The prosecution on Wednesday raided the offices of Korea National Oil Corp. and Keangnam Enterprises for their alleged irregularities involving an aborted resources development project in Russia during the former Lee Myung-bak administration.

Prosecutors confiscated bookkeeping records and documents at the headquarters of the state-run oil company in Ulsan and the mid-sized builder, currently in financial difficulties, located in Seoul.

Sources said the prosecution is investigating alleged irregularities by a consortium of Korean companies ― including the two ― formed to invest 300 billion won ($272 million) in an oil field development project in the Kamchatka Peninsula, Russia between 2005 and 2009. The consortium withdrew from the project in 2010.
 

At the time, the consortium held a 45 percent stake in the Russian project. Of them, KNOC held the largest share at 27.5 percent followed by Keangnam (10 percent) and SK Gas (7.5 percent).

The prosecution is reportedly looking into whether the developers inflated the anticipated profit despite concerns of feasibility to gain approval from the financial authority for the project. The companies are also suspected of embezzling some of the investment.

Sources said the probe will expand to other resources development projects overseas pursued during the Lee administration. Lee’s “resources diplomacy” has been criticized for yielding limited results despite the hefty investments.

The investigation comes on the back of President Park Geun-hye’s all-out war on corruption. On Tuesday, she vowed to root out all the irregularities that have been holding back the country’s economic growth.

Prosecutors also reportedly searched the home of Seong Wan-jong, the biggest shareholder of Keangnam and former lawmaker of the ruling Saenuri Party. Seong is said to be a close confidant of Lee Sang-deuk, brother of the ex-president.

The prosecution will also scrutinize Keangnam’s involvement in a nickel development project in Madagascar. After the builder withdrew from the consortium due to a cash shortage, the state-run Korea Resources Corp. allegedly bought its stake despite an extensive loss.

Opposition lawmakers have claimed that the Lee administration poured 40 trillion won into the overseas resource development projects, but recouped only 5 trillion won, or 13 percent, of the total investment.

By Kim Yon-se (kys@heraldcorp.com)