Hyundai boss too important to be jailed, judges decide

In South Korea, the rule of law was no match for the strength of Hyundai Motor Co.

Convicted of embezzling $110 million, Hyundai Chairman Chung Mong-koo was deemed too important to South Korea’s economy to be sent to prison, an appeals court ruled late Thursday.

The three-judge panel suspended his three-year prison sentence, a decision denounced by corporate reform activists.

“It’s ridiculous and shameful,” Kim Sang-jo, a professor at Hansung University in Seoul, said today of the ruling. Kim has led a group advocating corporate governance reform at South Korean companies, including electronics giant Samsung.

Chung, 69, was convicted in February of embezzling the money to set up a political slush fund and was sentenced to prison.

In reversing Chung’s sentence, presiding Judge Lee Jae-hong told a packed courtroom in Seoul, “I was unwilling to engage in a gamble that would put the nation’s economy at risk,” according to the Associated Press.

The judge contrasted the case to that of Enron Corp., the notorious bankrupt energy company whose chairman, Kenneth Lay, died of a heart attack last summer while awaiting sentencing on his conviction for fraud.

The judge said Hyundai, the world’s sixth-largest automaker, was much more important to South Korea’s economy than Enron was to that of the U.S., according to people in the courtroom.

Lee told Chung to work hard and fulfill his social responsibilities, including making charitable donations. A solemn Chung bowed and said, “Yes, I will.”

South Korean courts have a history of being soft on white-collar crime, especially toward powerful, family-owned conglomerates called chaebols that dominate the nation’s economy and wield political influence.

Chey Tae-won, the chairman of another conglomerate, energy giant SK Corp., had his three-year prison sentence suspended by an appeals court last year after he was convicted of fraud.

Kim cited a recent report showing that, since 2001, 83% of suspects in embezzlement and breach-of-fiduciary-duty cases had been set free by South Korean courts.

“This is the main reason corporate governance in South Korea is so bad,” he said, adding that it was also a key factor in the discounted price of Korean corporate stocks.

Kim, however, wasn’t entirely disheartened. He said that on the same day the court effectively released Chung, the South Korean fair-trade commission levied a penalty of nearly $700 million against Hyundai for making inappropriate transactions among the company’s affiliates, which include insurance and other finance companies. Hyundai said it would appeal.

There is little question that Hyundai is important to South Korea’s export-based economy. Hyundai, which also owns automaker Kia, produced 3.8 million vehicles last year. It accounts for about 5% of the nation’s exports and employment.

Chung is the oldest living son of Hyundai Group’s legendary founder, industrialist Chung Ju-yung. Analysts credit the son for engineering the company’s transition from an industry also-ran to a $29-billion-a-year empire.

Hyundai managers say Chung is a hands-on executive, and his absence while he was in jail last year, as well as the turmoil the case caused, held up important projects and decisions.

Despite its growing reputation for quality, Hyundai has encountered troubles lately with its labor union, a strong Korean currency and a softening U.S. market. On Thursday, however, Hyundai’s union approved a new labor contract.

Hyundai spokesman Oles Gadacz said the company was happy about the labor agreement and relieved that the legal matter was resolved.

“We can now catch up to our competitors,” he said. “We’ve lost some ground.”

don.lee@latimes.com