[Exclusive] Prosecutors Reopen Hanaro Mart Purchase Corruption Case After 4 Years in Cabinet [World of Rebates] ①

Alleged Systematic Embezzlement and Breach of Trust in NongHyup Distribution’s Fisheries Division

Prosecutors Begin Witness Interviews in April This Year

Editor's NoteThe distribution business of the National Agricultural Cooperative Federation (NongHyup) is set to undergo a major overhaul for the first time in 12 years. NongHyup Economic Holdings is expected to absorb NongHyup Hanaro Distribution, which has been suffering losses, while the operation of Hanaro Mart branches nationwide will be entrusted to NongHyup Distribution under the new plan. However, NongHyup's distribution organization, tasked with supporting farmers' income through direct agricultural transactions and providing consumers with high-quality agricultural products at affordable prices, has fallen into a structural moral hazard. There are continual allegations of illicit kickbacks during private contracts and of inflating agri-food product prices to pocket back margins. The authority to purchase agricultural and marine products for Hanaro Mart has become a source of influence. The Asia Business Daily is investigating the process of agricultural and marine product procurement and supply at Hanaro Mart and examining the indispensable tasks required in the process of reforming NongHyup.

It has been confirmed that prosecutors are currently investigating suspicions of corruption in the procurement of agricultural and marine products within NongHyup Distribution, a subsidiary of NongHyup Economic Holdings. Persistent concerns about the procurement structure at NongHyup—including allegations that illicit profits were made when purchasing agri-food products from farmers and fishers for supply to Hanaro Mart stores nationwide—have now resulted in a formal prosecutorial investigation. However, as the prosecution's direct investigative authority is set to be abolished next month, there are concerns that the investigation may fall short of uncovering the full scope of systematic procurement corruption.

According to an investigation by The Asia Business Daily on September 29, the 1st Anti-Corruption Division at the Seoul Central District Prosecutors' Office (led by Chief Prosecutor Guk Won) secured intelligence on alleged embezzlement and breach of duty by product managers (MDs) from the marine products division at NongHyup Distribution and conducted witness interviews. The case was originally transferred to the Seoul Central District Prosecutors' Office after the Supreme Prosecutors' Office acquired information on the alleged crimes and conducted fact-finding in 2022. The investigation remained pending for over four years, before a full-scale probe began in April of this year.

In April and May of this year, prosecutors summoned Mr. A—who supplied marine products to Hanaro Mart Yangjae branch for a decade from 2012, under annual contracts—as a witness to thoroughly question him about abuses of power, embezzlement, and breach of duty by MDs. During the investigation, Mr. A reportedly gave testimony concerning embezzlement and breach of duty by Mr. B, who served as head of the marine products division at NongHyup Distribution at the time, as well as by Mr. C (who has since left), and by Mr. D and Mr. E, who were working as MDs. Prosecutors reportedly summoned one of the former MDs for questioning as part of the investigation.

During a restructuring of NongHyup's distribution business in 2021, NongHyup Distribution relinquished its agricultural product procurement authority to NongHyup Economic Holdings, but it still holds the rights to purchase marine and livestock products. MDs such as Mr. B are suspected of having given preferential treatment to certain companies during store-entry processes and of graft, accepting kickbacks through intermediary companies inserted into the marine product supply chain.

Mr. A, who operated a commission-based marine produce retail outlet at Hanaro Mart Yangjae under annual contracts through 2021, testified to prosecutors that Mr. C requested 5 million KRW in exchange for facilitating a contract extension, and upon refusal, he was notified that the contract would not be renewed. For about 10 years, Mr. A had operated the commission-based outlet at the store under private contracts, but after declining Mr. C's demands, the Yangjae branch abruptly changed the contract system to a public tender. Mr. B then supported a company, referred to as "B Company," which participated in and won the tender, according to Mr. A's account.

Mr. A further stated that B Company, as compensation, gave cash directly to Mr. B, then head of the marine products division. Mr. A also raised suspicions with prosecutors about systematic embezzlement of NongHyup funds by the MDs. He claimed that certain marine product procurement managers inflated purchase amounts with the cooperation of preferred suppliers, then received the differential as cash—without the use of borrowed-name accounts—to create slush funds.

Kang Hodong, Chairman of the National Agricultural Cooperative Federation, is looking at fruit at the Chuseok Discount Festival ceremony held on the 10th at Hanaro Mart Yangjae Store in Seocho-gu, Seoul. Provided by the National Agricultural Cooperative Federation.

In addition, Mr. A and others testified that the "Bada Sanghoe" brand of dried seafood products, operated by NongHyup Distribution, served as a channel for creating slush funds. The Bada Sanghoe brand is run by NongHyup Distribution as an OEM (original equipment manufacturer) line. Mr. A claimed that NongHyup Distribution overpaid manufacturing companies for products supplied under the Bada Sanghoe brand, then received the extra funds back as cash to create illicit reserves.

Prosecutors suspect that the actions of these MDs may have contributed to a system in which marine products were purchased at low prices and then sold to consumers at inflated prices. The prosecutors' office stated, "As this is an ongoing investigation, we cannot confirm specific details." A NongHyup Distribution official commented, "Of the four MDs from the marine products division at the time, only one has been questioned by prosecutors, and the other three have not yet received subpoenas."

Meanwhile, with the current administration's policy of separating investigative and prosecutorial powers, the prosecution's direct investigative authority will expire on October 2. However, ongoing investigations may be extended through a grace period until December 31, 2026. Given the limited time, there are concerns that the systematic procurement corruption at NongHyup may not be fully revealed.

This content was produced with the assistance of AI translation services.