have manipulated the accounts,” the official said.

In 1999, the shipbuilding output for Samsung Heavy was 2.38 million tons, compared with 1.54 million tons a year earlier. Until 2001, Samsung Heavy’s output had risen at a steady pace. However, there was little change in insurance payments made during the three-year period.

Prosecutors were also said to have found that the volume of undelivered parts from foreign companies to Samsung Heavy rose sharply during the same period.

Prosecutors had reportedly failed to confirm the exact value of the accounting fraud at Samsung Heavy as the investigative team was disbanded after President Roh Moo-hyun named an independent counsel earlier this month to probe allegations that Samsung Group had maintained a network of slush funds used to bribe government officials, members of the judiciary and journalists. The independent counsel will begin investigation next January, and will have 105 days in which to complete it.

An official at Samsung Heavy said, “An increase in shipbuilding output does not necessarily prompt a rise in insurance payouts because insurance bills are different, depending on a ship’s price and its delivery date. Since there are many kinds of insurance products, we are calculating the insurance payouts mentioned.”

Previously, Kim Yong-cheol, a former top legal affairs official at Samsung Group, alleged that accounting fraud at Samsung Heavy amounted to 2 trillion won (US$2.1 billion) as of 2000. In a press conference held in late October, Kim also claimed that Samsung Techwin Co. manipulated accounts worth 1.6 trillion won, while those of Samsung Corp. were worth 2 trillion won. In addition, accounting fraud at Samsung Engineering Co. and Cheil Industries Inc. amounted to 1 trillion won and 600 billion won each, according to Kim.

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