Prosecutors yesterday arrested a former chief of a state-run bank over a disputed payment made to North Korea ahead of a historic inter-Korean summit in 2000, officials said.
Lee Keun-young, the former governor of Korea Development Bank, is the first official to be arrested in connection with the Hyundai business group's US$500 million payment to North Korea.
Opposition leaders allege that the former government used the money to bribe Pyongyang to agree to the summit between then South Korean President Kim Dae-jung and North Korean leader Kim Jong-il.
Lee, who had also served as the financial watchdog chief, is charged with causing damage to the bank by approving loans to Hyundai beyond the group's credit limit, prosecution officials said.
Hyundai acknowledges giving the money to North Korea before the summit, but claims it was to secure business rights in the North covering tourism, railways and an industrial park.
South Korean law labels North Korea as an "anti-state entity," and it is illegal to provide cash to the North without government approval.
Ex-president Kim in February said his government approved Hyundai's money transfers, despite "legal problems," because they facilitated peace on the Korean Peninsula.
There has been no word on whether Kim will face questioning.
Prosecutors have questioned Kim's top inter-Korean affairs aide, Lim Dong-won, who has said that South Korea's intelligence agency helped Hyundai remit part of the money. Lim served as the premier intelligence chief and unification minister in Kim's administration.
The summit was a crowning achievement for Kim and helped him win the 2000 Nobel Peace Prize.
President Roh Moo-hyun, who took office in February, has approved a new law appointing an independent counsel to investigate the case. Pyongyang vehemently protested the investigation.
The scandal was a further blow to inter-Korean relations, which has been strained by the standoff over the North's suspected development of nuclear weapons.