Roundup: S.Korean Lotte Group faces biggest crisis on alleged bribery, slush fund scandals

Lotte Group, South Korea's fifth-largest family-controlled conglomerate, faced the biggest crisis in its 70-year history amid the ongoing prosecutors' investigation into alleged bribery and slush fund scandals involving the founding family as well as succession feud between brothers.

One of the group's family members was summoned on Friday by prosecutors for questioning on charges of taking bribes from a local cosmetics company seeking to shelf space in the group's duty-free shops.

Shin Young-ja, the eldest daughter of group founder Shin Kyuk-ho and older sister of group chairman Shin Dong-bin, appeared in the Seoul Central District Prosecutors' Office to be questioned about whether to have received bribes from former Nature Republic chief executive Jung Woon-ho.

She has been accused of receiving one to two billion won(1.74 million U.S. dollars) between 2012 and 2015 from Jung, who had already been detained for various charges, including bribing former prosecutors to block indictments for illegal overseas gambling and other irregularities.

In return, Shin, 74, now executive director of Lotte Scholarship Foundation, was suspected of providing preferential treatment to Jung, such as the offering of shelf space in Lotte's duty-free stores.

On June 2, the prosecution dispatched some 100 investigators to search the offices of Hotel Lotte's duty-free division and the home of Shin Young-ja, who actually resigned from the conglomerate's management after the end of her tenure as president of Lotte Shopping in 2012.

She is now a director of multiple group affiliates, including Hotel Lotte and Lotte Shopping. She owns shares across group units as a member of the founding family, with 0.74 percent in Lotte Shopping, 2.52 percent in Lotte Confectionery, 2.66 percent in Lotte Chilsung Beverage and 1.09 percent in Lotte Foods.

Six days later, prosecutors arrested Lee Hyo-wook, chief executive of BNF Trading that is controlled by Shin's 48-year-old son Jang Jae-young but is known to have been actually operated by Shin, on charges of destroying evidence. The BNF Trading is suspected of serving as a channel to funnel bribes into Shin.

The home of a Lotte Scholarship Foundation executive, believed to one of Shin's close aides, was searched by prosecutors on Tuesday, three days before the summoning of Shin.

Separately, group founder Shin Kyuk-ho and his second son Shin Dong-bin, current group chairman, were charged with creating slush fund through illegal transactions between affiliates. An official in charge of managing group funds reportedly told prosecutors that the founder and his son had received about 10 billion won and 20 billion won every year via the intra-group deals.

On June 10, the prosecution sent 240-strong investigators, the highest ever mobilized for corporate probe in history, to search 17 locations including the group headquarters and six affiliates as well as the offices and homes of the group founder and the current chairman.

Four days later, prosecutors stormed 15 locations to search other group affiliates. Documents, account books and computer hard discs confiscated during the two raids amounted to seven to eight truckloads, according to local media reports.

Key group executives, close aides to chairman Shin Dong-bin, reportedly were banned from leaving the country, while other family members are expected to be summoned in a foreseeable future.

The group has also been embroiled in a succession battle between chairman Shin Dong-bin and his older brother Shin Dong-joo. The power struggle erupted into public view in July last year when Dong-bin ousted his father from the position of chairman in the Tokyo-based Lotte Holdings, the group's holding company.

Shin Dong-joo, who was also dismissed from Lotte Holdings vice chairman in late 2014, sought to oust his younger brother in August last year and March this year, ending up failure. At the June 25 general shareholder meeting of Lotte Holdings, the elder Shin just failed to dismiss his brother but still expressed willingness to continue in leadership spat.

Lotte Group, founded in Japan in 1948 as a maker of chewing gum, expanded its business into South Korea in 1967, growing into a South Korean retail giant with interests ranging from hotel, amusement park, department store and discount chain to food, chemical, construction and insurance.

The power strife between brothers disclosed an opaque ownership structure of the group and raised controversy over whether the group is a South Korean company or Japanese. Anti-Lotte sentiment increased, with some civic group activities boycotting Lotte products and services.

Amidst the controversies, Shin Dong-bin appeared in the parliamentary inspection of government offices in September last year, becoming the first chaebol chairman to attend the parliamentary probe among heads of the country's top 10 conglomerates.

Shin vowed to streamline the complex shareholding structure by listing Hotel Lotte, a de-facto holding company of the group's South Korean businesses, but the initial public offering was delayed to the end of this year amid the ongoing investigation by prosecutors.

According to a security statement submitted by the group to the financial regulator, Hotel Lotte would have raised a maximum of 5.7 trillion won in its planned IPO if it were to be conducted as scheduled. It would be the largest listing in history, surpassing the previous high of 4.9 trillion won in Samsung Life Insurance's IPO in 2010. Endit