Hyundai Chairman Indicted in South Korea Scandal

RENEE MONTAGNE, host:

This is MORNING EDITION from NPR News. I'm Renee Montagne.

South Korean prosecutors today indicted the head of the country's largest automaker, Hyundai Motors, on charges of corruption and misusing company funds.

This is the latest corruption scandal to affect South Korean industries. NPR's Louisa Lim reports.

LOUISA LIM reporting:

The story of the vast Hyundai empire started with a stolen cow, stolen by founder Chung Ju-yung from his parents for seed money to set up a company.

Now, his son, Chung Mong-koo, is accused of theft on a far greater scale. He was arrested last month and now he's been charged with embezzling more than $100 million. It's suspected he used the money to establish a slush fund to bribe officials and help his son gain control of Hyundai Motors.

This indictment sending a clear message, according to Chung Sun-gu(ph), from the anti corruption group, Transparency International.

Mr. CHUNG SUN-GU (Transparency International): (Through translator) The Korean government is saying it's going to go after these corrupt conglomerates. Until now, there's been collusion between corrupt government officials and big businesses. The companies won't be allowed to get away with it anymore.

LIM: I'm standing on a Seoul street watching cars go past. It seems that every second car is made either by Hyundai or by Kia, its subsidiary. And that's one reason why critics say that prosecutors should go easy on the company. Its cars account for ten percent of the country's exports. So some warn that any move against the company could damage the whole economy of South Korea.

I'm now in a Hyundai salesroom in Seoul, surrounded by gleaming new cars. But it seems very quiet here. Those coming in and out are limited to the legions of salesmen working here, and I haven't yet seen any customers.

Salesman Koo Jong-soo(ph) is arranging his pristine desk. It seems he perhaps doesn't have that much else to do nowadays. He says he's noticed some changes since the president was arrested.

Mr. KOO JONG-SOO (Hyundai Car Salesman): (Foreign language spoken)

LIM: It affects the company's image, he says. People are having second thoughts about buying. You can't say it won't affect sales.

And the company's international plans are in limbo. With a groundbreaking ceremony for a $1 billion plant in Georgia postponed indefinitely.

The central issue is one of succession: how to legally hand over wealth and control of South Korea's massive family-run businesses from one generation to the next.

Don Kirk, who's written a book on Hyundai, says there's public dissatisfaction.

Mr. DON KIRK (Author; Seoul Correspondent, International Herald Tribune): Many people think, well, there should be equality; there shouldn't be this whole pattern of the first-born, and other sons, as well, automatically taking over their father's companies or groups. But nobody wants, also, to really destroy the system that is at the heart of the Korean economic miracle.

LIM: But that system has long been associated with corruption, with top executives often following a well-trodden path from boardroom to prison, then back to the boardroom.

Michael Breen is a long-time observer of South Korean business practices. He says the crimes Chung Mong-koo is accused of are nothing new.

Mr. MICHAEL BREEN (Author, The Koreans: America's Troubled Relations with North and South Korea): Well, why wouldn't he amass a slush fund? They all do? I mean, they have to. And every so often they get done for it. But if they don't do that they don't get business. It would be nice to be able to say, oh, you know, this is a watershed event, and from now we will not see a, b, or c, happening. That's not going to happen. You know, I'll tell you, this time next year they'll be another conglomerate head done for something else.

LIM: For the moment, it's the man known as Prisoner 4011 who's in the public spotlight. If convicted, Chung Mong-koo could face a jail sentence ranging from five years to life in prison.

But some analysts predict that, given public sentiment, he may be released on bail soon.

Louisa Lim, NPR News. Transcript provided by NPR, Copyright NPR.