South Korea's top court has upheld suspended prison terms for former executives of Sewha IMC, now Dynamic Design (145210.KS), who were accused of siphoning off tens of billions of won in company funds to create slush funds.
The first division of the Supreme Court, with Justice Chun Dae-yeop as presiding judge, on the 1st affirmed a lower court ruling that sentenced Yoo, 90, the former chairman of Sewha IMC, to two years and 10 months in prison, suspended for five years. He had been charged with embezzlement under the Act on the Aggravated Punishment of Specific Economic Crimes.
Yoo's son, 59, the former vice chairman, received three years in prison suspended for five years and a fine of 1 billion won ($720,000). Kang, 51, the former executive vice president, received two years and six months suspended for four years and a fine of 420 million won. For the company itself, the court maintained a suspended imposition of a 500 million won fine.
Prosecutors alleged that the former chairman and others diverted about 27 billion won between September 2006 and January 2018 through fictitious transactions with subcontractors, false commission payments to paper companies, loans to affiliated companies, misuse of golf course construction costs, inflating transaction payments and taking back the difference — a practice known as "back margin" — and misappropriation of an employee welfare fund. Prosecutors also charged the former vice chairman and the former executive vice president with evading corporate and value-added taxes between January 2014 and January 2018 by inflating tax invoices for services worth about 4.3 billion won and issuing false tax invoices worth about 8.2 billion won. The two were also accused of evading a total of 1.6 billion won in taxes by issuing false invoices.
The trial court sentenced them to three to five years in prison over the embezzlement of company funds. In a separate first trial on the tax evasion charges, the former vice chairman and the former executive vice president received suspended prison terms and fines, and the company was fined 500 million won.
In the appeals trial, where the two cases were combined, the court acquitted them on some of the embezzlement and tax evasion charges and handed down suspended prison terms for all of them. The company received a suspended imposition of a 500 million won fine.
The appellate court found that the father, who abused his position as founder, embezzled 8.2 billion won, while the son embezzled 14 billion won, and that the scale of corporate tax evasion was also very large. "Prosecutors viewed Sewha IMC's excessive service payments to a particular company as a means of creating slush funds, but some of the services appear to have actually been performed," the court said. "Even if the services, for which 500 million won was paid each month, were inflated, it is difficult to regard this as embezzlement."
The Supreme Court upheld the lower court's judgment. It said the appellate court had not failed to conduct the necessary review or exceeded the limits of the principle of free evaluation of evidence in violation of the rules of logic and experience, and had not misapprehended the law on joint principals, intent of unlawful appropriation, the embezzlement provisions of the Act on the Aggravated Punishment of Specific Economic Crimes, occupational embezzlement, the false tax invoice provisions of the Act on the Aggravated Punishment of Specific Crimes, violations of the Punishment of Tax Evaders Act, or the principle that a court may not rule on matters not charged.
Sewha IMC, a small and mid-sized manufacturer based in the Jeonnam and Gwangju region and listed on the main board, changed its name to Dynamic Design after its executives were indicted.
