Lotte suspected of setting up a black fund when investing in Vietnam

Lotte Group is being investigated for allegedly creating a slush fund while investing in Vietnamese real estate through a paper company, Yonhap quoted a source close to the matter as saying.

In 2014, Lotte Engineering & Construction, a construction company owned by the retail giant, built the 65-story Lotte Center in Hanoi. The project includes a five-star hotel, a shopping mall, apartment buildings and office buildings.

With this $400 million project, Lotte Asset Development, the real estate investment arm of Lotte Group, bought Coralis, a Luxembourg-based SPC, for 69.7 billion won ($60.2 million). SPC (Special Purpose Company) is a type of business established to carry out short-term purposes, usually to help the parent company avoid financial risks. Luxembourg is also known as one of the world's largest tax havens.

Lotte Center is currently the second tallest building in Hanoi. Photo: Lotte

Then, Lotte Shopping and Hotel Lotte - two subsidiaries of Lotte Group - each bought 45% of shares in Coralis, reducing Lotte Asset Development's ownership ratio to 10%.

However, Coralis posted a net loss of 55.1 billion won last year, raising questions about why Lotte continued to push ahead with the project despite the financial burden. Prosecutors say Lotte Group overstated Coralis’s costs to increase losses, creating a slush fund for the family that owns the conglomerate.

Lotte denied the allegations, saying that it bought Coralis only to have the right to do business and lease land in Vietnam. "Establishing an SPC is a business strategy applied by most companies when investing abroad or implementing projects, to comply with local regulations and improve operational efficiency," said a Lotte leader.

According to VNE