Northrop F-20 Deals in Korea Focus of Probe

Northrop Chairman Thomas V. Jones, two other executives and the company itself are the subjects of a criminal investigation into payments made to Korean firms as part of the company’s unsuccessful effort to sell its F-20 fighter jet, according to a reliable source.

The three men were ordered to testify before a federal grand jury in Los Angeles and the company was ordered to produce documents related to its Korean deals, Northrop disclosed Wednesday.

The subpoenas--which were also served on Executive Vice President Welko Gasich and former Chief Financial Officer William J. McGagh--mark a deepening of troubles at Northrop.

Congressional investigators also are conducting their own probe into whether the payments violated the federal Foreign Corrupt Practices Act. In a separate action, the House Energy and Commerce Committee’s subcommittee on oversight and investigations met in executive session Wednesday to consider issuing several subpoenas, it was learned Wednesday.

The subcommittee is expected to seek testimony from Jim K. Shin, a former Northrop consultant who has alleged that the Los Angeles aerospace company knowingly engaged in a scheme to buy influence in South Korea. The subcommittee also was considering whether to issue a subpoena for an internal Northrop investigation of the Korean matter conducted by the Washington law firm Jones, Day, Reavis & Pogue.

The committee is scheduled to interview the executive committee of Northrop’s board of directors early next month.

The grand jury investigation in Los Angeles is focusing on $7.75 million in payments to various Korean firms and individuals, in connection with a deal to build a hotel in Seoul and a second deal to obtain marketing representation in Korea.

Suit Filed in Seoul

Northrop on Wednesday reiterated its position that it was defrauded by Koreans involved in the investments, and the company filed a civil suit in Seoul late last year to recover $6.25 million of the payments made to the Korean organizations. The company has also said that it is looking into Shin’s role in the matter.

Northrop has maintained that the payments were part of legitimate investments to help market the F-20. The company, which pumped $1.2 billion of shareholder funds into the F-20, made determined efforts to sell the plane in the United States and abroad but never sold a single one.

Northrop issued a statement late Wednesday announcing that the company and its officers had been subpoenaed. A company spokesman said he did not know when the three officials would appear before the grand jury. He also declined to comment on whether the officials are subjects of the criminal investigation and whether they would invoke the Fifth Amendment in declining to answer grand jury questions. Jones, McGagh and Gasich could not be reached for comment.

1975 Consent Decree

The inquiry into Northrop’s Korean dealings is not the first time the company’s foreign business practices have come under federal scrutiny. The company in 1975 signed a consent decree with the Securities and Exchange Commission, which had accused the firm of making illegal political contributions and paying $30 million in commissions and consultant fees to foreigners without adequate controls required by securities laws. The company acknowledged that some of the payments went to two Saudi Arabian generals through middleman Adnan Khashoggi.

The Korean deals involve a large cast of characters, including Northrop consultant Shin, who previous to his position with the company was an owner of a Honolulu bar that had been cited by local authorities for an illegal gambling operation on the premises.

Shin alleged in a letter written to Jones in December, 1986, that Northrop officers agreed to set up a bogus hotel project in Seoul and that the funds would be “diverted for use as the sales promotion fund.” Shin was hired by Northrop as a consultant in 1983 and paid $102,000 to help the firm make political connections in Korea. The Times has obtained a copy of his letter.

Two Agreements Made

Northrop made two agreements with Korean organizations, which were both owned by the late Chong Kyu Park, a former bodyguard to President Park Chung Hee and a politically powerful dealer there with his own wide business interests.

A Northrop spokesman has said previously that the company was not aware that Park was the principal behind both of the organizations, even though Jones met with Park on several occasions. Shin was closely connected to Park and was supposed to receive a 25% cut of Park’s commissions from Northrop, according to documents obtained by The Times.

In one of the deals, Northrop signed an agreement with Asia Culture Travel Development to jointly build a hotel in Seoul. Northrop agreed to pay $6.25 million for its share of the joint venture. The hotel was never built and Northrop is alleging in its suit that the funds fell into the hands of Park’s relatives and associates.

In a second deal, Northrop agreed to pay a commission of up to $55 million to the Dong Yang Express Group for help in marketing the F-20 to the Korean Air Force. Ultimately, the company paid $1.5 million to terminate that agreement, even though there was no provision in the original contract for such a payment.

Although the Justice Department was known to be reviewing the payments, the existence of a grand jury was not previously known. The grand jury is believed to have been impaneled in Los Angeles only within the last two weeks.