The decline and fall of Daewoo Shipbuilding & Marine Engineering (DSME) has been compared to the bankruptcy of US energy giant Enron, and questions are now being asked how much politicians in Seoul helped cover up the huge accounting fraud that has rocked one of the world’s largest shipyards.
Kim Jong-in, head of the opposition Minjoo Party of Korea (TMPK), warned yesterday that the incorrect financial reporting at DSME, which has spiralled to more than $5bn, “seems quite similar to Enron in the US, in that they were both the result of accounting fraud.” Enron’s bankruptcy in late 2001 as a result of massive accounting fraud is still one of the largest bankruptcies in US history.
Kim said the National Assembly in Seoul must now conduct a thorough investigation into the affair. The opposition party is questioning why the government handed DSME millions of dollars in emergency aid last October, when it was already clear the yard had been cooking its books.
Chae Yi-bai, a politician with the People’s Party, complained yesterday that “the heads of major economic bodies met at the Blue House [South Korea’s presidential palace], yet no materials or records have been kept” of the meeting from last October. Present at that meeting were senior secretary to the president for economic affairs Ahn Jong-beom, deputy prime minister for the economy Choi Kyoung-hwan, and Financial Services Commission (FSC) chairman Yim Jong-yong.
South Korea’s Public Records Management Act requires records to be kept for all meetings with anyone at the vice minister level or higher present.
South Korean president Park Geun-Hye has faced plenty of flak for her administration’s handling of the local shipbuilding sector, which has been shedding thousands of jobs in recent months on the back of the dire shipping markets and low orderbooks. Last month, Park warned the nation’s shipbuilders will have to endure plenty more pain. Addressing parliament, Park said there would need to be “bone-crushing” efforts in order to resurrect Korean shipbuilding.
“If we don’t carry out a bold restructuring by downsizing the overgrown workforce… and cutting costs, the future of not only the shipbuilders but also the whole economy will be in jeopardy,” Park warned.
A number of former DSME senior management executives have been interviewed by prosecutors recently. DSME admitted last year that for at least two years it had actually made a loss, although it had originally reported a profit.
DSME’s restructuring is seeing thousands of redundancies and many of its overseas business put on the chopping block, including DSME Mangalia, Romania’s largest shipyard.