Owner of S. Korean Steel Giant in Loan Scandal Held on Fraud Charges

South Korean prosecutors, hoping to crack a major financial scandal here, on Friday arrested the owner of a bankrupt steel firm whose receipt of astronomical loans has triggered suspicion of high-level political corruption.

Chung Tai Soo, owner of the Hanbo group, South Korea’s 14th-largest business conglomerate, was arrested on charges of fraud, embezzlement and issuance of bad checks. Prosecutors say they are investigating whether any politicians received secret funds from him--and whether they then pressured banks over the last five years to grant the group’s failing steel firm more than $5.8 billion in loans, 20 times its net worth.

Chung, 72, has declared his innocence. The business tycoon, who has rapidly expanded his steel, construction and energy enterprises, has been convicted of corruption twice in the last five years.

In 1992, Chung was imprisoned for bribing lawmakers and an aide to then-President Roh Tae Woo to win a housing project contract. He was jailed again in 1996 for illegally contributing to a $653-million secret slush fund amassed by Roh and his predecessor, Chun Doo Hwan.

The stunning bankruptcy of Hanbo Iron & Steel Co., one of the largest in this nation’s history, has threatened the jobs of 250,000 employees and suppliers and deepened the nation’s gloom over a sinking economy and the highest jobless rate in nearly three years.

President Kim Young Sam ordered his Cabinet on Friday to redouble efforts to minimize the economic fallout from bankruptcy.

Officials plan to ask creditor banks to lend an additional $1.1 billion to the group to help pay overdue wages, settle immediate bills and complete its steel mill in the western city of Tangjin.

Hanbo’s subcontractors, facing a chain of collapses, will be able to apply for low-interest loans of up to $115,000, announced Han Seung Soo, minister of finance and economy.

Meanwhile, in an intensifying political war, lawmakers from both the ruling and opposition parties have begun to barrage each other with charges of intervening on Hanbo’s behalf in exchange for secret political payoffs.

Shortly after Hanbo announced the bankruptcy of its steel firm two weeks ago, opposition leaders Kim Dae Jung and Kim Jong Pil issued a joint statement decrying the debacle as “the worst corruption case of the Kim Young Sam administration. . . . Without illegal political influence, it would have been impossible for Hanbo to obtain such a huge amount of bank loans.”

Several Korean newspapers have published the names of top ruling party officials--and that of the president’s own son--as suspected influence-peddlers. All have vehemently denied the charges, and the ruling New Korea Party has recently launched an aggressive counterattack.

“We have reliable information concerning our allegations that a number of opposition lawmakers were implicated in the scandal,” party spokesman Kim Chull said.

He warned that the ruling party will make the information public unless the opposition ended its “rumor-based campaign.”

The ruling party has recently established an in-house committee to investigate the opposition’s involvement in the scandal.

In an odd twist to the scandal, the Kim Dae Jung Peace Foundation announced that its Seoul offices had been ransacked sometime between Thursday night and early Friday morning. Most valuables were left untouched, but file cabinets and desk drawers had been methodically searched.

“It is suspected that the break-in is related to the recent financial scandal and is apparently purported to be a scare tactic and a warning that someone is willing to play hardball,” the foundation said.

The inflamed political climate has prevented agreement on when to open a special session of the National Assembly to debate the Hanbo scandal--as well as controversial revisions to the labor and national security laws, which set off costly nationwide strikes last month.