Retail giant Lotte plunged into deeper crisis by chairman’s arrest

A corruption investigation into South Korea’s fifth biggest conglomerate intensifies as an arrest warrant is requested for Lottle chairman Shin Dong-bin

Shin Dong-bin, Lotte Group Chairman
Shin Dong-bin, Lotte Group Chairman and the younger son of Lotte Group founder Shin Kyuk-ho, appears at the Seoul Central District Prosecutors' Office  

South Korean prosecutors have requested an arrest warrant for Lotte Group Chairman Shin Dong-bin, as the ongoing corruption probe into the retail giant deepens. The Seoul Central District Prosecutors’ Office is seeking to detain Shin on charges of embezzlement and breach of trust, relating to around KRW 200bn ($181bn).

Shin, who was formally questioned by prosecutors last week, is accused of having overseen and cooperated in large-scale bribery schemes and illegal payments. Among other charges, Shin is suspected of paying substantial stipends to family members for simply being listed as Lotte board members in name only.

“It is regrettable that an arrest warrant has been sought”, the BBC reported the company as saying.

“We will fully present our case during the court proceedings and wait for the wise decision of the court”, said a Lotte Group spokesperson, confirming Chairman Shin will cooperate fully with the prosecutors’ investigation.

Shin Dong-bin is accused of having overseen and cooperated in large-scale bribery schemes and illegal payments

The high-profile corruption probe has dealt the nation’s fifth-biggest conglomerate a significant blow. Last month, Lotte Vice Chairman Lee In-won was found dead in an apparent suicide, just hours before he was due to be questioned by prosecutors over corruption allegations. Lee was Shin’s closest aide, and the highest-ranking executive outside the company’s founding family.

Lotte’s business ambitions have also been hampered by the corruption scandal, with the retail giant scrapping a proposed $4.5bn initial public offering for its hotels division, and pull out of a $3.1bn bid for US chemicals corporation Axiall. The company’s mismanaged IPO saw 1.2bn Won wiped off its combined market value, while its shares have suffered dramatically as the ongoing investigation deepens.

As the arrest warrant threatens to push the South Korean conglomerate further into crisis, it could serve to exacerbate the embittered family feud at the very top of the company. Over the past year, incumbent chairman Shin has been embroiled in a power struggle with his older brother, who has unsuccessfully attempted on several occasions to seize control of the business empire.

The mounting financial and managerial turmoil at Lotte is the latest in what has been a year of crisis for South Korea’s most powerful conglomerates, collectively known as chaebols. The nation’s biggest shipping line, Hanjin shipping, filed for bankruptcy protection at the end of August, while industry giant Samsung had $14bn wiped off its shares following a costly global recall of its malfunctioning Galaxy Note 7 smartphone.

As Lotte is thrown into deeper turmoil, the role of South Korea’s once all-powerful chaebols is coming under ever more scrutiny. As the nation’s biggest conglomerates are rocked by crises, the outcome of this extensive corruption probe could prove monumental for South Korean business culture.