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South Korea helicopter manufacturer collected $48M in illegal profits

Korea Aerospace Industries falsified development costs while outsourcing the work to other companies.

By
Elizabeth Shim
The KAI Surion helicopter is a South Korea-made rotorcraft that can carry nine people during combat and can travel at a speed of 162 mph for at least two hours. South Korea findings revealed KAI failed to localize the power transfer unit on the helicopter, but did not return $13.6 million in government funds. Photo courtesy of Korea Aerospace Industries
The KAI Surion helicopter is a South Korea-made rotorcraft that can carry nine people during combat and can travel at a speed of 162 mph for at least two hours. South Korea findings revealed KAI failed to localize the power transfer unit on the helicopter, but did not return $13.6 million in government funds. Photo courtesy of Korea Aerospace Industries

SEOUL, Oct. 12 (UPI) -- South Korea's aerospace agency collected at least $47.9 million in unjust profits while manufacturing a new fleet of helicopters for Seoul's military.

The Board of Audit and Inspection said in statement on Monday that Korea Aerospace Industries falsified development costs in order for two suspects in the case to collect nearly $48 million in unmerited profits, while the semi-private agency acted as an intermediary between Seoul's Defense Acquisition Program Administration and 22 foreign and domestic contractors, Yonhap reported.

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The KAI Surion helicopter is a South Korea-made rotorcraft that can carry nine people during combat and can travel at a speed of 162 mph for at least two hours, South Korean television network MBC reported.

So far, 34 helicopters have been deployed, and South Korea has poured nearly $1.14 billion in investments for a project that will continue production until 2023.

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KAI has disputed the audit report and said the money was gained legitimately. The agency said it was undertaking "all development risks" as the middleman and has a right to manage the costs of technology transfers.

But according to the audit board, KAI cooked up cost estimates to nab $20.1 million in investment money from DAPA, while making it appear the agency was undertaking helicopter development when in fact the work was being outsourced to over 20 other firms.

Seoul's auditors requested investigation into two KAI employees responsible for the DAPA contract. Going forward, KAI could collect an additional $21.3 million in unjust profits, the report said. Other findings revealed KAI failed to localize the power transfer unit on the helicopter, but did not return $13.6 million in government funds. The rate of localization on the rotorcraft ended at 33 percent, according to the audit.

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A KAI employee and the employee's brother-in-law then took $47.9 billion in unjust funds in an illegal scheme where the two established an overseas subcontractor then inflated development costs to pocket the funds, according to Yonhap.

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