Hyundai boss gets 3 years in prison

SEOUL: The head of South Korea's largest automaker Hyundai Motor was on Monday sentenced to three years in prison for creating a multi-million dollar slush fund to bribe politicians and officials.

Chung Mong-Koo, 68, was found guilty of breach of trust and of embezzling around 90 billion won (96 million dollars) through fraudulent accounting, in what a Seoul court called a 'clear-cut criminal act.'

Chung, one of the country's richest men, remains free pending an appeal.  "Obviously we are greatly disappointed by the court's ruling and it is Chairman Chung's intention to file an appeal," Hyundai said in a statement.

His lawyers had urged leniency, saying putting him behind bars could do further damage to the Hyundai auto group, the world's sixth-largest automaker, and hurt the national economy.

The group, which includes affiliate Kia Motors, controls 70 per cent of the domestic auto market and accounts for 5.4 per cent of South Korea's gross domestic product.

But chief judge Kim Dong-Oh said Chung's behaviour had dealt a blow to corporate self-regulation.

"The court cannot help but sternly hold him responsible," the judge said. "Wrong customs must be eradicated to make the South Korean economy advanced."

It passed suspended jail terms on three other Hyundai Motor executives, including vice chairman Kim Dong-Jin, saying they were just following Chung's instructions.

A stony-faced Chung refused to comment as he left the court but a Hyundai spokesman described the sentence as 'so harsh.'

South Korea launched a drive to rein in its all-powerful conglomerates, or chaebol, after the 1997-98 financial crisis.

But even so, high-profile business leaders have in the past received sentences seen as lenient. Activist Park Kun-Yong called the sentence light compared to the prosecution's demand for six years.

"Hopefully, the court may not repeat its wrong legal practice of being lenient to convicted businessmen, reducing the jail term before getting a suspended sentence at the appellate court," said Park, secretary of the People's Solidarity for Participatory Democracy.

Cho Chul, an auto industry analyst at the Korea Institute for the Economy and Trade, said the sentence "will have a negative impact on Hyundai Motor's drive to boost its corporate image among consumers and the quality of its products under Chung's leadership."

"Whether they like it or not, Chung is still playing a decisive role in Hyundai Motor's investment plans and other key decision-making processes," he said.

He said Chung, who took over in 1999 and aimed to make the Hyundai auto group the world's number five, had been behind its transformation into a leading global carmaker by focusing on quality.

The Korea Chamber of Commerce and Industry called for leniency on appeal.

"Business circles hope to see a generous ruling at the upcoming hearing... in order for the nation's auto industry to take a new leap once again," it said in a statement.

Chung was arrested in April last year and spent two months in jail before being released on bail of one billion won ($1 million).

His legal troubles had delayed plans by the Hyundai auto group to expand in Europe and the United States.

Hyundai is also plagued by labour disputes, sluggish sales and growing price competition with its Japanese rivals due to the strong won.

Strikes cost output of 115,683 vehicles worth 1.6 trillion won last year. Net profit plunged 34 per cent to 1.53 trillion won last year with sales slipping 0.2 per cent to 27.34 trillion won due to the strikes and the won's rise against the dollar, which makes exports more expensive.

Its stock slumped nearly 30 per cent last year, wiping out 6.3 trillion won in shareholder value.

Shares of Hyundai Motor closed unchanged at 69,800 won on Monday, after falling 1.29 per cent around midday.