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South Korea

US investigates three South Korean companies over conspiracy to overcharge US military by millions of dollars

  • The bid-rigging investigation is part of an aggressive effort by the US Justice Department to crack down on companies abusing military contracts
PUBLISHED : Thursday, 22 November, 2018, 10:28pm
UPDATED : Friday, 23 November, 2018, 12:08pm

South Korea’s S-Oil Corp, Hyundai Oilbank Co and Jier Shin Korea Co took part in a bid-rigging scheme that led to more than US$100 million in overcharges to the US military, according to two sources with knowledge of the matter.

The three companies were not named in filings in US federal court in Ohio that described a conspiracy that involved a total of six companies that overcharged US military bases in South Korea for fuel.

The South Korea bid-rigging investigation is part of a more aggressive effort by the US Justice Department to crack down on companies that defraud the US government on military contracts.

The court papers filed by the US Justice Department after it settled with three other companies last month named SK Energy Co Ltd; GS Caltex Corp, 50 per cent owned by Chevron; and Hanjin Transportation Co Ltd. They agreed to pay a total of US$236 million in criminal fines and civil damages.

The Justice Department estimated that the bid rigging occurred from about 2005 to 2016. The government procurement data site GovTribe said that between 2008 and 2013 the major sellers of fuel to US military bases in South Korea were S-Oil, GS Caltex, SK Energy, Hanjin, Hyundai Oilbank and Jier Shin Korea.

S-Oil Corp said that it was “unaware of any investigation.” S-Oil is partially owned by Aramco Overseas, according to both Aramco’s and S-Oil’s websites.

Hyundai Oilbank acknowledged that it was under investigation but declined to comment further, while Jier Shin Korea said it also was “unaware of such investigation”.

Court filings that accompanied the Justice Department settlement with SK Energy, GS Caltex and Hanjin this month referred to other companies involved in the probe as Company A and Company C, both oil companies, and Company B, a logistics firm.

The sources, who were not authorised to speak on the record, identified S-Oil and Hyundai as the oil companies and Jier Shin as the logistics company.

The US military had a budget of about US$700 billion in the 2018 financial year, which ended on September 30.

A large proportion of the budget is spent in South Korea where the United States has kept a military presence in the divided peninsula since the 1950-1953 war. There are currently more than 28,000 troops in South Korea. Camp Humphreys south of Seoul is the largest US overseas base with nearly 20,000 US personnel.

Following the settlement announced last week, Makan Delrahim, head of the US Justice Department’s antitrust division, said that the department planned to be more aggressive in pressing antitrust charges against companies that rigged bids for contracts to supply the government.

In addition to scrutinising mergers to make sure they comply with antitrust law, the Justice Department investigates and charges companies that are supposed to compete but who conspire to raise prices.

The bid-rigging came to light because of a whistle-blower, according to lawyer Eric Havian of Constantine Cannon.