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Northrop Faces Hard Questions About Korean Hotel Project

<i> Times Staff Writers</i>

Northrop Corp. has come under mounting pressure to explain a string of irregularities in a $6.25-million deal in 1984 to build a hotel in South Korea.

Although the hotel was never built and Northrop’s money is unaccounted for, the company has steadfastly maintained that the hotel was a legitimate venture aimed at gaining good will in South Korea and at helping the country earn foreign exchange to finance purchases of Northrop’s F-20 jet fighters.

Questions remain about the venture and its purpose, however. A federal grand jury in Los Angeles is investigating whether the deal was part of an illegal attempt to buy the influence of South Korean government decision makers, and a congressional committee is conducting a probe of financial issues.

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‘Never Heard’

A number of anomalies in the hotel deal have emerged:

-- Although the hotel investment was ostensibly made to help South Korea finance Northrop jet fighters, the company never registered the deal with that country’s military or obtained a formal government agreement that recognized the hotel as a financing arrangement for the jet fighters, The Times has learned.

Northrop failed to register the hotel deal with South Korea’s Defense Procurement Agency, which has sole authority to give credits for such investments, known as offsets.

“We never heard about the hotel project,” Col. Bae Yong Il, who is in charge of the agency’s offset programs, said in a telephone interview. “We first learned about it in the newspapers.”

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Nonetheless, the hotel deal was represented by Northrop management to the board of directors as an offset deal, according to sources knowledgeable about the venture. In addition, a Northrop spokesman described the hotel venture as an “offset program” in an interview May 18, the same day it was disclosed that the House Energy and Commerce Committee’s subcommittee on oversight and investigations was looking into the deal.

Making such an investment without notifying and obtaining the approval of the project with the South Korean Defense Procurement Agency would be pointless because under those circumstances a company would never be guaranteed credit for the investment, aerospace industry sources said.

But a Northrop spokesman said the hotel investment “was intended to become an offset” and “did not progress far enough to seek credit” from the government.

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-- Neither Northrop nor its South Korean partner, Asia Culture Travel Development Co. (ACTD), discussed the proposed hotel with local authorities in Seoul.

Chi Keun Hong, director of tourism promotion for the Seoul Metropolitan Government, said no mention of the hotel was made to his office, which screens and licenses all such projects in the city. ACTD never applied for permits, he said.

In a civil lawsuit filed in Seoul last December, Los Angeles-based Northrop said it had been defrauded by ACTD officials. Northrop paid the $6.25 million for half ownership of ACTD, which was to have spent it on the hotel, according to the lawsuit.

Northrop’s lawsuit blames officials of ACTD for not obtaining permits for the hotel, alleging they issued statements designed to “conceal the misappropriation of (Northrop’s) investment.”

But a former Northrop executive said it was not customary for the company to leave such details solely to a partner.

“If you had a joint venture, wouldn’t you want to be sure your interests were being protected? You make sure in international business that your advance money is protected,” he said. “Northrop had people on the scene in Korea, so they had the ability to monitor or supervise these activities.”

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-- Instead of wiring the $6.25 million directly to Korea, Northrop wired the money to a Hong Kong branch of the Korea Exchange Bank, an unusual arrangement for international investments and one that apparently left the funds unprotected.

Prompted Dissension

“It was unusual and unnecessary,” the former Northrop executive said. “Why not send the funds to Korea directly?”

Significantly, other agreements Northrop signed in South Korea were quite specific about requiring that bank deposits be made in the country. A second agreement signed in 1984 with some of the same Korean officials, a copy of which was obtained by The Times, said, “payment by Northrop . . . shall be made to such bank in the territory (South Korea) as is from time to time designated by (the) representative.”

Northrop paid the $6.25-million investment in a lump sum rather than make periodic smaller payments tied to the progress of the hotel--a practice often followed in large projects. The firm also appeared to relinquish financial control of the money after it was wired to Hong Kong.

The anomalies in the hotel deal prompted a substantial amount of dissension within the corporation over the intent of the venture, according to another former company executive.

“The question was asked at the time, ‘Why are we doing this if it is not part of a formal agreement?’ ” the executive said. “How could this be an offset if there was no offset agreement and you had not sold anything that would require an offset?”

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The legal issue under investigation by the grand jury is whether any of the money Northrop paid to Koreans went to either officials of the government or political parties, which would violate the U.S. Foreign Corrupt Practices Act.

The criminal investigation is striking a sensitive nerve at Northrop because the firm signed a consent decree in 1975 with the Securities and Exchange Commission, which had accused the firm of making illegal political contributions in this country and paying $30 million to foreigners without adequate controls required by securities laws. The decree was not an admission of guilt but a permanent injunction against certain practices in making payments overseas.

Allegations have already been made that the payments in the current South Korean controversy were intended for political influence peddling.

After Northrop wired the funds to Hong Kong, they fell into the hands of the late Park Chong Kyu, a South Korean political power-broker, and another of Northrop’s secret sales agents in South Korea, Park’s brother-in-law, Lee Min Ha.

Looking Into Corruption

A former paid consultant for Northrop, one-time Honolulu bar owner Jimmy Shin has alleged that Northrop invested in the bogus hotel project in order to create a sales promotion fund under the control of Park, a powerful behind-the-scenes fixer with close ties to former President Chun Doo Hwan.

Chun, a former general who wielded dictatorial powers until he relinquished office in February, is now the subject of a widening probe by the South Korean National Assembly, where an opposition-dominated committee is looking into corruption and nepotism during his eight-year rule.

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“We strongly suspect that some of the Northrop money did go to people in power,” said Lee Ki Taek, chairman of the investigative committee. “This would be typical of bidding practices (in South Korea). Whenever there’s a large-scale contract, it’s expected that government officials get kickbacks. It’s inconceivable that Park (Chong Kyu) or his family could have spent $6.25 million for their own purposes.”

Chun has denied receiving any funds in exchange for his decision to evaluate the F-20 as an alternative to General Dynamics’s F-16, which the South Koreans favored because it is a front-line fighter in the U.S. Air Force.

In a statement issued by an aide last month, Chun also denied unconfirmed reports that he had solicited an $8-million bribe during a 1985 meeting with Northrop Chairman Thomas V. Jones in which they discussed the F-20.

Meanwhile, Northrop has said it was not even aware that Park was a player in the hotel deal, even though the hotel was apparently to be built in Seoul on the site of Park’s Safari gambling club and Jones, along with other Northrop officials, met with Park on a number of occasions.

Park was listed as a “representative director” in ACTD’s corporate registration documents in Seoul as of Aug. 21, 1984, 13 days after the $6.25 million was paid. It is unclear when Northrop learned that Park was its partner in its South Korean dealings. Park died in 1985.

Last year, Northrop sued Park’s widow and other family members, along with Lee Min Ha, Park’s brother-in-law, to recover the $6.25-million investment in ACTD.

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Kim Jin Ouk, a prominent international attorney representing the defendants in Northrop’s suit, said he believes that the motive behind Northrop’s litigation is to deflect suspicion that it might have violated U.S. law by paying Park the $6.25 million to buy influence.

“They want to prove their innocence, that it was a legitimate investment,” Kim said.

Kim, who is now trying to negotiate an out-of-court settlement for his clients with Northrop, refused to say how his clients dealt with the Northrop money--whether it was in fact treated as investment in a joint venture or as a covert sales promotion fund. He said the late Park spent the bulk of the money, but would not say how it was spent.

“Most of the money is gone,” Kim said. “But some is remaining. We’ll try to collect it and pay it back.”

Kim’s account contradicts a statement by former President Chun’s representative that $4 million of the funds is intact in a “third-country bank account.”

Meanwhile, Park Chong Kyu’s heirs are engaging in a battle for what remains of his estate, according to local news reports. Attempts to reach Lee Min Ha, the brother-in-law, and other defendants in the law suit were unsuccessful. Lee is chairman of the Chosun Beach Hotel, a luxury hotel in the southern port city of Pusan that was also controlled by the Park Chong Kyu.

Lee was little more than a front man for the flamboyant and hot-tempered Park, who amassed a fortune controlling access to the Blue House, or presidential palace, as chief presidential bodyguard during the 16-year rule of President Park Chung Hee, who was assassinated in 1979.

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Covert Lobbying

Park Chong Kyu acquired the name “Pistol Park” for his love of handguns and had a reputation for kicking the shins of people with whom he was displeased. In 1984, he basked in the glory of the Los Angeles Olympic Games, owing to his status as a member of the International Olympic Committee.

As much as $10 million of his fortune was reportedly confiscated in a South Korean national “purification campaign” following Chun’s 1980 military coup, when Park was purged as a member of the National Assembly. But Park retained his position in the South Korean power structure because of an old debt, according to popular wisdom. He is said to have once protected Chun during a palace plot against Park Chung Hee.

Known by his American friends as C. K. Park, he conducted Northrop’s lobbying business covertly. One of Northrop’s above-board representatives in Seoul, retired Gen. Kim Tu Man, a former chief of staff of the South Korean air force, said he never knew about Park’s lobbying activities.

“I had no knowledge of . . . (Northrop’s) relationship with Mr. Park,” said Gen. Kim, who was a paid Northrop consultant working on F-20 sales from 1982 to 1987. “It was covert.”

Even Lee, married to the sister of Park’s second wife and widow, had little to do with the secret lobbying, although he had at one time as much as $2 million of the hotel investment funds under his name, according to interviews with his associates.

“It was all handled by the late C. K. Park,” said Yoon Woon Sang, a former associate of Lee. “Mr. Lee . . . had nothing to do with it.”

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Where the money actually went, though, remains a mystery. Kim, the attorney for ACTD, said his clients have documentation accounting for how Park spent the money and that none of it, to their knowledge, was used to bribe officials. But he refused to make the information available.

Money Wired

Shin alleged in a 1986 letter to Jones, Northrop’s chairman, that Park requested $5 million for his lobbying effort in a March, 1984, meeting with Northrop executives at the Tokyo Prince Hotel in Tokyo.

When the executives balked, Park suggested the hotel project with the condition that the money would be “diverted for use as the sales promotion fund,” according to the letter from Shin, who was paid $102,000 a year as a consultant to Northrop on F-20 sales.

A joint-venture contract was signed July 13, 1984, between ACTD and the American company’s offset program subsidiary, Northrop Venture Systems Inc., according to Northrop’s lawsuit. On Aug. 8, Northrop remitted $6.25 million to ACTD’s account at the Korea Exchange Bank in Hong Kong.

Of that amount, $3 million was then wired to Park’s account at the Marine Midland Bank in Singapore, according to a report to the South Korean government obtained by The Times. Another $2 million was paid to Lee Min Ha in the form of a check, and Park took the remaining $1.25 million in cash, the report said.

The mystery is further clouded by another agreement that Northrop signed with an organization controlled by Park, the Dong Yang Express Group. Northrop agreed to pay up to $55 million in commissions on the sale of F-20 aircraft to the South Korean air force for Dong Yang’s help in selling the planes.

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That agreement was terminated in 1986, when Northrop agreed to pay $1.5 million to Dong Yang. The money was paid even though no planes were ever sold and the agreement provided that Northrop could cancel the contract without obligation.

The federal grand jury looking into Northrop’s Korean affairs is still early in its criminal investigation, according to knowledgeable sources. Five current and former Northrop officials, including Chairman Jones, have been subpoenaed to either appear or produce documents before the grand jury this week.

The ultimate question will be whether any of Northrop’s payments went to officials of the South Korean government or its political parties.

One aerospace industry source in Seoul remarked, “Probably the only guy who could implicate (former President) Chun is Pistol Park, and he’s gone.”

Ralph Vartabedian reported from Los Angeles and Karl Schoenberger from Seoul.

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