Case File

South Korea’s “Mr. German U-boat”

Author
World Peace Foundation
Published on
November 10, 2020
(updated September 12, 2022)
Image
Hyundai Heavy Industries’ shipyard at Ulsan, South Korea, in September 2014. Image Source: Flickr/Creative Commons, Tzinieris.
Hyundai Heavy Industries’ shipyard at Ulsan, South Korea, in September 2014. Image Source: Flickr/Creative Commons, Tzinieris.

Contents

Contents

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Introduction

Introduction

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South Korea has been a consistent customer of Kiel-based Howaldtswerke-Deutsche Werft (HDW), the German submarine manufacturer, for over thirty years, buying new boats from the shipyard in 1987, 1989, 1994, 2000, and 2008. In July 2015, South Korean investigators arrested Chung Eui-sung, the man responsible for brokering each of these deals and pocketing millions of U.S. dollars in the process. At the time of his arrest, Chung was suspected of moving USD 89 million to offshore bank accounts. One of Chung’s colleagues, a reserve navy admiral, was also charged for lobbying officials on the submarine deals. As yet, however, no Korean officials involved in the decision to purchase the submarines has been identified or charged as the ultimate recipients of the bribes.

Case Details

Case details

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Seller country
Germany
Seller company
Howaldtswerke-Deutsche Werft (currently owned by ThyssenKrupp)
Buyer country
South Korea
Goods category
Submarines
Equipment sold
9 Type-209 submarines (3 each in 1987, 1989 and 1994); 9 Type-214 submarines (3 in 2000, 6 in 2008)
Deal value
1987: USD 600 million; 1989: not disclosed; 1994: USD 510 million; 2000: USD 1.1 billion; 2008: not disclosed.
Sum involved in corruption
USD 117 million
Start year
1987
End year
2008
Outcome status
Trial Closed - Some Convictions

Actors

Actors

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  • Chung Eui-sung – local agent for multiple foreign defense firms, including HDW and MTU, and owner of defense industry firms. Convicted for bribery in a 1993 case, convicted again in 2016 for tax evasion stemming from the concealment of arms commissions.

  • Ahn Gi-seok – Navy reserve vice admiral. Convicted for peddling influence as an employee of Chung Eui-sung.

Timeline

Timeline

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1993
  • Seoul launched its first submarine: a 1,200-tonne modified Type-209 boat built by HDW for USD 187 million (current USD).
2008
  • The latest submarine purchase agreement that South Korea’s Defense Acquisition Program Administration (DAPA) signed with HDW and covered materials and support for construction of six Type-214 submarines between 2014 and 2019.
2016
  • NovOf the total nine Type-214 submarines purchased under the 2000 and 2008 deals, eight have been built and launched as of November 2016.

Outcomes

Investigation Outcomes

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1993
  • Chung already had a chequered history of arrests. He was convicted of bribing a ROK Navy chief of staff to secure a role in a destroyer development program and received a suspended jail sentence. 2004: Chung was again investigated for possibly exerting influence on naval appointments. In the intervening years, he had founded and run defense production firms that participated in a number of Korean military acquisition projects, including the K2 main battle tank program.
2010
  • NovHDW attempted to hide Chung’s commission payments from its parent company, ThyssenKrupp; the revelation of payments led to an internal investigation by the parent conglomerate. German prosecutors opened an investigation, but were unable to trace the payment trail beyond an account in the British Virgin Islands, and the investigation was closed.
2011
  • Der Spiegel also reported that Chung had received EUR 90 million from HDW, and that EUR 20 million more were earmarked for his services through 2018. According to the magazine, HDW’s chief, Walter Freitag, referred to Chung as “Mr. German U-boat in Korea.”
  • Chung was also at the center of an investigation by Der Spiegel, which alleged that in his role as a trade representative for Tognum, at that time the parent company of the German heavy engine manufacturer MTU, he had organized holidays in Thailand—disguised as training workshops—for South Korean military officers.
  • OctTognum’s internal investigation led to the suspension of its sales chief, Peter Kneipp, in October 2011, and eventually his conviction on bribery charges in April 2016. Kneipp was sentenced to a suspended ten-month prison term, while MTU’s new owner, Rolls-Royce Power Systems, was ordered to pay a EUR 12 million fine. Tognum’s investigation found that EUR 14.5 million were transferred to Chung, and in the course of Kneipp’s trial the German courts determined that MTU Asia had been given a total of USD 40 million for commissions.
2014
  • NovSouth Korea set up a special team to investigate potential corruption in the country’s growing armaments industry.
2015
  • JulAccording to a media report, however, the bulk of the investigative team’s cases originated in the navy.
  • JulThe team obtained an arrest warrant for Chung Eui-sung, a navy veteran and arms broker, on suspicion of concealing the movement of USD 89 million to offshore bank accounts in Hong Kong.
  • AugThe German business newspaper Handelsblatt reported on a leaked cache of internal ThyssenKrupp files which confirmed that—contrary to ThyssenKrupp’s previous stance that its joint venture with Ferrostaal, called Marine Force International, had been responsible for all bribery allegations associated with submarine deals—HDW had been involved in the process as well.
2016
  • AprIndictment filed against Chung, investigators claimed that he had committed tax evasion by hiding brokerage fees from submarine contracts and other defense deals going back to March 2001. The fees, worth a total of around USD 117 million, were moved to offshore accounts in Singapore, Switzerland, Liechtenstein, and the Virgin Islands, in addition to Hong Kong. However, investigators were unable to satisfy a judge that they had sufficient evidence that Chung had acted as a middleman for bribes paid to defense acquisition decision-makers.
  • NovChung was convicted of tax evasion and sentenced in November 2016 to a three-year prison term and fined KRW 5 billion (USD 4.5 million). A co-conspirator, retired admiral Ahn Gi-seok, was convicted of influence peddling and sentenced to two years in prison.
2017
  • It is unclear whether South Korean investigators are still investigating whether Chung passed any of his commissions on as bribes. The status of the ThyssenKrupp investigation resulting from the Handelsblatt allegations is unknown.

References

References

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