EXCLUSIVE: Key investor in Saenuri politician’s Jeju airport project used fake bank documents

The following exclusive exposing fraud connected to an investor in a major development project on Jeju Island is published in Korean in the latest SisaIn Magazine. The following is the English version of the story, unpublished elsewhere. It is not a direct translation of the Korean-language report, and contains additional details and background, but maintains the key elements of the story. — John

사본 - 20140629_161804By John Power and Eunsun Heo of SisaIn Magazine

A key foreign investor in a former Saenuri Party gubernatorial candidate’s project to build a new airport and other infrastructure on Jeju Island has used forged bank documents to claim having billions of dollars at his disposal, according to a months-long investigation.

Leonard Dillon-Kaijuka, one of two principal investors in the project spearheaded by ruling party politician Kim Gyeong-taek, has circulated multiple documents purporting to show bank deposits in his name ranging in amount from 1 billion to 5 billion euros. The “proof of funds” documents, which first appeared on an obscure whistleblower website based abroad, feature the apparent letterhead of Dutch bank ABN Amro Bank and appear to contain the signatures of bank officials. The documents are dated between 2009 and last year.

Dillon-Kaijuka, the president and CEO of Dillon-Kaijuka Associates, confirmed his ownership of the documents when confronted for this story, but claimed they are genuine.

He said the documents had been “hacked” by malicious former employees as part of a “defamation campaign” against him. He also said they had not been used in his business activities in South Korea.

“The documents are private financial banking documents, legal financial banking documents,” he said. “And (it is) very destructive when they are leaked in the public like they have been. Those are private documents. Banks know what they are – bank communications. Those documents enable banks to communicate with each other, privately.”

He further claimed the issuing bank was very “displeased” over the disclosure.

But a press official at ABN Amro Bank earlier told this writer that the documents are forgeries and the bank has no dealings with Dillon-Kaijuka.

“The ABN AMRO documents showed on the website are false and forged documents. Who makes those documents or who is using these documents is unkown (sic) to me,” Jeroen van Maarschalkerweerd, senior press officer at the bank, said via email.

When contacted for a response, Dillon-Kaijuka claimed the bank was protecting his privacy in disavowing the authenticity of the documents.

He further claimed to be a victim of media harassment and a campaign to destroy his business, both of which, he said, have racist motivations. Dillon-Kaijuka is an African-American.

The massive development project on Jeju, which calls for the construction of a new airport, “world trade center” and cultural center, was first reported in Jeju’s local media in February. At the time, Kim, currently the head of the government transition preparation committee for Jeju governor-elect Won Hee-ryong, was vying to be the Saenuri Party nominee for governor in the June 4 elections. Kim, a former vice governor of Jeju, failed to secure the nomination, but fellow Saenuri Party candidate Won went on to win the election.

The conservative politician, who is pursuing the project through his think tank Jeju Future Society Research Institute, signed a memorandum of understanding for the project with Dillon-Kaijuka Assoc. and another firm, GK Holding Group, on February 22, according to local news reports. The MOU stated the two firms were to provide $5 billion for the project, according to the reports.

The reports contained little information on the exact nature, terms and time scale of the development, which still remain largely unclear.

In April, Kim told local media he expected the transfer of the first $50 million in capital to a commercial bank by the end of the month and for a special purpose company to be established for the project in May.

When contacted for clarification last week, Kim told SisaIN the plan is still going ahead but has been delayed.

“We failed to get money by the end of April, therefore we changed our plan. We are going to wait for the money until the end of this month (June),” he said.

In late May, Dillon-Kaijuka told this writer that the official process of seeking approval for the project would begin after a base of operations is established in June.

“We understand that the first process requires that we have a presence there, and with that presence we have a significant cash deposit there, we understand that. And once that happens we begin to take those next steps (for government approval).”

He claimed to have discussed the project with both the U.S. and Korean governments but declined to provide further details. He further claimed not to know the value of the MOU, adding that he has “no idea” where the figure reported in local media came from.

A spokesman for Won, meanwhile, denied the Jeju governor-elect had any knowledge of the project whatsoever, adding that a decision has yet to be made on the construction of a new airport. He said Won has no personal relationship with Kim, and had appointed him to lead his preparation committee as a result of their election rivalry.

“Accordingly, successful candidate Won certainly could not have known about any past issue with Kim,” a statement from his office read.

The documents in question first appeared on a seemingly little-known website called The Whisteblowers. The website, which contains thousands of apparently leaked documents including financial documents and passports, claims to expose irregularities in finance across the world. Its two apparent operators, David Rea and Sanjay Kalpoe, claim to be former independent financial brokers from the U.S. and the Netherlands, respectively. Both individuals are listed as founding partners on the website of an apparent investment and asset management firm called Hammer Wealth Solutions.

Rea said the documents linked to Dillon-Kaijuka were provided by a confidential source in South Korea. This writer was unable to independently make contact with this individual.

Dillon-Kaijuka’s history in business is unclear. He refused to disclose his previous projects or source of his funds, saying only that he has an extensive network of investors.

The American national, who has been operating out of an office in Gangnam in recent weeks, said that he is in Korea to forge business ties with Africa.

“What we’ve promoted is a relationship between Jeju and the island of Zanzibar, which has a similar status as Jeju has here for Korea. And helping facilitate entry of Korean infrastructure and technology delivery to Africa — facilitate the relationship between Jeju and Zanzibar,” he said.

Dillon-Kaijuka Assoc., described on its website as a provider of “investment and development services,” is registered with the state of Illinois as a corporation, but not with the state or federal financial regulatory authorities. Entities that wish to sell stocks to the public generally must be registered with the U.S. Securities Exchange Commission or equivalent state authority, but corporations are not generally required to disclose even the nature of their business. Kaijuka said that his company does not trade in securities.

Along with Dillon-Kaijuka as president, an Alvertis Bell is listed as director of the corporation in state records in Illinois.

Alvertis Bell, aka Al Bell, is the name of one of the most famous figures in Motown, having co-owned Stax Records in the late 60s and early 70s. Bell did not return correspondence seeking to confirm whether he is the same person. Dillon-Kaijuka and Bell are also listed on official records for the incorporation of a company in Arkansas, the famous Bell’s home state, called Southern States Service Corp. in 1979.

Meanwhile, Dillon-Kaijuka Assoc.’s head office, located in downtown Chicago, is a space rented from Regus, a multinational company that provides rooms and phone-answering services to businesses. A Regus employee who answered the phone listed on the firm’s website confirmed that the company has no physical presence at the address. Kaijuka’s home address, as listed on his firm’s incorporation record, has an estimated off-market value of just over $50,000, according to Homes.com.

Song Young-ho, introduced by Kim as the effective manager of the project, said he was aware of allegations against Dillon-Kaijuka but does not believe them to be substantiated.

“We have heard about that rumor that Leonard Dillon-Kaijuka is not a reliable person and we tried to investigate if the rumor is true or not,” said Song. “And we asked him directly. Leonard answered that it was just a kind of slander. And we found that he was not accused of anything at all. We thought, if there was something wrong with him, there would be a record that he was accused or something. But he was not.”

A new airport on Jeju has been a recurring issue at election time, with the current airport predicted to reach full capacity within about a decade, according to a report in Jeju Weekly from 2010.

Both President Park Geun-hye and former President Lee Myung-bak pledged a new airport for the island during their election campaigns.

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[The Korea Herald] How can Korea end corruption?

By John Power

South Korea, by many criteria, increasingly fits the mold of an advanced nation. But, despite the country’s growing role in international affairs and its status as the world’s 13th-biggest economy, one black spot, at least, challenges that definition: pervasive corruption.

Korea’s public sector ranked just 43rd out of 182 countries in last year’s Transparency International Corruption Perceptions Index. The ranking was a drop of four places from the previous year. Meanwhile, a survey released by the Anti-Corruption and Civil Rights Commission last month found that 40 percent of businesspeople deemed Korean society to be corrupt.

This year alone, several of President Lee Myung-bak’s aides and family members, the ex-head of the Korea Communications Commission and the floor leader of the main opposition party have all been implicated in corruption scandals. The private sector has fared little better: Taekwang Group and Hanwa Group’s respective chairmen were handed down prison sentences for separate instances of embezzlement. At the lower levels of the economy, the Financial Supervisory Service sanctioned some 450 financial company employees for misconduct in the first nine months of the year.

Rotten nation

In a withering assessment of Korean society, the president, himself currently embroiled in a scandal over a now-abandoned retirement home project, last year claimed that “the entire nation is rotten.”

Kim Sung-soo, the executive director of Transparency International Korea, told The Korea Herald that regulations and punishment of corruption were insufficient, largely because of an overly cozy relationship between the government and private business.

“Korea’s anti-corruption policy and regulations are not strong enough, especially for the private sector, to combat corruption. Presumably there is strong lobbying or even bribery from the private sector to the public sector,” said Kim, who believes that a change of power in December’s presidential election would be a positive step forward as Korea’s corruption perceptions ranking has dropped on the current government’s watch. “Money talks too much in Korea.”

All three main presidential candidates, Park Geun-hye of the Saenuri Party, Moon Jae-in of the Democratic United Party and independent Ahn Cheol-soo, have placed heavy emphasis on cleaning up the political and business worlds during their campaigns.

Korea’s rapid development in the latter half of the 20th century came on the back of heavy state involvement in the economy, with crony capitalism a persistent feature of previous dictatorial governments. Economic growth was in the past seen as a greater priority than transparency and the rule of law, said Park Gae-ok, director-general of the Anti-Corruption Bureau of the ACRC.

“In the case of Korea, illegalities and irregularities were tolerated in the course of rapid economic growth and in connection with nepotism and paternalism characteristic of Korean society,” said Park. “It takes a very long time to remedy such problems, and detection and punishment are not a fundamental solution.”

Legislation

Illegality is just one factor in government-business relations with an influence on the scale of corruption. Much of the political realm’s authority to shield the powerful from the consequences of their crimes is enshrined in law. The current and former presidents’ pardoning of numerous political and business figures has long been a source of public antipathy.

Kim Pan-suk, dean of the College of Government and Business at Yonsei University, said that the president was “critical” to efforts to fight corruption.

“In my view, political will is the most important factor in reducing corruption,” said Kim. “If you go back to the Kim Dae-jung regime, he was a very good president and had a good vision to reduce corruption so he promulgated many rules and regulations.”

The Kim Dae-jung administration introduced the Anti-Corruption Act in 2001, and established the Korea Independent Commission Against Corruption the following year. The Lee administration merged the KICAC with two other bodies in 2008 to form the ACRC. The most recent legislative move against corruption was the Act on the Protection of Public Interest Whistleblowers, passed last year. As of October, the ACRC had received 1,216 whistle-blower reports, ranging from issues to do with consumer rights to healthy and safety.

The legislation has resulted in a number of significant outcomes in the public interest, according to Park.

“The new whistle-blowing mechanism has since contributed to correcting violations of the public interest and improving relevant laws and systems,” said Park. “For instance, flaws in reinforcement work for the understructure of a railway bridge were corrected, while legal amendments and introduction of new facilities were made to prevent the infection of the hepatitis B virus through blood transfusion.”

Lee Sang-deuk, the elder brother of President Lee Myung-bak, answers reporters’ questions outside the Supreme Prosecutor’s Office in Seoul, where he was questioned on charges of taking bribes in July. (Yonhap News)

Lee Sang-deuk, the elder brother of President Lee Myung-bak, answers reporters’ questions outside the Supreme Prosecutor’s Office in Seoul, where he was questioned on charges of taking bribes in July. (Yonhap News)

Other anti-corruption measures by the ACRC include a corruption impact assessment of proposed legislation, a yearly assessment of corruption in the public sector, and anti-corruption education and training of public employees.

Culture factor

Park said that his organization is also currently working on the passage of the Bill on the Prohibition of Illegal Solicitations and Prevention of Conflicts of Interest of Public Officials, which would rectify the current situation where officials can avoid punishment if it cannot be established that they provided favors in return for a bribe.

“The bill is aimed at prohibiting malpractices in the public sector, as well as providing specific standards of behavior for preventing the interference of private interests in the performance of public officials’ duties. When enacted, the bill is expected to contribute greatly to preventing and deterring corruption in the public sector,” he said.

Politics and business are not the only explanations offered for the scale of corruption ― many also point to a problem of culture.

“Korean culture is Confucian and authoritarian bureaucracy. Also, school and family ties are very important to (personal) circumstances,” said Kim Taek, a professor of police administration at Jungwon University.

We must renew our social mind and Korean officials and nationwide support for the fight against bureaucratic corruption, for transparency and justice. But Korean political groups, especially the president, parliament members and Korean officials, seek private interest and lack common sense and so they encourage in corruption.”

Yonsei University’s Kim said that an overly partisan media that fixates on certain scandals but ignores others for political reasons added to the lack of transparency in Korean society.

“Under such circumstances, if you investigate something, people may suspect some biased evaluation, so I think this situation should be corrected. The media should be fair and broadly supported by the general public and then investigate certain things and they will have the public’s confidence and trust.”

Institutions, however, can only be so responsible for fixing societal problems, according to some experts. The most fundamental change must ultimately come from the public.

“The most fundamental element in fighting corruption is the change in the mindset of people,” said Park. “Increased soundness and transparency in a society helps create an environment that keeps even customary malpractices and minor forms of corruption from taking root.”

[The Korea Herald] Is Korea soft on white collar crime?

By John Power

It is a common public perception: Korea is soft on white-collar crime, particularly when it involves high-level politicians, government officials or chaebol.

Speaking at the breach of trust case against Hanwha Group chairman Kim Seung-youn, an unnamed prosecutor implored the nation’s justice establishment to take a greater stand against corporate crime.

“If we continue to fail to punish (tycoons) for one reason or another, our society has no future,” the prosecutor said at the hearing at the start of February, demanding a nine-year prison term and 150 billion won ($134 million) in fines for Kim.

The recent history of criminal sanctions against chaebol heads could be said to lend credence to this view. A recent analysis by chaebol.com noted that not one of the seven heads among the top 10 chaebol sentenced to prison since 1990 has served jail time.

The business leaders, from Samsung Group, Hyundai Group, Doosan Group, Hanwa Group, SK Group and Hanjin Group, collectively received 22 years and six months in prison for crimes ranging from tax evasion to embezzlement. All, however, were given suspended sentences initially, later followed by a presidential pardon.

“I don’t know any other major country ― South Korea is an OECD member, a G20 member, the world’s seventh-largest exporter, you know, a big economy now ― where it is now routine for people, not just any old businessman, but the top people … (to) get convicted of stuff, (then) they hardly serve any time and the very next thing they are pardoned because they are so important to the economy,” said Aidan Foster-Carter, a long-time Korea observer based in the U.K.

Foster-Carter recently lashed the country’s attitude toward white collar crime in an Asia Times Online article entitled “The sleaze that shames Seoul.” In it, he took aim at an environment he saw as allowing big business act with impunity.

Among the examples listed were President Lee Myung-bak’s pardoning of Samsung Group chairman Lee Kun-hee, twice convicted of financial crimes, and the appointment of Hanwha chairman Kim, who had previous convictions for currency smuggling and assault before his current charges for embezzlement, to represent PyeongChang’s bid for the 2018 Winter Olympics.

“(It’s) the sort of sense that because they are so important they can do what they damn well please. Which again, I don’t think that is good for any country, is it, for anyone to have that sense they are above the law?” Foster-Carter said.

A sense that the powerful can escape justice is not just confined to the business world. The return of the superintendent of the Seoul Metropolitan Office of Education, Kwak No-hyun, to his post in January despite a conviction for bribing an electoral rival out of the race for the post prompted widespread criticism.

The use of the presidential pardon, too, has often been contentious, with critics charging that it is inevitably used for political purposes. Those in the political world to have benefitted from President Lee’s clemency have included the elder brother of former President Roh Moo-hyun, Roh Geon-pyeong, former Democratic Party National Assembly speaker Kim Won-ki and Suh Chung-won, a former lawmaker and close aide to Park Geun-hye.

Kim Woochan at the Korea Development Institute School of Public Policy and Management believes the current situation is untenable. When it comes to the courts, he says a major problem is judges’ tendency to consider the impact on the national economy in their sentencing, as in the cases of Samsung chairman Lee and Hyundai Group chairman Chung Mong-koo.

“They tend to mix what is legally right and wrong with how much a businessman is contributing to the Korea economy. They keep on considering the second factor and diluting their verdict. I also agree that there are some powerful people trying to get favors. They have influence so they somehow influence not only the judge’s verdict and the presidential pardon, but also even when making the laws they try to influence how the laws are made in their favor,” he said.

Aside from the ethical implications, arguments about how vital chaebol leaders are to the economy are outdated, according to Kim.

“In the old days, especially the founders of the chaebol, they were essential. We wouldn’t have those large corporations without those founders like Lee Byung-chull (the founder of Samsung) and Chung Ju-yung (the founder of Hyundai) and so on. But now we have second generation and third generation and compared to their fathers they are not really essential. I think Korean corporations can survive and even prosper without them,” he said.

Another part of the problem, as Kim sees it, is the cozy relationship between the legal system and business interests.

“Many of those judges and prosecutors, once they retire they become outside directors of Korean major corporations. Especially, because these are lawyers, they would become involved in the cases as … the lawyers for the defendant when they retire and they get heavy legal fees. Those are the practices that, I agree, it might give them incentives to be more lenient.”

But not everyone agrees that the legal system is lacking. Korea University law professor Kim Il-su says that Korean law is actually noticeably strict compared to other jurisdictions.

“I think the law system against white collar crime is sufficient to control such crimes. The sanctions against economic crimes in the special law seem to be a little bit punitive compared to the international standard,” Kim said.

This is a view supported by Yonsei law professor and “Corporate Compliance” author Jeong Young-cheol, who believes enforcement, rather than the laws on the books, is a matter of concern.

“If you look at the special laws on crime of breach of fiduciary duty/misappropriation of corporate funds, the maximum punishment is way too high,” said Jeong. “The amount of fines is also extreme. Again, sufficiently strong. The effectiveness is not always on the same level.”

Overall, Jeong says Korea has a decent record on tacking white-collar crime, one much improved upon from the past. In particular, he points to a soon-to-be-introduced compliance guardian system which will mandate compliance officers at large public companies to ensure adherence to the law.

“The legal and regulatory framework has done a fair job of cleaning up the business world and protecting the public. The number of insider trading criminal cases is similar to that in the United States. Although the Korean business is known to be corrupt, it is being improved. Compared to the past, the situation seems much better.”

Korea University’s Kim also argues that extenuating circumstances, including economic considerations, as in the examples of Samsung and Hyundai, are in fact relevant when it comes to sentencing.

“Those aforementioned cases were already cleared two years ago. When the cases were pending in the Court, the expected roles of CEOs from Samsung and Hyundai in supporting the organizing of the Winter Olympics in PyeongChang were necessary. Therefore, the Korean Court took the unusual circumstance into consideration.”

Recent examples show a tough approach to white-collar crime, Kim says, pointing to last month’s sentencing of former Taekwang Group chairman Lee Ho-jin to four-and-a-half years in prison for embezzlement and breach of trust.

While Yonsei University’s Jeong also points to an ever more rigorous legal environment, he accepts there remains room for improvement.

“We can do better. How? Try to prevent the crimes, try to make people believe norms are to be observed, try to make rules fair as everyone is ruled by the same law. We should be more focused on the preventive side of crimes than punishment side.”

Others, such as the KDI’s Kim, remain pessimistic about the likelihood of change.

“We thought that it was getting better but it doesn’t look that way anymore especially with Lee Kun-hee’s presidential pardon,” Kim said. “And corporate scandals involving family members do not seem to be ending.”