The Hanbo scandal (also known as Hanbogate[1][2]) refers to the late-1990s events involving corruption by senior South Korean government officials and top executives of the Hanbo Steel (한보그룹) conglomerate, then South Korea’s second biggest steelmaker and 14th biggest conglomerate based on the book value of their assets.[1][3][4] The resulting scandal in the first half of 1997 has been described as one of the largest in South Korean history.[5]
Events
editHanbo Corp. went into receivership on 28 January 1997.[6] It was the 14th largest Korean chaebol (family-owned business conglomerate) in 1995, up from 28th in 1994.[7]: 145 Hanbo was initially a small steelmaker that began building a huge plant in 1992, funded with high interest rate loans.[6] The failure of Hanbo took place at a time when the authorities, influenced by the ideas of some reformers who opposed the concentration of economic power in chaebol, began to allow large corporate bankruptcies.[8]
Following a trial, in June 1997 the court said Hanbo Steel received illegal preferential treatment from the government of Korean president Kim Young-sam, primarily through loans issued by banks under pressure from bribed high-ranking politicians and bankers.[1][3][4] Losses were estimated at US$6 billion.[5] Hanbo's founder, Chung Tae Soo, was sentenced to 15 years in jail for giving bribes, embezzlement and fraud.[3] Chung had previously been convicted of bribing officials: in 1991 to rezone a greenbelt around Seoul to permit a Hanbo Construction apartment complex, and in 1996 for giving $16 million to then-President Roh Tae Woo's slush fund.[9][6]
The son of Hanbo Chairman Chung Tae Soo, Chung Bo Keun, was given a three year sentence.[10][3] Eight other prominent figures, including former Home Minister Kim Woo Suk, several presidential aides and parliament members, and two former presidents of Korea First Bank were also handed sentences.[3] The son of the president, Kim Hyun-chul, was arrested in a related investigation[3][11] and sentenced to three years in October 1997.[1][12] Hong In Gil of the then ruling New Korea Party received a seven-year prison sentence. Kwon Roh Kap, a member of the main opposition National Congress for New Politics, was sentenced to five years in prison.[3]
Impact
editThe scandal is seen as contributing to the Korean economic troubles of that time (see also Asian financial crisis of 1997), and exposing South Korea's economic weaknesses and corruption problems to the international financial community. Hanbo was one of the first in a series of at least ten large South Korean conglomerate bankruptcies that occurred during this period (involving major companies like Kia Motors and Daewoo; the latter also part of a major corruption scandal).[1][5] The domino effect of collapsing large South Korean companies drove up interest rates and drove away international investors.[13]
In February 1997, Moody's Investors Service downgraded the long-term ratings of three Korean banks having the most exposure to Hanbo Steel: Korea Exchange Bank, Korea First Bank, and Cho Hung Bank.[14]
In domestic Korean politics, the involvement of the son of Kim Young-sam in the scandal undermined his father's reforms and anti-corruption campaign.[1][2][15][16]
References
edit- ^ a b c d e f Jon S. T. Quah (21 July 2011). Curbing Corruption in Asian Countries: An Impossible Dream?. Emerald Group Publishing. pp. 307–308. ISBN 978-0-85724-820-6.
- ^ a b Schuman, Michael. "Hanbo Scandal Highlights Failings of Kim's Crusade". WSJ. Retrieved 2018-08-28.
- ^ a b c d e f g "Hanbo Steel Founder Given 15 Years in Korean Scandal". The New York Times. 2 June 1997. Retrieved 2018-08-28.
- ^ a b Noland, Marcus (2000-06-01). Avoiding the Apocalypse: The Future of the Two Koreas. Columbia University Press. p. 206. ISBN 9780881323030.
- ^ a b c John Malcolm Dowling (2008). Future Perspectives on the Economic Development of Asia. World Scientific. p. 305. ISBN 978-981-270-609-6.
- ^ a b c Nakarmi, Laxmi. "The Fall of Hanbo Steel: Korea picks up the pieces – and points fingers". Asiaweek.
- ^ Johnson, Simon; Kwak, James. "Policy Advice and Actions during the Asian and Global Financial Crises" (PDF). Peterson Institute for International Economics.
- ^ Barnes, Kevin; Mansoor, Ali; Cohen, Benjamin; Takagi, Shinji (3 September 2003). "The IMF and Recent Capital Account Crises: Annexes - Nonfinancial structural reforms". IMF.
- ^ Efron, Sonni (8 April 1997). "Korea Scandal Figure Locks Up at Hearing". Los Angeles Times.
- ^ Jie-Ae, Sohn (2 June 1997). "South Koreans sentenced in loan scandal: Hanbo founder gets 15-year term". CNN.
- ^ Blechinger, Verena (2000). "Report on Recent Bribery Scandals, 1996-2000" (PDF). Submitted for a TI Workshop on Corruption and Political Party Funding in la Pietra, Italy. Archived from the original (PDF) on 2018-09-11. Retrieved 2018-09-11.
- ^ "S. Korea president's son sentenced for bribes – Oct. 13, 1997". CNN. Retrieved 2018-08-28.
- ^ Sebastian Edwards (15 February 2009). Capital Controls and Capital Flows in Emerging Economies: Policies, Practices, and Consequences. University of Chicago Press. p. 503. ISBN 978-0-226-18499-9.
- ^ "Hanbo Scam A Case For Financial Reform". Business Standard.
- ^ "Next, please". The Economist. 1997-03-06. Retrieved 2018-08-28.
- ^ Cho, Hee-Yeon; Surendra, Lawrence; Cho, Hyo-Je (2012-11-12). Contemporary South Korean Society: A Critical Perspective. Routledge. p. 152. ISBN 9781136191282.