Korea targets corruption at automaker Hyundai

A massive financial scandal surrounding one of South Korea's most powerful tycoons has exposed the machinations by which they perpetuate their power - but appears unlikely to undermine the family-run conglomerates that dominate the economy.

As Chung Mong Koo, chairman of the Hyundai Automotive Group, was indicted Tuesday on charges of establishing an enormous slush fund to bribe officials, and then of embezzling funds to beef up his son's shares, corporate loyalists and critics debated the implications for the conglomerates, known as chaebol.

Inside Hyundai's corporate headquarters, executives view with alarm what they see as a campaign to destroy the family ownership of the empires that some see as the bedrock of Korea's economic success.

Outside the corporate structure, critics see pressure against dynastic rule over the chaebol as long overdue. "There is no reason why we should automatically accept the son as the next generation leader," says Jang Ha Sung, dean of business at Korea University. The system of hierarchical, family control "just because he's the son is outrageously ridiculous."

The government says it is simply going after what it considers egregious corruption as well as the increasing grip of the chaebol.

A Hyundai manager, talking in a nearby coffee shop, said he hoped that Hyundai's critics would "recognize the accomplishments" of Mr. Chung as he remains in jail pending the outcome of a request for bail. He faces trial on charges of setting up a $127 million bribes fund and diverting more than $300 million from his companies to enrich the holdings of his only son, Chung Eui Son. The son already is well on his way to control over the group, serving as president of Kia Motors, the subsidiary that Hyundai Automotive acquired in 1998 at the height of the 1997-1998 economic crisis.

Prosecutors, says the manager, have picked Hyundai Automotive as the latest target in an ongoing campaign to undermine the power of the mighty chaebol that rose from the ashes of the Korean War. The manager defends his boss for having vastly increased the scope and size of Hyundai Automotive since tearing it away from a cousin in a family feud seven years ago.

Nonetheless, prosecutors say they will also indict the younger Mr. Chung and other Hyundai executives in coming days.

They also have been interrogating government officials, one of whom, a former director in Seoul City Hall, committed suicide Monday after having been questioned about favors bestowed in a deal to expand the Hyundai headquarters at bargain costs. And last week, the chairman of the government's National Agricultural Cooperative Federation was jailed after being accused of accepting bribes for the project.

At the heart of the case, say prosecutors, lies Chung's desire to insure his son's inheritance of power.

"No one is talking about the failure of the chaebol," says Mr. Jang, of Korea University. "It's not an issue of dismantling the chaebol system." But, he adds, "There has to be a balance between the role the chaebol can play and that of small-and-medium enterprise" - companies play a role in the supply chain on which manufacturers such as Hyundai Automotive rely for parts.

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