Ethical Performance
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Prosecutors probe habitual corruption in South Korea’s railway industry

August 2014

Korean prosecutors have questioned more than 30 high-ranking officials of the state-run railway regulator to verify whether they were involved in bribery allegations surrounding the Korea Rail Network Authority (KRNA).

The public railway corporation is accused of favouring two local parts suppliers in their bidding processes.

The move came four days after the former president of the KRNA until January, committed suicide while being investigated about his involvement in the alleged railway corruption scandal. The investigation was triggered by a spokesman for the ruling party who said the deceased had received KR30 million from the chairman of AVT, a railway parts supplier.

The officials under investigation each played a role in making deals with Sampyo E&C and AVT, the railway’s parts suppliers since 2011.

The Seoul Central District Prosecutors’ Office said that the officials under investigation are suspected of arranging the exclusion of a U.K. railway parts company in a 2012 bid to supply railway parts for the construction of a high-speed railway line. AVT finally won the bid.

Among them, the former head of the railroad division at the KRNA is suspected of playing a key role in connecting influential figures from both the public railway regulator and private suppliers.

Prosecutors have ended their investigation into the late president but have expanded the probe to the political sector since the dead man’s suicide note hinted that political forces had played a role in the alleged bribery.

As part of the investigation, the prosecution have arrested a senior official of the ruling Saenuri Party who has confessed to handing over funds from AVT to the former president who committed suicide. The goal was to ensure that AVT were given exclusive rights to supply key parts.

Investigators pointed out that the revolving door between public regulators and private companies is a primary reason for such corruption scandals. Private parts and construction companies are often eager to hire former presidents of public corporations, assuming that they can use their influence in selecting bidders. The corruption in establishing such relations sets the scene for ongoing corruption that permeates entire industries.

“The railway industry is vulnerable to the drawbacks of the revolving door practice because there are a lot of large construction deals going on between public and private companies,” a prosecutor said. “We’re targeting KRNA executives who moved on to private companies in order to find more cases.”

Korea Rail Network Authority | Asia | Corruption

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