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Park’s Blue House meddled in duty-free: BAI

July 12,2017
Former President Park Geun-hye and top members of her government interfered with the awarding of center-city duty-free licenses between 2015 and 2016 - in the selection process and in increasing the number of operators.

But it is still unclear whether any of the big companies involved provided quid pro quo to the administration - especially in regards to the funding of two foundations created by Park’s long-time confidante Choi Soon-sil.

According to the Board of Audit and Inspection (BAI) of Korea on Tuesday, there were 13 examples of fishy activity in the process of awarding duty-free licenses between 2015 and 2016.

The agency said the Korea Customs Service changed the scoring system for duty-free licenses in 2015 so that Korean retail giant Lotte Group could be disqualified. As a result Hanwha and Doosan won the rights despite an initial evaluation that gave Lotte a higher score.

The investigation found that the custom agency created an atmosphere unfavorable to Lotte’s bid by allowing the head of the evaluation committee read a statement by the Fair Trade Commission encouraging an end to the monopoly on major duty free stores. Lotte is the largest operator in the local duty-free industry.

As a result, Lotte lost its license to operate its duty-free store in Jamsil-dong, southern Seoul. At the time, there were rumors that Lotte was stripped of its license due to a feud between Chairman Shin Dong-bin and his older brother Dong-joo over management control.

In December 2016, Lotte Group regained the license for the Jamsil branch.

According to the BAI, President Park ordered then Blue House chief economic secretary Choi Sang-mok to increase the number of additional duty-free business operators at the end of 2015. Choi ordered the Ministry of Strategy and Finance to come up with measures to add operators, which were announced by the custom agency in April.

In 2015 the customs agency had no plans to add additional operators.

The custom agency released distorted data on the number of foreign customers in order to justify the reasons behind the need for additional operators. An outside study commissioned by the custom agency reported that there was room for only one additional operator instead of the four that the government ended up approving, which included Lotte’s Jamsil branch.

The custom agency also disposed of documents related to the selection process in 2016 at the order of agency commissioner Chun Hong-uk after a lawmaker requested them during a National Assembly audit. The agency returned the files to the companies that won the license. Its Seoul branch destroyed documents on the companies that didn’t get licenses.

Chun is said to be close to presidential confidante Choi, who reportedly helped him be appointed as Customs commissioner.

The BAI, however, said it wasn’t able to find proof of any under-the-table deals between the heads of conglomerates - particularly Lotte’s Shin Dong-bin - and Choi Soon-sil’s foundations Mir and K-Sports.

“The Korea Customs Service’s issuing of new duty-free business rights and donations to the Mir Foundation are two different areas,” said Chun Kwang-choon, the BAI spokesman.

The results of the investigation have been given to the prosecutors’ office. If it prosecutes, the conglomerates, including Lotte, Hanwha and Doosan, could have their duty-free licenses stripped from them.

The local duty free industry has been struggling with a sharp drop in Chinese tourists since tensions between Beijing and Seoul intensified over a U.S. antimissile defense system. Earlier this month, Hanwha Galleria gave up its duty-free business at the Jeju International Airport even though its license is good for two more years. Giving up the license cost the company a 2 billion won ($1.74 million) fine.

The company’s duty free operation in Jeju suffered a loss of 2.6 billion won in the first quarter and is estimated to suffer a 5 billion won loss in the second quarter.

In its report the BAI stated that five center-city duty-free businesses in Seoul had a combined operating loss of 132.2 billion won as of September 2016.

BY LEE HO-JEONG [lee.hojeong@joongang.co.kr]