Ex-CEO of DSME May Have Paid Improper Bonuses

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By MarEx 2016-07-08 21:23:43

On Thursday, South Korean media reported two new developments in the ongoing accounting and management scandal at Daewoo Shipbuilding and Marine Engineering. First, former CEO Ko Jae-ho stands accused of paying out $420 million in bonuses to executives over the same period that his firm was reporting inaccurate earnings; Ko already faces charges of orchestrating accounting fraud totaling to $4.7 billion over 2012-2014, turning years of losses from underbid rig-building contracts into years of apparent success.

“Even while the company was suffering losses, he messed with the numbers and reported fake profits,” said a prosecution official, speaking to Korea Joongang Daily. “We are investigating whether Ko handed out bonuses to stop employees from reporting on cases of corruption within the company." 

The prosecutors have cited the bonuses in an arrest warrant request for Ko. If true, the bonuses would have averaged to more than $30,000 for each of DSME's 14,000 employees over the three-year period. 

DSME has received heavy injections of public funds to stay in operations, including a $3.7 billion support plan from state-run bank KDB late last year, and prosecutors expressed concern that the bailout could have been less costly if the bonuses had not been paid.

Earlier this week, Representative Hong Ihk-pyo, a member of the National Assembly, released what he described as a leaked report from a secret ministerial meeting on DSME held last October. The document appears to show that Cabinet ministers were aware of the DSME accounting fraud and of the possibility that a bailout could be perceived as wasteful. Former KDB chairman Hong Kyttack has claimed that the meeting's participants overruled his objections and ordered support for DSME; KDB issued its multi-billion dollar support plan for the shipyard the week after the meeting.