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Prosecutors have raided the Seoul office of the U.S.-based investment firm Lone Star on suspicion of tax evasion and illegal currency transfers and slapped an overseas travel ban on 20 staffers, including the former and incumbent heads of the branch. After a period of treading softly since the National Tax Service filed its complaint against Lone Star in September, the prosecution is baring its teeth.
There are broadly three charges against Lone Star. It is suspected of having evaded W14.75 billion (US$14.7 million) in tax on the sale of Star Tower building in Seoul, illegally taken out of the country $8.6 million in foreign currency, and acquired Korea Exchange Bank in 2003 at a knockdown price by deliberately underplaying KEB's BIS capital adequacy ratio. The prosecution and the Board of Audit and Inspection must probe those charges very thoroughly, especially since Lone Star was fined W140 billion in Japan for an attempt to evade tax by a similar method. If it does not want to pull out of Korea completely, Lone Star must cooperate fully with the investigation and accept the penalty if it is found guilty.
But delving into any illegality Lone Star may be guilty of is one thing, and opinions about offshore hedge funds in general are quite another. It is irresponsible for the ruling party to use the issue to fan sentiment against foreign capital. Uri Party floor leader Kim Han-ghil thundered Lone Star must not get away with any illegality, and warned that a revision of laws regarding the profits of foreign businesses is under study.
We must examine the matter calmly. KEB's share price stood at W3,000 when Lone Start acquired the bank in late August 2003. After two-and-a-half years with Lone Star at the helm, the share price has quadrupled to over W12,000. During the same period, KEB's market capitalization spiraled from less than W1 trillion to W8 trillion. Lone Star has not taken all the profit: minus its stake of 50.53 percent, it was equally distributed to domestic shareholders, chiefly the Bank of Korea and Export-Import Bank.
Just coming at the question from a sense of outrage that the fund is unlikely to pay a single won in tax on its profits does no good. It neither helps promote our immediate national interests nor does it prevent further outflow of the national wealth.
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