Corporate Fall Illustrates S. Korea’s Corruption : Asia: In the early ‘80s, then-President Chun subtly suggested that the chairman of a conglomerate make a charitable donation. Ignored, he took revenge.

At one of his regular meetings with the chief executives of South Korea’s largest conglomerates in the early 1980s, President Chun Doo Hwan pulled aside the chairman of the Kukje Group.

Patting Yang Chung Mo on the back, Chun pointed to a steel company magnate and told Yang that the steel executive had donated $2.6 million to one of the personal charities of the president’s wife.

“An ordinary businessman would have taken that statement as a warning that he too ought to donate $2.6 million,” said Kim Sang Joon, who related the anecdote and represents the Headquarters to Restore the Kukje Group.

But Yang, Kim said, was not an ordinary businessman. An “I-don’t-care” kind of entrepreneur, “he was not interested in buying influence from politicians,” Kim said.

And so it was that one day in February, 1985, Yang woke up to discover that Chun had decided to drive him out of business.

Chun ordered the nation’s banks, which at the time were controlled by the government, to cut off all credit to Yang’s empire of 20 companies. Involved in shoe-making, steel, cotton yarn, shipping, banking and trading, the Kukje Group ranked as one of the top 10 conglomerates and the sixth-largest exporter in South Korea.

Chun, however, had his finance minister announce that Kukje was being dissolved because of a shaky financial structure--and, indeed, the conglomerate was sagging under the weight of a staggering debt-to-equity ratio.

Virtually overnight, Yang’s empire disintegrated into bankruptcy. Thirteen companies considered close to Chun, including the one owned by the steel executive whom Chun had cited as an example to Yang, bought out the remnants of the Kukje firms.

The South Korean business community, which confessed Friday to making under-the-table payments to three generals-turned-presidents dating back to 1961, did not need to look at balance sheets.

The warning to potential rebels who might defy the president came through crystal clear.

How effective that warning remained at least through the 1988-93 term of former President Roh Tae Woo became clear Oct. 27. On that day, Roh, under the pressure of an investigation that was uncovering a series of his hidden bank accounts, went on television to confess that he had accumulated a $653-million slush fund while in office and still held more than $200 million in leftovers.

President Kim Young Sam, who succeeded Roh, declared shortly after he was inaugurated that he would end the practice of presidents taking money from business leaders. After Roh’s revelation, he insisted he has kept that promise. And on behalf of the nation’s business leaders, the Korean Federation of Industries, which admitted making payments to earlier presidents, affirmed Friday that Kim has, indeed, taken no money.

Although evidence of how South Korea’s past presidents used their slush funds remains shrouded in secrecy, Kukje’s case offers an insight into how the leaders collected the funds.

Kim, the Kukje headquarters representative, who was involved in Kukje’s finance and legal activities before the conglomerate was squashed, said Yang made contributions in legal ways to both former President Park Chung Hee, who seized power in a 1961 coup and ruled until he was assassinated in 1979, and to Chun, who took over in another coup staged in 1980 with Roh’s help.

Another businessman--a former executive of one of South Korea’s largest present-day conglomerates who asked not to be named--recalled that payments to presidents “began under Park, when he asked for contributions for the Saemaul [New Village] Movement” to improve living standards in South Korea’s impoverished countryside.

“[Park’s aides] even gave us receipts for our contributions,” the onetime businessman said, almost nostalgically.

When they first came to power, Chun and Roh needed money to buy the influence they lacked as obscure military men with no public standing, the former executive said. But escalation set in.

“Chun increased the contributions that had been given without much coercion under Park by one zero, and Roh added another zero to that,” he said.

Although Chun confessed to holding $24 million in funds left over from his presidency--only a tenth of the money Roh owned up to retaining--Kim, the Kukje headquarters representative, called Chun the worst offender in collecting cash from business executives.

“Chun was flagrant--he ordered businessmen to cough up cash,” Kim said. “Roh, by contrast, just lured businessmen into giving him money. In his administration, which spanned the 1988 Olympics, there were many opportunities for businessmen. Roh only had to set a trap for businessmen who wanted to bid for the opportunities.”

Kukje executives “weren’t afraid of Roh,” Kim said. “But we were afraid of Chun.”

Yang, Kukje’s founder, was out of his element in the atmosphere of the Chun regime in which regular, illicit contributions were expected, he added.

Yang incurred Chun’s displeasure by refusing to give much more than legal donations to the New Village Movement between 1980 and 1983. Serious trouble with the president began in 1984, when Chun started planning for his retirement and allegedly concocted a scheme to establish a research institute with a lavish endowment and a luxurious “guest house” on its grounds for him. For this pet project, Chun demanded donations.

Several smaller firms, such as Donguk Steel, mimicked the giant Hyundai conglomerate and donated whopping sums of up to $6.5 million. But Yang gave only $650,000, Kim said. “Chun was upset,” he said.

The final straw came in an incident involving the construction of a country club--an undertaking that in South Korea requires government approval.

With all local business leaders in the area of the planned country club backing Yang as the investor who should build and operate it, Chun took the unusual step of approving construction before receiving the customary payoff, Kim said. But after the country club started operating and Yang still sent no funds, Chun dispatched an emissary who demanded immediate payment, Kim said.

Short of operating cash, Yang gave the emissary a six-month promissory note for $650,000.

“Chun exploded” and ordered Kukje’s credit cut off, Kim said. “Even our main banks did not hear of it until the night before the finance minister announced it,” he said.

Now, a decade later, “things are finally going favorably for us,” Kim said. “Not so long ago, talking about a president taking a bribe was a taboo subject in South Korea. Now, people are even talking about a president being punished for taking bribes.”

Even before Roh’s revelation late last month, reforms that had been put in place under both Roh and President Kim had created a ray of hope for Yang. Two years ago, for example, South Korea’s new Constitutional Court ruled that Chun had violated personal property rights by dissolving Kukje.

“In a democracy, even the policy a president chooses as desirable for the state must follow legitimate legal procedures. . . . [Chun] used government power and authority without the backing of law,” declared the court, which was created as part of a democratic constitution that was implemented in 1987.

The court also contradicted the excuse of Kukje’s alleged financial insolvency that Chun offered. It said the conglomerate could have survived if banks had supported it.

Based on that finding, Kukje headquarters filed a lawsuit asking that Chun be punished for robbery and that the new owners of Kukje’s old companies be ordered to return the firms to Yang. A Supreme Court ruling is expected next summer, Kim said.

Chi Jung Nam of The Times’ Seoul Bureau contributed to this story.