The chairman of the Hyundai Motor Co, the world's seventh-largest automaker and a pillar of South Korea's economy, was arrested Friday on charges of embezzlement and breach of trust.
Prosecutors said the chairman, Chung Mong-koo, 68, who led the company's global expansion and raised its image by emphasizing quality, had set up a US$105 million slush fund to bribe government officials and politicians. He is also facing a charge of breach of trust, accused of causing more than US$315 million in damage to the company through his misconduct.
Prosecutors portrayed the arrest as a testament to the commitment of regulators to crack down on corruption in the country's family-controlled business groups.
In a late-night broadcast live on national television, Chung, flanked by prosecutors, emerged from the Supreme Prosecutors' Office to be taken to a jail just outside Seoul.
Facing a crowd of television crews and photographers, he bowed slightly but did not say a word.
He was arrested immediately after the Seoul Central District Court granted the request for an arrest warrant on Friday evening.
"The accused keeps denying the charges and, therefore, there is the possibility of the accused trying to go into hiding or destroying evidence," a senior district court judge, Lee Jong-seok, told reporters.
The judge's office also said the amount of money Chung was accused of embezzling was large enough that if convicted, he would probably serve time in prison.
The arrest capped a monthlong investigation into Hyundai and companies affiliated with the family-controlled conglomerate, South Korea's second-largest group after Samsung.
It focused renewed attention on the power of the country's conglomerates, known as chaebol, and their ties with government officials and politicians.
In Hyundai's case, prosecutors have said that senior executives used the slush fund to bribe government officials and politicians. They also contend that Chung acted illegally to transfer assets to his son, Chung Eui-sun, 35, president of Kia Motors, which is part of Hyundai.
The battle to arrest Chung was closely monitored by industry analysts and ordinary South Koreans as a power struggle between state regulators and the conglomerate.
Under the government of South Korean President Roh Moo-hyun, regulators have increasingly been investigating the most sensitive, controversial practice at the conglomerates: their methods of passing wealth and corporate control from father to son.
During the hearing, Chung's lawyers said his arrest would hurt the South Korean auto industry by depriving Hyundai of a charismatic leader credited with building the company and its affiliate, Kia Motors, into a global competitor.
But prosecutors said his incarceration would send a strong warning against corruption at the family-controlled conglomerates.
Prosecutors said they uncovered incriminating evidence during a raid in March at the offices of Hyundai and several major subsidiaries that included questionable arrangements involving affiliates that were set up to help Chung turn over the conglomerate to his son. Prosecutors said they would indict the son, but not arrest him.
Prosecutors questioned the father and son in the last week, and the Hyundai group has postponed groundbreaking ceremonies at new plants in West Point, Georgia, and in the Czech Republic.
As the investigation unfolded in the last month, the Chungs apologized to the public and announced that they would donate US$1.1 billion in personal assets to charity.
The move came after a similar one by Samsung. Last year, audiotapes emerged revealing Samsung executives giving illegal donations during the 1997 presidential election. The conglomerate's chairman, Lee Kun-hee, left South Korea for the US for several months until he was cleared of wrongdoing. Immediately after Lee returned here and asked South Koreans for forgiveness, Samsung announced in February that it would donate US$840 million to charity.
Like the Hyundai chairman, Lee Kun-hee was also under investigation for illegally trying to transfer the conglomerate's control to his son, Lee Jae-yong.
Samsung, Hyundai and other conglomerates are credited with helping to build South Korea's economy, but critics say they exercise too much power over the country's economy and politics.
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