Northrop Signed Other Deals to Get Funds to Korean

Amid a widening federal probe of two of Northrop’s South Korean business deals, it has been learned that the company signed two other agreements to make payments to powerful Korean political broker Park Chong Kyu.

Although Northrop has said it did not know it was dealing with Park in the two deals that had previously come to light, the company was directly paying Park $6,500 per month as a consultant in 1984, it was learned.

In addition, Park controlled an unusual Hong Kong organization, known as Bankaborrow, that Northorp funded in 1985. The son of Northrop Vice President James A. Dorsey was involved in Bankaborrow, according to three sources knowledgeable about Northrop’s business in the Pacific region.

The disclosures mean that Northrop had four separate ways to funnel money to Park, though the company has insisted that it never knew the extent of Park’s involvement in those arrangements.

Park was a former bodyguard to South Korean President Park Chung Hee (no relation), who was assassinated in 1979. Park Chong Kyu retained influential ties in the succeeding Korean government under President Chun Doo Hwan. He became president of the Korean Olympic Committee and later a member of the International Olympic Committee.

Northrop’s consulting agreement with Park started in the late summer of 1984, just a few months after the company had signed two other agreements with organizations controlled by Park.

In one deal, Northrop agreed to pay $6.25 million to build a hotel in Seoul on land owned by Park. In the other, the company agreed to pay up to $55 million in commissions to a Park-controlled organization for help in selling jet fighters to the South Korean air force.

Investigations Under Way

Even though both deals appear now to have been fraught with irregularities, Northrop has insisted that they were legitimate ventures intended to help sell F-20 jet fighters. The hotel was never built and the firm’s $6.25 million remains unaccounted for.

Northrop said it was defrauded by its Korean partners and has filed a civil suit in Seoul to recover the money. But the deals are the subject of a criminal investigation by a federal grand jury in Los Angeles. The House Energy and Commerce Committee is looking into the matter, as well.

The consulting arrangement with Park, which was confirmed by two sources knowledgeable about Northrop’s business, was submitted for corporate approval by Dorsey, who was then Northrop vice president for the Pacific region. Northrop confirmed Thursday that Park was a paid consultant.

According to internal documents, the consulting deal was approved by six corporate executives, including then-Northrop President Frank Lynch, General Counsel William Elliott, International Vice President C. Robert Gates and Controller John B. Campbell.

It is not known how much was ultimately paid to Park under the agreement.

Separately, Northrop paid about $33,000 per month to Bankaborrow (also known as Bancaboro), starting in September, 1985, and continuing until the end of the year. The payments are believed to have totaled $99,000. A Northrop spokesman declined to comment on the deal.

Bankaborrow’s president was Ma Myong Dok, also known as Eric Ma, a Korean who was a close associate of Park Chong Kyu’s. According to sources knowledgeable about Bankaborrow, Park Chong Kyu owned and controlled Bankaborrow.

James Dorsey, the son of James A. Dorsey, was the financial officer at Bankaborrow, according to executives inside and outside of Northrop who know about the deal. The younger Dorsey could not be reached for comment; Dan Bookin, an attorney representing James A. Dorsey, declined to comment.

Office Vacated

A Northrop official became suspicious about Bankaborrow when “a cleaning lady answered the phone and said only one person worked at Bankaborrow, Jim Dorsey’s son. Somebody went back and asked Dorsey why he was trying to hire his son,” according to a well informed source.

Bankaborrow had offices in the Bank of Canton building in Hong Kong. Leasing officials at the building said James Dorsey and Ma vacated their office there about a year and a half ago.

The Hong Kong firm’s ostensible role was to act as a middleman for merchandise that Northrop intended to buy in South Korea and export to China.

The exports were supposed to help the South Korean government finance purchases of the Northrop jet fighters, an arrangement known as an offset. Northrop never sold a single F-20--to South Korea or anybody else and the plane never went into production.

So, it is not clear how the payments made to Bankaborrow were justified, since no trade had taken place and no aircraft sales had been made to generate commissions.

“This could be seen as a vehicle to get dollars to Park,” said one source familiar with Bankaborrow. “On the other hand, it could have been a legitimate way to facilitate trade from Korea to China.”

Allegations have been made that Northrop’s payments to Park were intended as a sales promotion fund and that some of the money was diverted to South Korean government officials, which would violate the U.S. Foreign Corrupt Practices Act.

Like other payments that Northrop made to Koreans, the money paid to Bankaborrow is unaccounted for. A controversy over those funds developed in 1986, when Ma, Bankaborrow’s president, apparently sought additional funds from Northrop. It declined to provide them.

A whole cadre of hangers-on were attracted to Northrop’s South Korean deals, hoping to get a piece of the action. If the sale of the fighter planes had gone through, agents, representatives, exporters, importers, attorneys, accountants and many other independent businessmen stood to gain a share of the billions of dollars in sales.

“Everybody would have made out like a bandit if the F-20 had sold in Korea,” one individual close to the deals said. “The trade would have been enormous.”

But another former Northrop executive cynically remarked, “Everybody would have gotten rich except Northrop.”