Northrop’s Deal ‘Illegal’ : Aerospace: A court in South Korea rejects its defense of a $6.25-million payment.

A South Korean court ruled Wednesday that Northrop Corp. made an “illegal payment” of $6.25 million to help influence the sale of its jet fighters in a bizarre 1983 deal with a Korean power broker--a venture the company has defended as a goodwill gesture to build a luxury hotel in Seoul.

The Seoul District Civil Court rejected the Los Angeles company’s defense that it was suckered out of the money by a group of savvy con artists led by the late Park Chong Kyu, a politically connected operator who was Northrop’s agent for its effort to sell F-20 jet fighters to the Korean military.

“The controversial money must be regarded as an illegal payment for sales of its fighter aircraft,” a spokesman for the South Korean court said, quoting the three-judge panel’s verdict.

A federal grand jury is continuing to investigate whether the deal violated the U.S. Foreign Corrupt Practices Act, which forbids such payments to influence foreign sales.

A Northrop spokesman said Wednesday, “We don’t agree with the ruling or the finding.” Northrop filed the suit in an effort to recover the $6.25 million from Park’s relatives and associates. The company has long asserted that the hotel venture was simply an “offset agreement”--an investment by a defense firm in a foreign country in exchange for a weapons sale.

The spokesman added that the firm had not seen the formal opinion, noting that it would take two to three weeks to obtain the written document. “At that point, we will review it and decide if we want to appeal,” he said.

Northrop and its former chairman, Thomas V. Jones, are already under the strictures of a permanent SEC injunction that resulted from foreign payments the firm made during the 1970s to Saudi Arabian military officials. The injunction forbids the firm from engaging in a list of foreign practices and requires strict record-keeping of foreign payments.

The SEC investigation focuses on whether the firm violated those provisions in the Korean deal.

Northrop has vigorously defended its dealings and hoped that the civil case would provide a forum for proving its version of the events.

Already, the firm had lost a Korean arbitration and an international arbitration last year; in both cases, arbitrators also ruled that the hotel deal appeared questionable. Northrop has appealed both arbitration decisions, the company spokesman said.

Northrop agreed to build the hotel with Asia Culture Travel Development Co., an organization apparently controlled by Park. Northrop wired the money to an account in Hong Kong, an apparent violation of South Korean currency and investment laws.

As a result, one of Park’s associates was found guilty of violating those laws and sentenced to a prison term in the late 1980s.

The firm wired the money before receiving approval of the hotel deal from Korean authorities that review offset agreements.

The money was never fully accounted for, and the hotel was never built. And on the day that the firm demonstrated its F-20 to the Korean air force just before a potential sale, the plane crashed on the runway.

Korean officials declined to buy the jet.

At the time, Northrop was desperate to sell F-20s to South Korea, the firm’s last best hope for a foreign sale that would launch the privately funded fighter program. Northrop invested $1.2 billion in developing the F-20 before ending the program in 1986.

The last F-20 now hangs in the California Museum of Science and Industry in Exposition Park.

Northrop also signed three other deals with Park directly or with organizations controlled by Park, but those arrangements were not at issue in the civil ruling.

The Associated Press and Reuters contributed to this story.