By Won Ho-jung From The Korea Herald

The owner family of Lotte Group is suspected of using a paper company in Vietnam to try to funnel money into a slush fund.

The allegation surfaced amid an ever-widening probe by Korean prosecutors into the Korean-Japanese conglomerate for suspected corruption, illegal intragroup deals and embezzlement. 

According to local reports citing sources at the prosecution, the paper company is the Luxembourg-based Coralis SA, which was previously used for offshore tax evasion by Kim Seon-yong, the third son of former Daewoo Group chairman Kim Woo-jung.

Lotte Asset Development bought Coralis SA in 2009 from the younger Kim at 69.7 billion won ($60.24 million) in order to buy the land and development license for Lotte Center Hanoi, a shopping and leisure complex built by Lotte Engineering & Construction.

Lotte Shopping and Hotel Lotte then bought 45 percent of shares in Coralis from Lotte Asset Development.

Lotte Group invested approximately $400 million into the 65-story project, completed in September 2014.

However, Coralis SA recorded a 55.1 billion won net loss last year, raising questions about whether Lotte’s owners were seeking to hide money by exaggerating its losses.

Other critics have also pointed to the possibility that Lotte E&C may have overcharged construction fees to Lotte Shopping and Hotel Lotte to hide funds.

A spokesman for Lotte Group said, “Buying companies that have local business licenses is a common practice when pursuing projects overseas,” noting that Coralis SA held licenses needed for Lotte Center Hanoi.

Coralis SA is not the only paper company suspected of having been used by Lotte Group for tax evasion or slush fund purposes.

In 2010, Lotte’s affiliates including Lotte Shopping invested funds to establish the company LHSC in the Cayman Islands, while Lotte pursued the acquisition of Chinese home shopping company Lucky Pie. Prosecutors suspect that LHSC overpaid for Lucky Pie’s shares to hide money. LHSC paid 150 billion won for 63.2 percent of Lucky Pie’s shares.

Lotte’s companies regularly utilized companies set up in tax havens overseas such as the Cayman Islands when pursuing overseas mergers and acquisitions. According to news reports, the Fair Trade Commission and prosecutors have identified five or six paper companies involved in Lotte’s transactions.

Some paper companies overseas have also provided investments in Lotte’s affiliates, as revealed through a government audit last year.