The financial regulator said Wednesday it will start a probe next month on the financial unit of Hyosung Group, a major South Korean conglomerate under fire for tax dodging and accounting fraud allegations, to see if the affiliate violated lending rules to support the parent firm.
The Financial Supervisory Service plans to launch an investigation into Hyosung Capital Co. in November on suspicion that the firm extended sizable loans to the Cho family, the owner of the conglomerate, using borrowed names, its officials said.
The country’s 26th-largest enterprise has been probed by the prosecution on charges of tax evasion and embezzlement through an accounting fraud.
The state tax agency has alleged that the firm evaded corporate taxes worth 1 trillion won ($944.3 million) since 1997, accusing chairman Cho Suck-rai, 79, of holding shares under borrowed names for the past decade to evade transfer and income taxes worth over 100 billion won.
It is not against the law in Korea for a financial subsidiary to extend a loan to its major shareholders, but the FSS has apparently found some irregularities in Hyosung Capital’s loan approval procedure to the owners through its board.
The regulator will focus on finding out whether the loans were extended under borrowed names, as that is a clear violation of the law, and if such loans were used in any way to help the Cho family embezzle company funds, FSS officials said. (Yonhap News)
