DSME Investigated for Accounting Irregularities
On Wednesday, South Korean police reported that they had confiscated the assets of a former deputy of Daewoo Shipbuilding & Marine Engineering, who allegedly embezzled $14.5 million from 2012 to 2015 by creating false trading statements.
The ex-employee allegedly invested the funds in real estate investments and had an apartment in the upscale beachside neighborhood of Haeundae, Busan, reportedly filled with $850,000 in luxury goods and precious metals, said Korea Economic Daily.
Separately, the Korea Herald said Wednesday that the Korean government's Bureau of Audit and Inspection had analyzed confiscated records and detected an accounting misstatement at DSME of roughly $1 billion for the 2013-2014 period; the firm had posted a profit of $275 million over the two years when it actually had a net loss of $720 million.
DSME reported a $3 billion loss last year.
The Bureau blamed DSME's major creditor and largest shareholder, government-owned Korea Development Bank, for failing to conduct due diligence and monitor its investments. Using the bank's own systems for evaluating financial statements, BAI found that DSME's reports got the lowest credibility rating possible - but KDB stopped looking closely at the yard's books in 2013, so the misstatements were not picked up.
Based on the incorrect profit numbers, DSME paid out $170 million in employee performance bonuses over the period analyzed, BAI said.
The government is initiating a recapitalization plan for KDB to give it funds to cover souring loans at DSME and other shipbuilders, and to allow the bank to continue to lend for restructuring costs.
DSME also faces multiple other lines of inquiry. Prosecutors intend to look into the hundreds of projects signed under the leadership of former CEOs Nam Sang-tae and Ko Jae-ho, whose sequential leadership periods covered 2006 to 2015. For evidence, investigators have access to 250 boxes of documents seized in raids earlier this month.
Nam is suspected of overpaying for contracts awarded to his acquaintances and of creating a slush fund by recovering some of the excess.
Prosecutors allege that Ko set DSME up for losses by underbidding rig construction orders, then obscured the financial fallout through improper accounting.