Presidential Candidate Lee Jae-myung, Hwacheon Daeyu Corruption Scandal, and Ties to Legal Profession

2021-11-19, Tara O

The massive corruption case—Daejang-dong Gate or Hwacheon Daeyu Gate—remained under the rug for years until recently.  It has been widely reported since September 2021 in the Korean media, and it centers around Hwacheon Daeyu (화천대유), an Asset Management company that made astronomical profits in 5 years.  Some believe the ruling party’s presidential candidate Lee Jae-myung is the true beneficiary.  When Lee Jae-myung was the mayor of Seongnam (2010-2018), he created a new city-level public entity, Seongnam City Development Corporation, which in turn created a consortium Seongnam’s Garden (성남의뜰) to handle a public housing development project worth ₩1.15 trillion (~$1 billion) to develop 5,900 residences in Daejang-dong neighborhood.  The City chose Hwacheon Daeyu, a company created a week before the request for proposal with no track record. It invested only ₩50 million ($42,000) in 2015 and made a whopping ₩57.7 billion ($49 million) by 2020, a 115,300% return on investment.

Another participant in the consortium was SK Investments, which can be seen as part of Hwacheon Daeyu, and it owns a 6% share of the consortium. There were 7 companies that made up SK Investments:  Cheonhwa Dong-in #1, Cheonhwa Dong-in #2, etc., up to Cheonhwa Dong-in #7, which were headed by acquaintances and family members of Kim Man-bae, the legal owner of Hwacheon Daeyu.  The seven companies invested ₩300,000,000 ($250,000) and received ₩346,300,000,000 ($290 million) in dividends, a 115,300% return on investment.

By contrast, the Seongnam City Development Corporation, which invested ₩2.5 billion ($2.1 million) and owns 50% of the share, saw ₩183 billion ($154 million), a 72% return on investment.  A group of 5 investment companies, which invested ₩2.15 billion ($1.8 million) and owned 43% of the consortium, made ₩3.3 billion ($2.8 million), a 53% return.

The deal was structured such that Hwacheon Daeyu, which owns only 1% of the consortium, and SK Investments, which is closely linked to Hwacheon Daeyu and comprises 6% of the consortium, would get the lion’s share of the profit. (12:50)  From this discovery, the suspicion of corruption emerged.

The prosecution waited weeks before it began investigating the case.

HwaCheon Daeyu was created on February 6, 2015.  A week later on February 13, 2015, the City of Seongnam invited public participation by sending out a request for proposal.  Hwa HwaCheon DaeYu was 100% owned by Kim Man-bae (김만배), a journalist close to Lee Jae-myung.  Clearly, he had no experience with construction, yet he became a key player.  Lee Jae-myung was the ultimate authority, since he has to approve and sign various details of the housing development project.

It turned out Hwacheon Daeyu and its subsidiaries had impressive roster of prosecutors and judges on its payroll.  For instance, Park Young-soo (박영수), the Special Prosecutor, who was in charge of the case that led to the impeachment of president Park Geun-hye, was receiving a hefty consulting fee.  He received ₩250,000,000 ($210,000) for interpreting the law part time.  Park Yong-su was an advisor at Hwacheon Daeyu since December 2015 until he was appointed as the Special Prosecutor on the “Gugkjeong Nongdan” case in November 2016.  The term “Gugjeong Nongdan” was widely used starting in October 2016 after JTBC aired fake “tablet PC” stories that created the impression that Park Geun-hye was controlled by Choi Se-won, stirring public anger and resulting in the impeachment of Park Geun-hye.  For details on the tablet, see here.  For details on the unconstitutional process of the impeachment, see here and here.

Even his daughter was employed by Hwachon Daeyu company from 2015 until the scandal broke in early September 2021.   Additionally, Kim Man-bae, the sole owner of the Hwacheon Daeyu transferred ₩10,900,000,000 ($9.2 million) to Lee Gi-seong (이기성), Park Young-soo’s in-law.

Park Young-soo was also recently mired in another controversy.  He is suspected of receiving a bribe when a “fishery businessman” arranged for a Porche for the special prosecutor.  After the bribery allegation, Park Young-soo then arranged payment for the rental, which was about three months later.

Another advisor receiving a high consultancy fee was the former Supreme Court Justice Kwon Soon-il (권순일).  Kwon received ₩20,000,000 ($17,000) per month from Hwacheon Daeyu in cosulting fees.  Lee Jae-myung was pressed with various criminal charges, including violating election law and abuse of authority.  30 lawyers from 10 law firms defended his criminal charges. (2:24)  Lee Jae-myung was found guilty, which would have prevented Lee from running for president again.  Supreme Court Justice Kwon, however, lobbied the other justices to join him in reversing the lower courts’ decisions and found Lee not guilty in July 2020, which is now allowing Lee to run for president.  Four months after the not-guilty ruling, Kwon Soon-il began consulting for Hwacheon Daeyu.

Numerous other figures with  legal background, including judges, prosecutors, lawmakers, police chief, and journalists (who cover law), are linked to Hwacheon Daeyu.  Yet another corruption case related to another public housing development in Seongnam City, this time in Baekhyung-dong neighborhood, is surfacing.  Lee Jae-sun criticized his brother Lee Jae-myung for these corruption cases back in 2012.  For that, Lee Jae-myung tried to put his brother in a psychiatric hospital using, rather abusing, the resources available to him as the mayor.  For details, see here.

The investigations continue and the public is demanding accountability.