'Corrupt cartel' misused state grants, Yoon administration claims

Subsidies granted by the Moon Jae-in government to civic groups were sometimes mismanaged and improperly used, with President Yoon Suk-yeol claiming that a "corrupt cartel" was at work moving these funds around for illicit purposes.

Lee Kwan-sup, senior presidential secretary for policy and planning, announces in a press briefing the interim results of a probe into misuse of government subsidies for private organizations at the Yongsan presidential office in central Seoul Wednesday. [JOINT PRESS CORPS]

Subsidies granted by the Moon Jae-in government to civic groups were sometimes mismanaged and improperly used, with President Yoon Suk-yeol claiming that a "corrupt cartel" was at work moving these funds around for illicit purposes.

The president's office conducted a two-month study into state subsidies disbursed by the previous administration, and Lee Kwan-sup, senior presidential secretary for policy and planning, detailed interim results during a press briefing Wednesday.

Under the Moon government, grants to civic groups increased dramatically, from 3.56 trillion won ($2.8 billion) in 2016 during the Park Geun-hye administration to 4 trillion won in 2018 and 5 trillion won in 2021. This year, government subsidies for such organizations came to an estimated 5.45 trillion won.

A total of 31.4 trillion won in government subsidies were paid to nonprofit organizations, including civic groups, associations, foundations, federations and welfare facilities, from 2016 to 2022, according to the presidential office.

The investigation found an average annual increase of about 400 billion won in state subsidies during the Moon administration, which ran from 2017 to last May.

During the study period, the number of organizations receiving government funds increased by 4,334, from 22,881 in 2016 to 27,215 this year.

Lee said oversight on the use of funds was lacking.

The Yoon government has been working to revamp the government subsidy system amid criticism non-profit funding by the state enables certain individuals to profit.

In a Cabinet meeting Tuesday, Yoon ordered aides to strengthen the management of government subsidies for civic groups and to overhaul the process to increase transparency.

"A corrupt cartel was created in which a political power supported civic groups with taxpayer money, and civic groups in turn supported that political force," Yoon said, stressing that he will not condone "any act of state subsidies being used for private interest over public goals."

Lee said Wednesday the government plans to conduct a thorough probe into all state subsidies to the private sector by next June to come up with measures to improve transparency in the process. This includes a system to overhaul the selection of beneficiary organizations, ensure transparent accounting and making sure that state funds are being used for their intended purposes.

The office will create an online subsidy management system to manage the funds more transparently and will investigate any inappropriate acts by public officials.

At least 153 cases of mismanaged subsidies since 2016 have been identified, resulting in 3.4 billion in refunds. These findings are seen to be insignificant compared to what may be identified through a full-scale audit.

One project involved a youth counseling group that was provided an 4.8 billion government subsidy but had to return 890 million after it was found to have inflated the number of counselors, paid too much in wages and reported fake service fees.

The office identified 10 cases of problematic accounting related to a foundation supporting Sewol ferry victims.

One group, which received funding from the Ministry of the Interior and Safety, the Gyeonggi Provincial Government and the Ansan City Government for the past six years, was found to have used government subsidies to hold seminars on Kim Il Sung's anti-Japanese struggle, learn about North Korean leader Kim Jong-un's New Year's address and fund trips for people were not related to the victims.

The office said that a number of "examples of using subsidies for political activities unrelated to business purposes" were uncovered.

The government plans to take corrective measures and refund subsidies in the case of any misuse following the expanded probe.

The presidential office indicated that the amount of subsidies received by private organizations will be even more substantial if subsidies from local governments, which were excluded from this probe, are included.

Any public officials that have been involved in any inappropriate conduct may also come under scrutiny and could possibly face criminal investigation.

"Increasing the transparency of subsidies to nonprofit private organizations is one of the key national policies selected by the Yoon government," Lee said. "Many problems with subsidies to private organizations were pointed out through the last parliamentary audit."

He pointed to the 2020 case of the Korean Council for Justice and Remembrance, a civic group for victims of Japanese wartime slavery. The head of the group, Rep. Yoon Mee-hyang, was found to have misappropriated donations to the group and was alleged to have committed accounting fraud.

As a presidential candidate, Yoon proposed a "Yoon Mee-hyang prevention act" to prevent the misappropriation of public funds and accounting irregularities by civic groups.

"I don't think this is a problem unique to the Moon administration," a senior presidential official told reporters Wednesday. "Over the past several governments, subsidies to nonprofit and private organizations have steadily increased, and the rate of increase was especially steep under the Moon administration. The management system was not properly updated compared to the increase rate of subsidies for private organizations.

"In the long run, regardless of government subsidies, it is desirable for nonprofit organizations to voluntarily disclose their accounts and be audited in order to conduct their activities honorably and build up their trust with the public."

BY SARAH KIM [kim.sarah@joongang.co.kr]