Northrop Chief Was Alerted in ’86 to Funds Diversion

A letter alleging that Northrop officials engaged in a number of potential irregularities, including the diversion of company funds to buy high-level influence in the South Korean government, was sent to Northrop Chairman Thomas V. Jones in December, 1986.

The nine-page letter, which has become a key part of a South Korean government investigation into Northrop’s practices in marketing its F-20 fighter in that country, details extensive dealings between Northrop officials and the late C. K. Park, a former official of the Seoul government.

About a half-year after the letter was sent, Northrop filed for arbitration to recover $6.25 million it paid to a Park-controlled venture as part of an ostensible hotel investment. Later, Northrop filed a civil suit in South Korea, alleging that it had been defrauded.

The letter, a copy of which was obtained by The Times, was written by Jim K. Shin, a resident of Hawaii who was a paid representative of Northrop in arranging high-level contacts between Northrop officials and South Korean government officials. Shin said in his letter that he was seeking Northrop’s help in clearing his reputation, which he claimed was being tarnished.

A Northrop spokesman said Thursday: “This entire hotel investment was a conspiracy by those individuals in Korea to defraud Northrop. Right now, we are looking into what role Mr. Shin played in all of this and how he may have benefited.”

But a congressional committee is investigating whether Northrop sought to buy influence in South Korea and whether the firm’s business deals violated the Foreign Corrupt Practices Act.

Shin, who could not be reached Thursday at his Hawaiian home and was said to be in South Korea, had worked for Northrop through a Korean corporation controlled by Park, according to the letter and other documents obtained by The Times during the past year. In an interview last year, Shin declined to discuss his role in South Korea as a Northrop representative.

Investments Questioned

In the letter, Shin alleges that in March, 1984, two senior Northrop executives met Park in Japan at the Tokyo Prince Hotel. Park proposed that Northrop contribute $6.25 million to develop a deluxe hotel in South Korea and that the funds be “diverted for use as the sales promotion fund.”

Northrop officials agreed and deposited the $6.25 million into the Hong Kong branch of the Korea Exchange Bank, the letter said, adding that this violated South Korean regulations that such investments must be physically deposited in South Korea.

Shin claims in the letter that $3 million of the funds were deposited in Park’s bank account and that $2 million went to Min Ha Lee, Park’s brother-in-law and the chairman of the Korean firm Dong Yang Express Group, which Northrop had hired to represent the firm in South Korea. An additional $1.25 million was transferred to Park in cash, the letter said. Just before his death, Park transferred his $3 million to Lee, according to the letter.

The letter goes on to claim that as a result of the marketing agreements, two meetings were arranged between Jones and former Korean President Chun Doo Hwan and Korean Air Force Chief of Staff In Ki Kim. The proposed sale of the Northrop fighter planes fell apart when an F-20 test plane crashed on the day of Jones’ meeting with Kim and when Jones declined to make a further $8.6-million investment in unidentified South Korean projects, according to the letter.

Northrop invested $1.2 billion in the F-20, which was intended for sale to foreign nations such as South Korea. But in 1986, after intense efforts to market the plane abroad and a last-ditch campaign to get U.S. government support, Northrop ended the project without having sold a single aircraft.

Northrop’s activities with Park are the subject of a congressional investigation by the House Energy and Commerce Committee’s subcommittee on oversight and investigation. South Korean officials told the committee Thursday that they were “gravely concerned” about the impact of the allegations, according to committee staff.

Money Not Recovered

The Los Angeles-based aerospace firm paid the $6.25 million in 1984 to the Asia Culture Travel Development Co., which was controlled by Park. Ostensibly, it was for construction of a hotel in Seoul as part of an “offset” agreement. House subcommittee investigators are looking into whether the hotel venture was a legitimate offset, an arrangement by which a country buys weapons from a defense contractor that consents to buy something in exchange.

The hotel was never built and Northrop never recovered any of the $6.25 million. The company has not identified who it is suing, but the individuals are believed to be relatives of C. K. Park and other Korean figures.

Northrop also entered into an agreement in 1984 with the Dong Yang Express Group, which was controlled by Park’s brother-in-law. That “sales representation agreement” appeared to be separate from the hotel venture.

But the letter to Jones and other documents obtained by The Times indicate that the agreements were closely linked.

For reasons that are still unclear, Northrop agreed to pay $1.5 million to Dong Yang to terminate the agreement in June, 1986, according to the documents and to congressional investigators. The investigators are looking into why Northrop paid the money when it failed to sell any F-20s.

Demand for Payment

Just two months before Northrop paid the $1.5 million, Dong Yang had sent a letter to the firm demanding $16.6 million to terminate its agreement, including $5 million in so-called good will payments.

The Dong Yang letter details a list of projects in Bangkok, Indonesia, Africa, Panama, Alaska and the Philippines in connection with its sales representation agreement with Northrop. The letter was signed by Lee.

That letter also includes demands for payment on the Seoul hotel project, even though that was supposed to be part of Asia Culture Travel Development, a separate entity.

Northrop officials have declined to discuss in detail the Shin letter or other documents that have been turned up in the U.S. and Korean investigations.