Lone Star's Offices Raided By South Korean Tax Investigators

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

31 March 2006

South Korean prosecutors have raided the Seoul office of Lone Star, the US buyout fund, amid allegations of tax irregularities concerning its acquisition of Korea Exchange Bank (KEB).

National media reports Star evaded some 14.7 billion won ($15 million) in tax, illegally transferred some $8.6 million in funds out of the country and acquiring KEB at a knock down price.

The prosecutors have reportedly also served an arrest warrant on Steven Lee, the former local representative of Lone Star, on suspicions that he misappropriated billions of won for personal use by fabricating company documents and evading taxes.

Law enforcement agencies have also banned about 10 Lone Star staff, both Korean and foreign, from leaving the country.

Lone Star has signed an initial deal with South Korea's largest lender, Kookmin Bank, to sell its entire controlling stake in KEB for about 6.4 trillion won, earning the firm a capital gain of more than 4 trillion won - a move which has once again brought the US company onto the radar of South Korea's tax investigators.

Lone Star has already been fined 140 billion won by the tax authorities for allegedly evading tax on the proceeds of property sales - a claim the company is now disputing through the courts.

Lone Star's holding in KEB is held by its Belgian subsidiary, LSF KEB Holdings, which could mean the the company once again avoids South Korean taxes.

However, Prosecutor Chae Dong-wook confirmed at a press conference that the planned sale of KEB by Lone Star would not be investigated by the authorities, although the probe will include the 2003 purchase of a 50.5 percent stake in the Korean bank by the US company.

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