Korean Tycoon Jailed for Bribery in Further Strain on Lotte


(Bloomberg) -- A Seoul court jailed Lotte Group Chairman Shin Dong-bin for bribery, leaving the nation’s largest retail group leaderless as the conglomerate seeks to navigate a planned initial public offering of its hotel unit and China relations threaten the sale of a chain of stores there.

Korean Tycoon Jailed for Bribery in Further Strain on Lotte

Shin, who turns 63 on Wednesday, was sentenced to 30 months in prison after the Seoul Central District Court found him guilty of charges stemming from Lotte’s decision to give 7 billion won ($6.5 million) to a confidante of former President Park Geun-hye, allegedly in exchange for government favors in providing a license to operate duty-free stores. Prosecutors had sought a four-year jail term.

He becomes the second head of a top conglomerate to be imprisoned for seeking to curry favor with impeached President Park by bribing one of her confidantes. The de-facto head of technology giant Samsung Electronics Co. was jailed last year in a related trial but he was unexpectedly released last week on appeal, in a ruling that was perceived as a setback to government pledges to curtail the power of the nation’s corporate elite.

For Lotte, a conglomerate with businesses including chemicals and hotels, the decision comes after a sweeping reorganization last year that created a holding company for many of the companies assets and consolidated Shin’s control. The conglomerate had also re-started plans for an initial public offering of its hotel unit.

“We respect the court’s decision, but the result is very regretful,” Lotte Corp. said by text message. “We are concerned that this could have a big negative impact ahead of the planned Hotel Lotte IPO and completion of the holding company and on investment as well as employment.”

Shin was one of three defendants whose verdicts were read out on Tuesday for their roles in a scandal that gripped Korea most of last year. Choi Soon-sil, the former president’s confidante at the center of the case, received a 20-year sentence for charges that include abuse of power and bribery. One of Park’s former senior aides received a six-year jail sentence.

Shin’s jailing puts a spotlight on his top lieutenant, Lotte Corp. Co-Chief Executive Officer Hwang Kag-gyu, who may be left to run a conglomerate with scores of units generating more than 100 trillion won in annual revenue. Lotte Corp. shares rose 0.2 percent on Tuesday in Seoul trading before the verdict was announced.

Shin was also fined 7 billion won. He can appeal the ruling with the Seoul High Court.

The chairman, who’s been running the retail-to-chemicals giant in that post since 2011, had been seeking to invest billions of dollars to expand overseas. Then, a series of crises struck.

In 2015, a family fracas spilled into public view as Shin’s older brother led a boardroom coup that failed. After that, Lotte grappled with corruption investigations and intensifying regulatory scrutiny, which took a toll, with Lotte canceling a potential $4.5 billion initial public offering of a unit and withdrawing a bid for chemical-maker Axiall Corp. in 2016. Last year, Lotte was caught in a diplomatic row with China after the company offered its land to the Korean government, which sought to install a controversial U.S. missile defense system opposed by China.

China used to be one of Shin’s biggest priorities as Lotte expanded in the world’s second-largest economy aggressively with investment plans that included developing a 3 trillion won theme-park project in Shenyang and increasing the number of stores in the country. As China-Korea relations soured, most of Lotte’s 112 marts and supermarkets in China were shut down by Chinese authorities for alleged fire-safety violations, and the Shenyang project was halted.

Korean Tycoon Jailed for Bribery in Further Strain on Lotte

The group’s efforts to sell the stores in China have stalled as alleged fire-safety infractions have created uncertainty about whether a new owner could operate the stores, a company executive said.

Lotte fixed the fire-safety issues last year, but authorities haven’t moved forward with the company’s request for a reinspection, said the Lotte executive, who declined to be named because of internal policy. China’s fire services department didn’t immediately respond to an emailed request from Bloomberg for updates on the Lotte stores.

©2018 Bloomberg L.P.

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