POSCO ex-head may face summons over slush fund

Former POSCO chairman Chung Joon-yang, who stepped down from his post in March 2014, is likely to face a summons from investigators over the group’s alleged slush funds.

The prosecution recently issued travel bans on some incumbent and former executives of POSCO as it widens its scope of inquiry into the allegations that the conglomerate engaged in irregularities involving embezzlement at its construction unit.

According to market insiders and news reports on Sunday, the steelmaker’s ex-chairman Chung, 67, was included on the travel ban list.

Chung was the key influencer behind the group’s mergers and acquisitions during the previous Lee Myung-bak administration. There has been speculation in the market that the group conducted shady deals for some takeovers.

While the number of POSCO units surged from 36 in 2009 to 70 in 2012 via M&As, 18 units underwent capital erosion. Observers, citing the conglomerate’s worsening financial standing, raised the possibility that the prosecution would look into rumors that a slush fund was created via cozy relations between the group and the political sector.

After Prime Minister Lee Wan-koo vowed on Friday to root out slush funds in the conglomerate sector, investigators raided the offices of POSCO Engineering & Construction and the residences of some executives.

While the probe started from the allegation that its builder unit POSCO E&C fostered 10 billion won ($9 million) in slush funds during its Vietnam project, observers say that the travel ban on group executives is heralding full-fledged scrutiny into the overall affiliates and subsidiaries.

Some questioned the feasibility of the Park Geun-hye administration’s investigation of whether there were low-key deals between the Lee administration and some major business groups.

Among the speculated irregularities under the spotlight are suspected tax evasion by POSCO P&S, the group’s marketing subsidiary, and a dubious M&A deal involving total solutions provider POSCO Plantec, according to a news outlet.

While the National Assembly is accelerating the probe on the Lee administration’s reported losses from its overseas resource development projects, some observers predict that the prosecution will join the move starting with the steelmaker case.

POSCO had yet to comment by Sunday on its stance on the raid and the travel bans.

By Kim Yon-se (kys@heraldcorp.com)