The South Korean government appears to be taking a hard line against private equity funds and individuals accused of tax evasion.
In the most notable development so far, news service Joins.com reported that tax officials in the country had asked prosecutors to investigate Steven Lee, the former head of Korean operations for US private equity firm Lone Star Funds. No details of the investigation have yet emerged.
The 36-year-old Lee was appointed Lone Star's Korea head in 1998 and led the acquisition of a 51 percent stake in Korea Exchange Bank, Korea's fifth largest lender, in October 2003. Lee stepped down from his post on September 28, citing personal reasons.
The day after Lee's resignation, Korea's National Tax Service levied 214.8 billion won ($207 million) in back taxes on five foreign funds operating in the country and accused them of under-reporting cash transfers to their headquarters or inflating costs. The names of the funds involved were not disclosed.
At the time of the swoop, the National Tax Service said in a statement: ?After closely reviewing transactions carried out by foreign funds which are alleged to have violated laws, we reported the entities and related people who committed unfair activities for the purpose of blocking our tax imposition.?
On October 6, the National Tax Service hinted that more executives of foreign private equity funds active in South Korea may face investigations into their tax affairs and also indicated that individuals could be barred from leaving the country.
The moves have occurred against a background of growing hostility toward the profits being reaped by overseas-based investors from their dealings on Korean soil. One much publicized transaction was the $1 billion recouped by US private equity firm Newbridge Capital from its sale of Korea First Bank to Standard Chartered.
But while there is concern at anti-foreign business sentiment in the country, local regulators insist they are applying laws equally against foreigners and locals. Whichever is the correct interpretation, one thing is clear: any private equity firm active in South Korea will have to tread extra carefully and perhaps keep one eye out for the taxman.