SEOUL, Feb. 27 (UPI) -- The Hyundai Group is at a critical juncture after being found involved in a scandal over secret cash payments to North Korea, which analysts say can determine the fate of South Korea's once-biggest business conglomerate.
The opposition-dominated parliament passed a bill Wednesday authorizing the appointment of an independent prosecutor to investigate the money transfer scandal, which also involves former President Kim Dae-jung -- whose term expired Tuesday.
A special investigation is most likely to commence soon to dig into the truth behind the controversy because new President Roh Moo-hyun, who has veto power, pledged to "respect" the parliamentary decision.
Analysts say that if Hyundai executives are found guilty and punished, the conglomerate's projects in North Korea are most likely to fold, which might lead to the group's bankruptcy. A total of nine Hyundai executives, including their boss, Chung Mong-hun, were allegedly involved in the illegal money transfer.
Hyundai has been accused of secretly sending $500 million borrowed from a state-run bank to North Korea just ahead of the inter-Korean summit in June 2000. Chung acknowledged the illegal payments, saying the money was to secure exclusive rights to several business ventures in the communist neighbor.
The Hyundai chief said the payments had contributed to staging the unprecedented South-North summit meeting, brushing off Kim's claims the payments were unrelated to the talks.
Kim's reconciliation talks with his North Korean counterpart, Kim Jong Il, led to his winning of the Nobel Peace Prize.
Chung also said he brokered the summit by setting up a meeting between government officials.
He defended the company's role, saying "government understanding and cooperation" was necessary in promoting business projects with North Korea because of the "special nature" of inter-Korean relations.
Kim acknowledged that his government condoned the illegal money transfer four days before the summit. Under South Korea's National Security Law, providing any cash to North Korea without formal government approval is illegal.
If the money sent to the North is found to have been used for purposes other than business, it will shock the market and spill over to other Hyundai affiliates, sparking criticism that Chung had used shareholders' money as his own.
Minor shareholders of ailing Hynix Semiconductor Inc. have threatened to sue regarding $100 million in company funds they say ended up in North Korea. Shareholders say they will also sue Chung and other Hyundai executives for embezzling company funds.
Oh Pil-keun, head of the shareholders group, said that Hynix collaborated with Hyundai Engineering Construction Co. and another branch of the group to send the money secretly to North Korea in 2000 when the chipmaker sold its plant in Scotland for $162 million.
The possible suits would be another major blow to Hynix, formerly Hyundai Electronics Industries, once a core company of the Hyundai Group.
Hynix's future has been in doubt since it rejected a $3.4 billion sale to U.S. rival Micron Technology Inc. last April. The chipmaker has stumbled from crisis to crisis since late 2000, hit by huge debt and prompting bail-outs from its lenders. Many shareholders believe Hyundai's financial woes are largely due to the secret mission in North Korea.
Chung apologized for the secrecy, but said it was necessary to avoid "unnecessary competition and disputes with Japan, Germany, Australia and the United States, which showed interest in North Korean projects."
Chung, a son of the late founder of the Hyundai business empire Chung Ju-yung, said the payments were made to win exclusive business rights to projects in North Korea. The business plans include tourism, railways, an industrial park, a sports complex, dams, an airport, telecommunications infrastructure and power generation.
But the payment scandal has cast a dark cloud over the Hyundai projects, with geopolitical risks mounting over North Korea's alleged nuclear weapons program. The cross-border projects are vulnerable to political and military tension on the divided peninsula, which remains in a state of technical war since the 1950-53 war ended without a peace treaty.
"Without Chung, any business with the North would surely hit a snag," a Hyundai official said, speaking on condition of anonymity. "We hope the independent prosecutor's probe will be focused on bringing to light the money transfer, not on punishing those involved," he said.
Hyundai has spearheaded Seoul's economic cooperation projects with Pyongyang since 1998 when it launched a cruise tour to the North's sealed-off mountain resort on the east coast.
But the money-losing project subsequently ran into trouble because of a lack of tourists and Hyundai's financial woes. Hyundai is to pay North Korea $942 million in royalties to operate the tours through 2005.
Hyundai rapidly expanded during the nation's boom years in the 1980s and early 1990s, funded by cheap bank loans. It ended 1999 as South Korea's biggest conglomerate in the wake of the 1997-98 Asian financial crisis.
The group started to splinter after the death of its founder, Chung Ju-yung in 2001, with the spin-off of its auto units and nagging cash shortages at construction, financial and semiconductor affiliates.
Hyundai Engineering & Construction Co., the main affiliate of the conglomerate, is now under creditors' management after it received bail-out funds. Hynix and other affiliates are also suffering financial woes. The group currently ranks 13th in size among Korean conglomerates.
Possible failure in its North Korea projects would deliver a heavy blow to already staggering Hyundai, business experts say. Cho Soon-yong, a former senior presidential staff, warned that "Hyundai may face insolvency if the details of the money transfer scandal are brought to light."
