The first division of the criminal department of the Seoul Northern District Prosecutors’ Office announced on Aug. 25 that it arrested Gyun, a businessman assisting POSCO Daewoo, formerly named Daewoo International, in purchasing heavy equipment from suppliers in China and supplying them to clients in Kazakhstan, on the charge of forged documents and securities. As for the two POSCO Daewoo employees complicit in the fraud, the Prosecutors’ Office booked them without detention. In the aftermath of the collusion case, experts voiced their concerns that the company failed to come up with more effective countermeasures while leaving the internal monitoring system poorly managed and thus susceptible to similar incidents in the future.
Gyun operates an intermediary firm purchasing equipment from suppliers in China with the money he received from POSCO Daewoo and then pays the POSCO’s trading arm after collecting the money from clients in Kazakhstan. The prosecutors found that from October 2013 to December 2015, Gyun had deceived POSCO Daewoo by presenting counterfeit bills and forged, postdated checks while Gyun actually didn’t purchase the equipment with the money he received from POSCO Daewoo. Gyun reportedly started plotting the fraud in October 2013, when his clients in Kazakhstan didn’t pay him 2 billion won (US$1.8 million) for the heavy equipment Gyun had supplied. Rather, he brought in two POSCO Daewoo employees, who were in charge of handling the international heavy machinery export business at the company, to conspire with him. It has been found that when these two employees faced 2 billion won (US$1.8 million) in outstanding fees, they sought ways to shirk responsibility and means to fill in the hole in the accounting books. The two employees knowingly continued accepting the false export contracts and giving Gyun the proceeds which, in the process, had grown from 2 billion (US$1.8 million) to about 39 billion won (US$35.6 million).
The fraud was first caught during an internal inspection at POSCO Daewoo. As the company belatedly found out, it sued these three people for damages. Prosecutors filed an arrest warrant against all three people based on the fact they made illicit gains while failing to make any recovery efforts. However, the court dismissed the arrest warrant for the two POSCO Daewoo employees on the grounds that they didn’t acquire any personal profits.
It turned out that nobody at POSCO Daewoo had noticed the funds had been leaking until the end of 2015 when the company carried out an internal audit. The payment had been handled in such a manner that only the two people had been left to make major decisions without any monitoring system.
When asked whether POSCO Daewoo has introduced effective countermeasure after the collusion incident, an official at POSCO Daewoo said, “The monitoring system has shifted to a system of inspecting all the individual post-dated checks from that of inspecting random samples.
Meanwhile, industry insiders express their criticisms on POSCO Daewoo’s loose monitoring system. An expert who requested to remain anonymous said, “At least a system should be secured, which separates each step of the request for funding, the approval, the execution of funding and the auditing, in order to prevent similar incidences like this case.”