[THE INVESTOR] Embattled Lotte Foundation chief Shin Young-ja and her children are expected to face public scrutiny over some 4 billion won (US$3.47 million) worth of corporate funds they are suspected to have embezzled.  Shin is elder sister of Lotte Group chairman Shin Dong-bin.

And the bigger issue is that Shin funneled most of the money to her kids to be used as their personal allowances. 

Through a small company formed by Young-ja and her son, Shin -- daughter of Lotte founder Shin Kyuk-ho for whom an arrest warrant has been issued for charges of embezzlement and bribery -- was able to steal up to 4 billion won from Lotte affiliates.

Further, Young-ja’s three daughters became board-registered executives in 2010, and started to receive salaries.

The head of the company that Young-ja and her son established has told the prosecution that Shin had instructed him to pay her daughters.

The three women, however, never participated in managerial issues nor had any business acumen, according to those close to Lotte.

The prosecutors believe the money was not used for slush funds, but for personal use.

Meanwhile, in addition to the bribery and embezzlement charges, Young-ja is also under fire for accepting 3.2 billion won worth of salaries from her posts as board member of affiliates like Lotte Shopping, Hotel Lotte and Lotte Engineering & Construction.

She also holds considerable stakes in Lotte affiliates. In S&S International -- a real estate rental firm -- Young-ja and her daughters hold the entire 100 percent stake.

Together, Young-ja and her children have more than 28 billion won worth of real estate.

These assets -- many of which did not belong to Young-ja in the first place -- were also distributed to those close to Young-ja and her inner circle.

Witnesses have said that she would pass around huge bonuses to people showing her loyalty.

Under current laws, registered board members receiving 500 million won or more of salaries must submit detailed accounts of their pay.

One of the reasons that such malfeasance was possible is because only a handful of Lotte affiliates are listed on the stock market.

This means Lotte’s founding family did not even have to be discreet as they reached into company coffers, using them as their own personal bank accounts.

“At most large South Korean companies, there are no real regulations or standards for executive payrolls,” said Kim Sang-jo, head of the Solidarity for Economic Reform. “A more desirable situation would be for the board to publicize the salary criteria to ultimately help repair corporate governance structures.”

By Kim Ji-hyun (jemmie@heraldcorp.com)