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May 28, 2017

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5 Lotte family members indicted for corruption

SEOUL, South Korea -- Prosecutors said Wednesday they indicted the Lotte Group's founder, his mistress and all of his three children on embezzlement, tax evasion and other charges, in the latest case highlighting the outsized influence of founding families over South Korean publicly listed companies.

Five family members including Lotte's founder Shin Kyuk-ho, 94, and the group's current chair, Shin Dong-bin, 61, together allegedly evaded a total US$76 million in taxes and embezzled US$46 million of company funds, Seoul Central District Prosecutors' Office said in a statement.

Three others are the founder's older son Shin Dong-joo, 62, his daughter Shin young-ja, 73, and his 57-year-old common-law wife Seo Mi-kyung.

The prosecutors said the Shin family members also incurred US$123 million of losses to Lotte companies as the family used their influence to control corporate funds and to make decisions favorable to them, not to shareholders.

"We have been seriously reflecting on what efforts Lotte should make for society and for the national economy," Lotte said in a statement. "We will continue to strive to build a good company."

The announcement wraps up the four-month-long investigation into South Korea's No.5 conglomerate.

When Lotte sold its businesses to the founding family members, they were sold at prices way below market value. But when Lotte bought businesses or stocks from its founding family, it had to pay premiums, the prosecutors said. For example, Lotte sold its lucrative popcorn business at its movie chains to the founding family members, allowing them to monopolize the profits from selling popcorns to moviegoers. The profit should have gone to Lotte Shopping, which operates one of the biggest movie theater chains in South Korea, the officials said.

Lotte also paid a total 50.8 billion won (US$45 million) as salaries from 2005 to 2016 to two of the founder's children even though they did not hold any positions or have any duties with the company.

It is unusual for prosecutors to seek charges against the entire family of a major South Korean business.

Founding families that control chaebol, the big businesses dominating the South Korean economy, have been convicted in the past. The chiefs of Samsung, Hyundai Motor and SK have been found guilty of white color crimes but later received presidential pardons.

Those cases have shown that even though chaebol bosses own a minority stake in their companies, they can run their companies like they run a dynasty, treating corporate funds as if they were in their own pocket.

The latest investigation into Lotte forced the group to suspend a plan to list shares of its hotel business, just months after its chairman emerged from a bruising public battle with his older brother for control of the group. In August, a Lotte executive and one of the top aides of Lotte's chairman, was found dead in a suspected suicide, just hours before prosecutors were supposed to question him.

Lotte is a household name in South Korea with a big presence in Japan and Southeast Asia. It operates South Korea's largest department store, a major hotel chain and food businesses, as well as duty free shops and chemicals business.

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