Hanhwa Suspected of Illegal Accounting Practices

The Criminal Division 9 of the Seoul District Public Prosecutors` Office announced that it would resume its investigation of three Hanhwa affiliates suspected of employing illegal accounting practice called the window-dressing. The three companies have allegedly downsized its debts by recording exaggerated profits on the book.

The People`s Solidarity for Participatory Democracy (PSPD) filed a criminal claim with the prosecution last October, accusing Hanhwa Corporation, Hanhwa Stores Co., Ltd. and Hanhwa Chemical Corporation of illegally lowering the 1999-2000 asset-debt ratio on the book through window-dressing.

The PSPD argues in the claim, "[The three Hanhwa affiliates] performed illegal accounting practice to make the asset-debt ratio less than 200%." The PSPD also alleges that the accounting manipulation was conducted to make Hanhwa eligible for acquiring Korealife Insurance, Inc.

On the other hand, the Financial Supervisory Service discovered last March that three affiliates including Hanhwa Inc., manipulated the ratio and artificially lowered it below the 200% level just before the end of the fiscal year 2000. According to the service`s investigation, the Hanhwa companies bought each other`s shares at a price much lower than the market price, and pulled the ratio down to 188.64%. Thus, several Hanhwa executives were dismissed from the job.

The DA`s Office confirmed that the PSPD made statements and it questioned Hanhwa Corporation`s CFO last Month.

A prosecutor in charge of the investigation said, "We have verified most of the facts to sustain our case in court. What remains is how we should interpret the facts and apply which law to prosecute the case. We will make final decisions after questioning more Hanhwa employees."

He also said, "Due to the heavy workload required of prosecuting the SK group case, we have put the Hanhwa case on hold for some time. As soon as we wrap up the former, we will resume our investigation of the Hanhwa case."

In response, the Hanhwa group explained, "It`s just about what accounting standards you are using. We have not manipulated our books illegally and systematically to acquire Korealife Insurance."

Myoung-Gun Lee gun43@donga.com