Lone Star Patching Up Relations With Korean Government

by Mary Swire, Tax-News.com, Hong Kong

18 April 2006

US fund Lone Star appears to have softened its stance in an ongoing investigation by the South Korean authorities into alleged tax evasion.

According to reports, Lone Star, which has become the subject of public outrage over a substantial profit it stands to make from the sale of its controlling stake in Korea Exchange Bank, has offered to donate 100 billion won (US$105 million) of the 4 trillion capital gain to social programmes.

The offer was made in a letter faxed to the Finance Minister Han Duck-Soo and the company has reportedly also promised to deposit 725 billion won at a local bank until South Korea makes a final decision on taxation on the sale of its KEB holding.

However, the ministry was said on Monday to be still verifying the authenticity of the letter, and was awaiting a response to an email from the firm's Dallas headquarters.

Last month, it emerged that Lone Star was challenging a 140 billion won fine imposed on the company last year as a result of alleged tax evasion on income earned from the sale of a building in Seoul.

The authorities have recently stepped up their investigation into financial dealings undertaken by Lone Star and the firm's Seoul office was raided by investigators amid allegations that it illegally transferred some $8.6 million in funds out of the country.

The firm's reputation in Korea took another blow as reports emerged alleging that former members of KEB's management and financial officials illegally colluded to downscale KEB's capital adequacy ratio, helping Lone Star to purchase the bank at a knock-down price in 2003.

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