[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 Note
The distribution business of the National Agricultural Cooperative Federation (NongHyup) is undergoing a major overhaul for the first time in 12 years. NongHyup Economic Holdings is set to absorb the deficit-ridden NongHyup Hanaro Distribution, while operational responsibilities for Hanaro Mart stores nationwide are planned to be transferred to NongHyup Distribution. However, NongHyup's distribution organization, which is tasked with supporting farmers' incomes through direct agricultural transactions and supplying high-quality produce at reasonable prices to consumers, has succumbed to a structural moral hazard. Allegations continue to surface about kickbacks being demanded during private contract processes, and about inflating prices of agricultural and marine products to skim off back margins. The authority to purchase agricultural and marine products for Hanaro Mart is seen as a source of power. The Asia Business Daily traces the procurement and supply processes for agricultural and marine products at Hanaro Mart and examines urgent tasks that are indispensable in the process of reforming NongHyup.

The prosecution is currently investigating alleged corruption in the procurement of agricultural and marine products by NongHyup Distribution, which is under the umbrella of NongHyup Economic Holdings. This follows ongoing criticisms regarding the purchasing structure at the cooperative, including the acceptance of kickbacks when procuring agricultural and marine products from farmers and fishers for distribution and sale at Hanaro Mart stores nationwide. With the impending abolition of the prosecution's direct investigative authority next month, concerns have arisen that it may not be possible to fully uncover systematic procurement-related corruption.

According to a comprehensive report by The Asia Business Daily on September 29, the Seoul Central District Prosecutors' Office's Anti-Corruption Division 1 (headed by Chief Prosecutor Kook Won) obtained intelligence regarding embezzlement and breach of trust by product managers (MDs) in the seafood division of NongHyup Distribution and has conducted interviews with relevant witnesses. This case was initially flagged in 2022, when the Supreme Prosecutors’ Office obtained information about the alleged crime and forwarded it to the Seoul Central District Prosecutors' Office. After remaining dormant for over four years, the investigation began in earnest this April.

During April and May of this year, prosecutors summoned individuals, including Mr. A, who operated a seafood commission store at the Hanaro Mart Yangjae branch for 10 years since 2012, as witnesses on two separate occasions. The focus was on investigating allegations of power abuse, embezzlement, and breach of trust by the MDs. In statements to investigators, Mr. A reportedly detailed circumstances surrounding these accusations involving Mr. B (then seafood department manager) and Mr. C (a now-former MD), as well as Mr. D and Mr. E. The prosecution also summoned one of the former MDs for questioning.

During a restructuring of NongHyup's distribution business in 2021, NongHyup Distribution relinquished authority over agricultural product procurement to NongHyup Economic Holdings, but retained the right to purchase seafood and livestock products. It was reported that Mr. B and other MDs are suspected of favoring specific companies during the store onboarding process or inserting intermediaries in the seafood supply chain to collect illegal payments.

Mr. A, who operated a seafood commission store at the Yangjae branch under annual contracts until 2021, testified to prosecutors that Mr. C demanded 5 million won in exchange for facilitating contract renewal, and that upon refusing, Mr. A was subsequently notified that the contract could not be renewed. Mr. A explained that for about a decade, the commission store had operated under private contracts at the Yangjae branch, but after declining Mr. C's demand, the branch suddenly switched to an open bidding system, resulting in the winning bidder being "Company ㅂ," which was allegedly backed by Mr. B.

Mr. A also described the circumstances in which Mr. B, then the seafood department manager, allegedly received cash from that company. Furthermore, Mr. A raised allegations of systematic embezzlement of NongHyup funds by MDs. He claimed that those responsible for purchasing seafood colluded with certain companies to inflate the actual purchase prices and then received the resulting difference back in cash, rather than through proxy accounts, thus creating 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.

Mr. A and others additionally testified that NongHyup Distribution's dried seafood brand, "Badasanghoe," is suspected of being used as a channel for covertly creating slush funds. Badasanghoe is a brand established by NongHyup Distribution and operates in an original equipment manufacturing (OEM) format. Mr. A claimed in his testimony that NongHyup Distribution padded the payment amounts to manufacturing partners for Badasanghoe products, and then received the overpaid portion back as kickbacks, thus generating slush funds.

Prosecutors suspect that due to these actions by MDs, a structure might have been established in which seafood is purchased at low prices but sold to consumers at higher prices. The prosecution stated, "As this is an ongoing investigation, we cannot provide specific details." Regarding this matter, a NongHyup Distribution official commented, "Of the four MDs who were with the seafood division at the time, only one appeared for questioning by prosecutors. The other three have not yet received subpoenas."

Meanwhile, as a result of the Lee Jaemyung administration’s pursuit of separating investigatory and prosecutorial powers, the prosecution’s authority for direct investigations will be abolished on October 2. However, investigations currently underway may continue until the end of the grace period on December 31 of this year. Given the tight timeline, concerns remain that it may not be possible to fully unravel the systematic procurement corruption within NongHyup.

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