What is the Reality of the BFC?

“Is the British Financial Center (BFC) former Daewoo Group Chairman Kim Woo-jung’s private safe for slush funds or his illegal fund management channel for world management?”

Increasing attention has been given to the reality of BFC since the prosecution announced that it would investigate the organization.

The persons from the Daewoo Group explained that a London-based organization established by the group in 1970s, which had entered the Libyan construction market in order to get paid for its construction services from Libya with which Korea did not have a treaty of amity, was a parent body of BFC. The organization was officially named as the London branch of the London Corporation of the Daewoo Corporation.

The BFC evolved into an organization managing the group’s overseas funds. Especially after the mid 1990s when the size of overseas borrowing and investment was bigger, while actively executing the group’s world management policies, the BFC became strategically more important and bigger in size, accordingly.

The Daewoo Group made use of the BFC as a channel for funding capital from domestic and international sources as interest rates and foreign exchange rates surged from the Asian financial crisis.

According to a prosecution investigation in 2001, the funds under management of the BFC amounted to $20 billion (25 trillion won when calculated by the exchange rate at that time). It was known that $15.7 billion out of the amount was used for repayment of overseas borrowing and $3 billion was used for overseas investments.

Prosecutors paid attention to whether a portion of the remaining $1.3 billion was used for bribing politicians and government officials. Other issues noted include whether $5 million used to purchase a grape farm in France and $2.5 million used to fund his son’s overseas studies came out of the BFC.

The Daewoo Group strongly denies this, saying, “The remaining money was all spent to pay interest incurred by the group’s loans, and the documents supporting this have all been confirmed by the Financial Supervisory Committee.”

The prosecution failed to grasp the reality of the BFC due to difficulties in tracing overseas bank accounts in 2001. Former Chairman Kim’s testimony is expected to play a pivotal role in seizing the reality of the BFC, as financial institutions normally store documents for only five years.

Joong-Hyun Park sanjuck@donga.com jin0619@donga.com