SEOUL, South Korea, AP -The chairman of Hyundai Motor Co. was arrested and jailed Friday in an embezzlement and slush fund scandal engulfing South Korea’s largest automaker.
Chairman Chung Mong-koo’s arrest came as Hyundai and its affiliate Kia Motors Corp. are aggressively expanding operations to achieve their goal of becoming the world’s sixth-largest automaker by 2010. Hyundai said it had put a top executive in charge and all operations were proceeding normally.
Chung, 68, was accused of embezzling about $106 million in company money to create the slush fund, and of breach of trust for allegedly incurring about $320 million in damages to the company, prosecutors said.
The investigation, which began last month, has highlighted concerns about transparency at South Korea’s ubiquitous family-run industrial conglomerates, or chaebol, known for scandals and lax corporate governance.
Chung emerged from the Supreme Prosecutors’ Office in Seoul after his arrest, before being taken by car to the Seoul Detention Center, just outside the city. He made no comment.
Vice chairman and chief executive Kim Dong-jin was assuming full responsibility and operational control for Hyundai Motor, “a duty he shared with Chairman Chung Mong-koo,” company spokesman Oles Gadacz said after the arrest warrant was issued.
“All local and overseas manufacturing, sales, marketing and R&D (research and development) operations are unaffected by today’s development, and will continue normal operations,” he said.
Hyundai has delayed its first-quarter earnings announcement as well as a formal signing ceremony for the Czech plant as a result of the probe, while Kia has delayed a groundbreaking ceremony for its U.S. plant.
Auto industry analysts in recent days have said that while Hyundai may suffer some short-term distractions because of the investigation, the long-term impact was unlikely to be large given the company’s strong sales.
Seoul District Court Judge Lee Jong-seok said he had decided to issue the warrant after deliberating all day Friday because of the “heavy” nature of the allegations. Under South Korean law, prosecutors can detain suspects for up to 20 days after arrest before their indictment.
“The suspect is denying most of the charges and it is feared he could destroy evidence,” Lee said.
Prosecutors said they would continue to investigate Kia President Chung Eui-sun, Chung’s only son, but did not plan to seek his detention.
Hyundai and three of its affiliates — Kia, logistics unit Glovis Co. and auto-parts maker Hyundai Autonet — have been raided and key officials questioned in the probe.
Prosecutors said officials embezzled money from affiliates to create the slush fund and used it via at least two lobbyists to seek favors from the government. The lobbyists have been arrested on charges of receiving money from Hyundai in exchange for promises to help it win construction approvals and permits, and other business favors.
In 2004, the latest year for which statistics are available, Hyundai and Kia ranked seventh in the world in production at 3,168,694 vehicles, according to wardsauto.com.
Hyundai, maker of the Sonata midsize sedan and the luxury Equus, has factories in the United States, China, Turkey and India, as well as the one planned in the Czech Republic.
Kia is building a second plant in China and expects its first European factory to start up in Slovakia at the end of the year. It announced last month it would build its first U.S. factory in West Point, Ga., scheduled to go on line in 2009.
Hyundai Motor, which relies on exports for about 60 percent of its overall revenue, sold a record 2.53 million vehicles last year, up 11 percent from 2004. Kia sold 1.27 million vehicles, up 13.9 percent.