Enron Postscript and Prologue - 'Lies, damned lies and Korean company accounts'

A week after Enron bosses Kenneth Lay and Jeffrey Skilling were found guilty of fraud, conspiracy and other charges it seems worthwhile noting that before Enron there were other recent large corporate bankruptcies and that while the business world and mainstream media may wish to continue to mystify its account of capitalism's disasters as the human story of out of control CEO's, (see the recent film Enron : The Smartest Guys in the Room  .torrent ) and this article is a case in point, it is possible to read through the similarities between this (and surely other future) accounts that these cases describe a particular way of doing business, the rule rather than the exception. Lies, damned lies and Korean company accounts By Aidan Foster-Carter

Last Tuesday's Financial Times must have made Koreans wince. A picture, a story - and no joy in either. The picture was a Korean image we'd seen often before, yet not so much of late. Yes, it's riot season once more, as police slugged it out with workers fired from Daewoo Motor's plant at Inchon.

But the story below was wider and worse. "Daewoo executives charged with 23 billion pound accounting fraud". Twenty-three billion pounds! 41 trillion won, US$33 billion dollars: whatever your currency of choice, it's a mind-boggling sum. Koreans are tireless rankers, but this is one candidate for the record books that they'd rather forego.

When South Korea's second largest chaebol (conglomerate) went under in 1998 with $80 billion in debt, this was the world's largest ever corporate collapse. Now, if charges laid by Seoul prosecutors last Monday are proved, it's shaping up to be the world's biggest corporate fraud as well.

So what happened to the new South Korea, Asia's leading edge of post-crisis reform, presided over by Nobel Peace Prize laureate President Kim Dae-jung? The short answer is that it's paying a double price: for the sins of the past, and for not restructuring enough. Sure, the former is unfair, and the latter is an uphill struggle against recalcitrant business and unions alike. But the sad fact is that Kim's glory days look to be over. His final two years in office are set to be dogged by a nasty nemesis whose name is Daewoo.

The photo first. In some ways it misleads. Even in the "demo-crazy" heyday a decade ago, South Korea was never as awash with riots as media images suggested. It was just that when they did riot, Koreans did it so well that it made irresistible TV. Students or workers with staves or Molotov cocktails, versus police in Darth Vader gear with tear gas. Let the jousts commence! Cameras, action!

But actually not that often. And nowadays hardly at all. Student demonstrations in particular are all but extinct. Modern Korean youth aren't street fighters: they'd rather zap each other online in the 15,000 PC bangs (Internet gaming cafes). And despite Daewoo, trade unions are also a spent force. Only one worker in 10 belongs to a union. Those sacked in Inchon couldn't even get co-workers at two other car plants less hit by job cuts to join them. This was a rearguard action - not the radical vanguard fondly imagined by the leader of the Korean Confederation of Trade Unions (KCTU), Dan Byung-ho, who called for Kim's ouster. (When the last KCTU leader ran for president in 1997, he got just 1 percent of the vote.)

Trouble is, after years of those TV images foreign investors also buy into Dan's fantasies. A recent survey of expatriate CEOs in Seoul found that labor relations topped their list of concerns. Daewoo workers may well blame management for their plight - but do they really think that occupying the plant or burning police buses will encourage General Motors, their last hope, to buy the company? Yet with unemployment rising above 4 percent as the economy slows, such skirmishing may make a comeback. Last year's boast - no tear gas, anywhere in Korea - may not last, if government decides to crack the whip.

But the real villains are the bosses. That's not socialist rant, but plain fact. It was chaebol recklessness - blindly borrowing to expand their empires, building capacity no one needed - that drove South Korea to the brink of sovereign default in late 1997, to be rescued by the IMF's biggest bailout ever (another unwelcome record). Now the public purse must pay - $100 billion so far, and counting - to absolve the sins of the private sector. The tycoons made the mess, and left the treasury and taxpayers to clean it up.

And now those sins look to be not just irresponsible but downright criminal. Daewoo's demise had already sent huge shocks through the Korean system, as the government struggled to stop the whole financial sector - especially creditor banks and investment trusts - from going down with it. It also dealt a big blow to Korean prestige for the No 2 firm to fail, with ramifications worldwide. One example: Daewoo was the top foreign investor in Poland, and Warsaw is threatening to sue if its car joint venture collapses.

All that was bad enough, but the new allegations spread the mud even wider. With another high-profile bankrupt, Dong Ah Construction, admitting to years of cooking the books (and claiming everyone does it), you might as well change the old phrase: there are lies, damned lies, and Korean company accounts. So where were the auditors? Bribed, say prosecutors: for the first time ever, a Korean auditor is facing a criminal charge. But it doesn't stop there. Where were the regulators? The Financial Supervisory Service (FSS) is probing now - but was it asleep back in 1998, when Daewoo somehow got away with doubling its already vast debt load? And what of the banks that lent? Did everyone involved go mad?

Finally, what of the politicians? Strangely, Seoul has not asked Interpol to look for Daewoo's fugitive founder, fallen hero Kim Woo-choong - a man twice convicted of bribing politicians. Some of those billions will be slush funds: How far did they reach? If people close to Kim are tainted, it will hurt him too (as happened to his predecessor Kim Young-sam). This is all set to be one almighty stink.

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