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Prosecution opens probe into duty-free licensing

PUBLISHED : July 12, 2017 - 17:19

UPDATED : July 13, 2017 - 11:16

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[THE INVESTOR] Upon the conclusion by the audit board that Lotte Duty Free was wrongfully denied duty-free licenses by the Korea Customs Service in 2015, the prosecution has launched its own investigation into the case that is also connected to the ongoing trial of impeached former President Park Geun-hye.

The Board of Audit and Inspection said on July 11 that after two rounds of its investigation, it found the KCS knowingly manipulated data submitted by duty-free operators to prevent Lotte Duty Free from being awarded licenses in July and November 2015. 




In July that year, a license went to Hanwha Galleria, which won its first permit. According to the audit board, the customs service gave Hanwha higher marks over Lotte by using different measures of store space in the evaluations. 

The investigation also showed that several employees at the KCS had bought shares of Hanwha Galleria before the official announcement was made.

In a similar way, Lotte was at a disadvantage in the November evaluations, behind Doosan, which also won its first license in 2015. The audit showed that the KCS had scored the tenders based on charitable donations in the two previous years rather than the previous five years as officially announced. 

In November, Lotte Duty Free was unable to renew its duty-free license for its World Tower branch and was forced to close down until it was recertified last year.

Spokesmen for Hanwha and Doosan both declined to provide official statements regarding the results of the audit, saying only that the tenders were prepared “fairly and in accordance to the evaluation criteria provided at the time.”

If prosecutors are able to prove misconduct in the evaluation process, it is possible that the duty-free licenses awarded in 2015 may be taken away and opened for new tenders. 

The results of the audit have stirred suspicions over backroom deals involving the evaluation process. In 2015, duty-free licenses were considered to be a major boon to companies thanks to high and steady sales coming from the influx of Chinese tourists into the country.

One source, who asked to remain anonymous, said that Lotte may have been intentionally locked out of renewing its license because of political considerations.

“There was a lot of talk about the government’s permits for the World Tower, and public opinion had turned completely against Lotte because of the public power struggles within its owner family,” he said.

Lotte was embroiled in controversy during the 2016 evaluations when it won back its license for the World Tower branch, with allegations that Lotte Group Chairman Shin Dong-bin lobbied then-President Park Geun-hye.

The audit results have once again highlighted the lack of transparency surrounding the duty-free license evaluation process, which has been kept tightly under wraps. 

In its evaluations for granting licenses in 2015, the Korea Customs Service did not make the evaluation scores public, making it impossible to know why certain companies were rated higher than others. In response to public outcry, the customs agency announced in 2016 only the scores of companies that had been granted licenses.

An amendment to the Customs Act seeking to make the evaluation process more transparent is currently being reviewed in the National Assembly. If passed, the law would require that the KCS make public the names of those on the evaluation committee in order to increase accountability and prevent lobbying by operators. 

By Won Ho-jung/The Korea Herald (hjwon@heraldcorp.com)

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