A lobby group representing Korea‘s powerful conglomerates has been called on to disband by opposition lawmakers and civic groups over its connection to a scandal linked to Cheong Wa Dae.

The Federation of Korean Industries is at the center of a snowballing political scandal surrounding Mir Foundation and K-Sports Foundations, accused of pulling strings to have member conglomerates donate funds to the foundations, which are suspected to have been run by a President Park Geun-hye confidant. 

“The FKI was supposed to represent business interests. Now that benefit has gone,” said Minjoo Party of Korea Spokesman Rep. Ki Dong-min in a press briefing at the National Assembly. “The FKI has been relegated to a corrupt venue used by the government to extract funds from conglomerates.”

Mir and K-Sports, established less than a year ago under the auspices of FKI, raised a combined 75 billion won ($67.4 million) from major chaebol groups, such as Samsung, Hyundai and LG, mostly FKI members, through what critics see as “dubious” fundraising activities.

The foundations claim the donations were voluntary. The FKI, after allegations surfaced, announced the two foundations would disband and be integrated into one.

Minjoo Party lawmakers suspect the merger plan is an attempt to cover up wrongdoings. Prosecutors, launching a probe into the foundations upon a complaint filed by a civic group, said Thursday they would “faithfully” investigate the case.

The disestablishment call was echoed by some ruling Saenuri Party’s moderate members such as Rep. Yoo Seong-min. The Saenuri former whip, who has pushed centrist agenda since taking office and clashed with President Park Geun-hye over her economic policy, demanded “constructive disestablishment” of the business group.

Even President Park Geun-hye’s former economic think tank moved against the group. On Tuesday, The Institute for the Future of State, alongside liberal-based Solidarity for Economic Reform, issued a statement denouncing the FKI for being too politicized and failing to fulfill its original purpose.

The government has distanced itself from the controversy, saying the FKI should decide its own future course. But Finance Minister Yoo Il-ho acknowledged the need for a change in its membership, which includes government-led agencies such as the Export-import Bank of Korea. Opposition party lawmakers have demanded the FKI cut its ties with those entities.

This is not the first time the FKI has been embroiled in a political scandal during President Park Geun-hye’s administration. The business group was accused of offering illicit funds to right-wing groups such as the Korean Parent Association and the Center for Free Enterprise to help them push government-led agendas such as state-authored textbooks.

The FKI was established in 1961, supposedly to foster a cozy relationship between big businesses and former President Park Chung-hee, who sought to lift the country out of poverty by supporting big businesses.

Many believe it was formed based on a deal between business leaders and the president, who rose to power through a military coup.

While it was credited with playing a role in the nation’s economic growth by advocating government-led export-driven economic policies, the business group also faced criticism for fostering cronyism and business-politics collusion. In 1988, the FKI was accused of raising illicit funds for a foundation run by then-President Chun Doo-hwan.

Business experts said the FKI should at least be transformed in a more transparent entity, break away from “antiquated” business practices and embrace new economic trend.

“I think the group has failed to serve in the interest of the society as a whole,” said Lee Jung-hee, an economics professor at Chung-Ang University in Seoul. “Things have changed a lot, but they are still acting in an old-fashioned way. It needs to change.”

By Yeo Jun-suk (jasonyeo@heraldcorp.com)