Lotte Group’s shareholding structure -- dominated by Japanese entities -- and its wrongdoings during the previous administration are behind the prosecution’s raid on the conglomerate, local news outlets have alleged since the June 10 raid.

The Seoul Central District Prosecutors’ Office carried out simultaneous raids on 17 locations linked to the group including Lotte Group headquarters, and the homes of a number of key executives.

The office of Lotte Group founder Shin Kyuk-ho and chairman Shin Dong-bin’s Seoul home are among the raided locations, and a number of executives are said to have been banned from leaving the country. 

“There is evidence that slush fund was set up through in-house transactions. This is an embezzlement case concerning high level executives,” a prosecution official told the local media.

However, local media has alleged that the investigation may be aimed at high-level officials from the Lee Myung-bak administration, as well as to force the group’s hand in making its shareholding structure more transparent before Hotel Lotte’s proposed initial public offering.

Lotte Group has annual revenue of 83 trillion won ($71.1 billion), more than 90 percent of which is generated in Korea.

However, 99.28 percent of Hotel Lotte -- the de facto holdings company for Lotte Group firms -- is held by Japan-based entities.

As such, almost all of dividends paid by Hotel Lotte have flowed into Japan. Fair Trade Commission data shows that 121.3 billion won dividends were paid to Hotel Lotte stakeholders between 2011 and 2015. Of the total, 120.4 billion won would have been allotted to Japanese entities based on the shareholding structure, prompting the use of the phrase “outflow of national wealth,” by some local news outlets.

As for Lee Myung-bak administration officials, it has been alleged that illegal activities were involved in the group receiving the go ahead for the Lotte World Tower in southern Seoul.

Although the project was first proposed some years ago, various issues including those regarding a nearby military airbase had held it back until the Lee Myung-bak administration. Critics of the project and the Lee administration’s decision have since made allegations of bribery.

By Choi He-suk (cheesuk@heraldcorp.com)