South Korea Orders Tax Audit, Criminal Probe into Expressway Corp. Retirement Group Over Graft Allegations

The Ministry of Land, Infrastructure, and Transport's decision to request a tax audit and refer suspicions of corruption to investigative agencies marks a significant move against alleged preferential treatment and illicit practices within the Korea Expressway Corporation (KEC) and its associated retirement group, Doseonghoe. This action follows an intensive audit initiated after Minister Kim Hyun-mi's directive in January to 'resolve in one go' the issues surrounding preferential operations of rest areas.

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Resolve in one go.

The audit's findings paint a concerning picture of Doseonghoe's operations. Despite its designation as a non-profit organization, it appears to have heavily engaged in profit-driven activities through its subsidiary, H&DE, which manages expressway rest facilities. The ministry pointed out that Doseonghoe members exclusively held executive positions in H&DE, and profits generated were effectively distributed back to Doseonghoe members as 'self-dividends.' This structure allowed Doseonghoe to exploit its non-profit status, allegedly evading around 400 million won in taxes annually by not declaring these distributed profits as taxable income.

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Doseonghoe has focused solely on its role as an interest group for KEC retirees, without engaging in any activities related to the public interest objectives stipulated in its articles of incorporation.

Furthermore, the KEC itself is under scrutiny for allegedly facilitating these preferential arrangements. Evidence suggests the KEC leaked bid information and granted undue advantages to Doseonghoe's affiliated companies. This included the arbitrary awarding of contracts for gas station operations within rest areas, bypassing standard procedures, and a lack of oversight in the remodeling and operational management of these facilities by Doseonghoe's subsidiary. Such actions appear to contravene internal KEC policies and raise serious questions about fair competition and public trust.

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The profits distributed to members are taxable income subject to corporate tax, etc. However, Doseonghoe has continuously evaded taxes, to the tune of approximately 400 million won annually, by exploiting the tax benefits for non-profit organizations.

In response, MOLIT has demanded Doseonghoe revise its articles of incorporation to prevent actions contrary to the essence of a non-profit entity and has requested the National Tax Service to investigate tax evasion suspicions. For KEC, disciplinary actions are being sought against those responsible for poor project management, and referrals for investigation into special contracts and bid information leaks are underway. The ministry also indicated a comprehensive investigation into unfair practices by rest area operators, as previously reported by Hankyoreh21, and an ongoing audit of KEC's management of these facilities. Minister Kim Hyun-mi stated that these measures are the 'first step' in dismantling a decades-old cartel and returning expressway rest areas to the public, signaling a commitment to reform the operational structure of these facilities.

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This audit result is the first step in dismantling a decades-old cartel among KEC, its retirees, and rest area operators, and returning the expressway rest areas to the public.