Lotte’s founding family denies all in first trial

The founding family of Lotte Group stood trial Monday, denying their charges of embezzlement and corrupt management of their businesses. It marked the first time that the feuding members have appeared in court together.

The trial came five months after prosecutors first charged Chairman Shin Dong-bin and four other family members in October last year. Following Monday’s opening trial, the court plans to hold hearings three times a week regarding the charges of embezzlement and tax evasion.

Chairman Shin appeared alongside his father and group founder Shin Kyuk-ho and his brother Shin Dong-joo, as well as his sister Shin Young-ja and his father’s partner Seo Mi-kyung. This was Seo‘s first time appearing in court since the investigation into the group began. She is currently residing in Japan.

Chairman Shin Dong-bin faces charges of unfairly giving his family salaries worth 50.8 billion won ($45.3 million). He is also accused of causing Lotte Shopping 77.4 billion won in damages by handing over concession stand operations for Lotte Cinema to a company run by Seo and her daughter at a low price, and causing 47.1 billion won in damages to affiliate companies by using them to invest in the faltering Lotte PS Net.

Lotte founder Shin Kyuk-ho is accused of embezzling company funds as well as 85.8 billion won of tax evasion. He also faces charges of colluding with Chairman Shin in the Lotte Cinema charges and selling unlisted stocks to affiliates at inflated prices totaling 9.4 billion won.

Shin Dong-joo is accused of accepting unmerited salaries worth 39.1 billion won, while Shin Young-ja and Seo Mi-kyung are involved in the Lotte Cinema charges.

All of the defendants at Monday‘s trial denied the charges against them. Legal counsel for Shin Kyuk-ho and Shin Dong-bin seemed to point fingers at each other. Shin Kyuk-ho’s attorney claimed that he was never closely involved in the everyday management decisions, such as those that are currently being investigated, saying that he followed the advice of top managers in the company.

Meanwhile, Shin Dong-bin‘s attorney claimed that all of the decisions within Lotte Group, including those involving salaries and investments between affiliate companies, were made solely by the senior Shin. Other defendants including Shin Young-ja and Seo Mi-kyung also agreed with this argument, saying that they had no motive to embezzle from the company and that all decisions, such as those regarding Lotte Cinema, lay with the eldest Shin.

Shin Dong-joo claimed that the salaries he had received were legitimate and merited because of his management positions at Lotte both in Korea and in Japan.

Shin Kyuk-ho, who is currently under guardian protection after being judged to be mentally unfit last year, reportedly shouted about his innocence before being dismissed just 30 minutes into the trial. Considering Shin Kyuk-ho’s mental and physical health, the judge also decided to separate oral proceedings for him. In future trials, Shin Kyuk-ho will only appear with the other defendants when deemed necessary by the court.

The founding family’s trial is just one of several predicaments for the retail giant.

On Sunday, Lotte Duty Free’s CEO Jang Sun-wook was brought in for questioning by prosecutors regarding the company’s contributions to foundations run by former President Park Geun-hye’s confidante Choi Soon-sil. In addition to 4.5 billion won contributed by Lotte to the Mir Foundation and K-Sports Foundation, Lotte had given an additional 7 billion won to the K-Sports Foundation before having the money returned ahead of a prosecutors’ raid on the company.

If Lotte is found to have contributed the money in exchange for political favors, it would help prosecutors build a case for bribery against former President Park.

Lotte Group is also currently facing backlash from Beijing and Chinese consumers for providing land to install an anti-missile battery here. Since Lotte’s land swap deal with the Defense Ministry, anti-Korean sentiment has been growing in China, which strongly opposes the installment of the Terminal High Altitude Area Defense system on the peninsula. Lotte has suffered hacking attempts on its websites and large-scale boycotts of its products among Chinese consumers. In addition, the Chinese government has actively carried out safety inspections on Lotte properties in China, leading to widespread closures of Lotte’s supermarkets there.

As of Sunday, 67 of 99 Lotte Mart branches in China were closed after receiving safety inspections. Other branches have chosen to close voluntarily because of protests outside the stores. News reports estimate that 90 out of the 99 stores are currently unable to operate normally.

According to news reports Monday, the few stores that are operating are quickly losing their Chinese suppliers as vendors continue to pull their products from Lotte Mart shelves in the wake of the THAAD controversy fearing the stigma of being “unpatriotic.”

As Lotte Mart continues to see losses in China, Lotte’s revenue from tourist attractions such as Lotte World and sales at duty-free shops that were mostly fueled by Chinese tourists have also fallen drastically. In addition to negative consumer sentiment, inbound tourism from China has declined after the Chinese government’s ban on travel agencies selling travel packages to Korea went into effect Wednesday.

According to Lotte Duty Free, sales during the first weekend after the ban dropped 30 percent compared to the same period last year.

By Won Ho-jung (hjwon@heraldcorp.com)