Overview
The Hanbo scandal refers to a series of events in which Hanbo Steel, the main affiliate of the Hanbo Group, was finally declared insolvent on 23 January 1997, and it was revealed that banks had extended large preferential loans under pressure from political circles and others. The Hanbo Group ranked 14th among Korean conglomerates at the time. After the insolvency, a prosecutorial investigation and National Assembly parliamentary hearings followed, and Chung Tae-soo, chairman of the group, two ruling and opposition lawmakers, former ministers, bank presidents, and even Kim Hyun-chul, second son of President Kim Young-sam, became subject to legal proceedings. The collapse of Hanbo led to the successive bankruptcies of large corporations such as Sammi, Jinro, and Kia later that year and to financial-sector weakness, serving as a precursor to the 1997 Foreign Exchange Crisis.
Background
Chung Tae-soo founded Hanbo Sangsa Co., Ltd. in March 1974 and grew the group through construction and housing businesses. In February 1991, he was arrested over suspicions of preferential supply of residential land in the Suseo district of Seoul (the Suseo Incident), was released on a suspended sentence in July of that year, and in November 1995 was arrested again in connection with the slush fund case of former President Roh Tae-woo, after which he was released on medical parole in April 1996.
What determined the fate of the Hanbo Group was its integrated steelworks project in Dangjin, South Chungcheong Province. Hanbo Steel invested about 1.2 trillion won in reclaiming land at Dangjin around 1989 and then undertook the construction of a steelworks adopting the COREX process. The total investment reached about 5.7 trillion won, and most of this money was raised through corporate bonds and bank borrowings. Newspapers such as the Kyunghyang Shinmun describe the loans Hanbo received before its insolvency as illegal and preferential loans amounting to 5.7 trillion won. Interest burdens snowballed before the steelworks could begin generating profits. From September to December 1996, Jeil, Sanup, Chohung, and Korea Exchange Bank each provided an additional 100 billion won, totaling 400 billion won, and on 8 January 1997 four banks again put in 120 billion won, but these measures could not prevent the liquidity crisis.
Course of events
Insolvency
On the evening of 23 January 1997, a meeting of creditor financial institutions was held at the head office of Jeil Bank in Seoul. Chairman Chung offered Hanbo Steel shares as collateral, but when he refused to accept the demand to relinquish management rights, the creditor banks decided to declare Hanbo Steel finally insolvent. Some sources, including the Korean Wikipedia, give 30 January as the date of the group-level insolvency, so the dates vary depending on the source.
Investigation and the "Chung Tae-soo list"
As the Supreme Prosecutors' Office's Central Investigation Department launched an investigation, suspicions of political lobbying behind the preferential loans came to light. The so-called "Chung Tae-soo list," a roster of politicians who had received money from Chung, became the greatest issue in the political arena, and seven current and former presidents of commercial banks were questioned, with three of them arrested. The investigation soon extended to Kim Hyun-chul, the second son of President Kim Young-sam. Kim Hyun-chul appeared before the prosecutors in late February and underwent a face-to-face examination with Hanbo's Chairman Jung Bo-geun.
Presidential address and hearings
On 25 February 1997, the fourth anniversary of his inauguration, President Kim Young-sam delivered a live nationwide address in which he repeatedly apologized for the Hanbo scandal and his son's involvement and stated that he would hold those involved accountable regardless of their status or position. The National Assembly formed a special committee for the investigation of the Hanbo affair and began hearings on 7 April. Chung appeared as a witness at the so-called "detention center hearing" held at the Seoul Detention Center in Uiwang on 7 and 8 April, where he was pressed on whether he had provided political funds. In the morning he gave answers that seemed to indirectly acknowledge having handed money to some senior ruling and opposition lawmakers, but in the afternoon he reversed this, and on core suspicions he largely evaded answers. At the time, the press assessed that the hearings showed the limits of efforts to establish the truth, as witnesses persisted in saying they "did not know" or "did not remember."
Arrest of Kim Hyun-chul
On 17 May 1997, the prosecutors arrested Kim Hyun-chul on charges of brokering improper benefits and tax evasion under the Aggravated Punishment of Specific Crimes Act. Civic groups criticized the prosecutors for applying only some charges rather than investigating the overall suspicions of interference in state affairs.
Trials
On 2 June 1997, the Seoul District Court's 30th Criminal Panel handed down the first-instance verdicts in the Hanbo case as follows (as reported by the Seoul Shinmun).
- Chung Tae-soo, chairman of the Hanbo Group: 15 years in prison (prosecutors had sought 20 years). The prosecutors applied charges including embezzlement of about 191.1 billion won of company funds and giving bribes totaling 3.25 billion won.
- Jung Bo-geun, chairman of the Hanbo Group: 3 years in prison
- Hong In-gil, lawmaker of the New Korea Party: 7 years in prison and a forfeiture of 1 billion won
- Kwon No-gap, lawmaker of the National Congress for New Politics: 5 years in prison and a forfeiture of 250 million won
- Kim Woo-suk, former Minister of Home Affairs: 4 years in prison
- Hwang Byung-tae and Jung Jae-chul, lawmakers of the New Korea Party: 3 years in prison each
- Three former bank presidents: 4 to 5 years in prison each
Kim Hyun-chul was sentenced to actual imprisonment in the first trial on 13 October 1997, and the proceedings continued until 1999, when he was sentenced to 2 years in prison, a fine of 1.05 billion won, and a forfeiture of 524.2 million won. He was pardoned in August of the same year (Korean Wikipedia). Chung was released on medical parole in 2002 after serving about five years and five months.
Aftermath
In 2007, while on trial for embezzlement of funds from Gangneung Youngdong University, Chung left the country on the pretext of medical treatment and fled overseas. Prosecutors believed he had passed through Kazakhstan and Kyrgyzstan and settled in Ecuador in 2010. On 4 July 2019, they officially confirmed that he had died in Ecuador on 1 December 2018. Hanbo Steel was acquired by Hyundai HYSCO in 2004 and later merged into Hyundai Steel, which continues as the Dangjin Steelworks.
Impact and significance
The Hanbo scandal is recorded as a typical case of collusion between politics and business, in which large loans were extended without verification of business viability amid the ties between political circles, the financial sector, and conglomerates. Reckless expansion of chaebol relying on borrowings, lax screening by banks, and supervisory failures were exposed all at once, and the ensuing chain of large-corporate bankruptcies and financial-institution weakness, together with a decline in foreign confidence, led to the 1997 Foreign Exchange Crisis. Politically, the scandal dealt a heavy blow to the credibility of the Kim Young-sam government and became an occasion for a sharp weakening of its control over state affairs in the final part of its term.
References
- Korean Wikipedia "Hanbo scandal"
- Seoul Shinmun, 3 June 1997, "홍인길씨 7년·권노갑씨 5년"
- Seoul Shinmun, 8 April 1997, "한보 구치소 청문회 쟁점별 답변"
- Seoul Shinmun, 26 February 1997, article related to President Kim Young-sam's address
- Kyunghyang Shinmun, 4 July 2019, report confirming the death of Chung Tae-soo
- People's Solidarity for Participatory Democracy, 17 May 1997, opinion on the arrest of Kim Hyun-chul