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Korea Aerospace Industries Seoul offices on July 14

Prosecutors are targeting the company Korea Aerospace Industries (KAI) for investigation over alleged defense industry corruption.

The outcome of the investigation is drawing particular attention in the wake of President Moon Jae-in naming “rooting out defense industry corruption” as his first order to new Minister of National Defense Song Young-moo. It is also the first investigation into abuse of power since Yoon Seok-youl became chief prosecutor at Seoul Central District Prosecutors’ Office.

The office’s defense project investigation department, headed by Park Chan-ho, conducted a search and seizure of KAI’s head office in Sacheon, South Gyeongsang Province, and Seoul office on the morning of July 14. The company is being accused of fraud for allegedly profiting illegally by inflating development expenses and other production costs.

The Board of Audit and Inspection (BAI) previously released audit findings indicating that KAI earned 54.7 billion won (US$48.4 million) in illicit profits with inflated production cost calculations during its 2015 development of the Surion helicopter. Prosecutors subsequently carried out a long-term internal investigation into KAI, sources said. They believe KAI earned illicit profits of at least tens of billions of won (tens of millions of dollars) through development cost inflation while developing and supplying the Surion, T-50, and FA-50 for the military. The same day, Prosecutors sent in dozens of attorneys and investigators to seize accounting materials and other documents, digital data from computer hard disks, and the mobile phones of people implicated.

Many around the Defense Acquisition Program Administration (DAPA) are now watching closely to see how far the Prosecutors’ investigation goes. KAI has been accused of purchasing gift certificates valued in the billions of won in 2014 for lobbying of generals. In 2015, it ended up at the center of a scandal when a BAI audit found it to have made tens of billions of won in illicit profits from production cost inflation during development of the Surion transport utility helicopter. Many with the Prosecutors believe the investigation could spread beyond KAI to focus on lobbying and concession interference by politicians and government officials.

By Seo Young-ji, staff reporter, and Park Byong-su, senior staff writer

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