[THE INVESTOR] Prosecutors on Thursday morning arrested Shin Young-ja, the chairwoman of Lotte Foundation and older sister of Lotte Group chairman Shin Dong-bin, as they investigate allegations of her involvement in bribery and embezzlement.

The Seoul Central Court issued the arrest warrant at around 2 a.m. on Thursday, and Shin was immediately taken into custody.

She is the first member of the Shin family -- which rules over the Lotte empire in Korea and Japan -- to be officially arrested in prosecutors’ investigation of the group’s transactions.
 

Although Shin was questioned and held on suspicions of accepting kickbacks and embezzling funds, she is expected to be questioned about wider allegations against the Lotte Group

Shin is accused of accepting approximately 3 billion won ($2.6 million) in kickbacks from companies in exchange for either bringing their brands into Lotte’s duty-free outlets or giving them favorable store space. In addition, she is suspected of embezzling about 4 billion won through her son’s company by giving her daughters salary-paying positions on the board of directors.

At the hearing to weigh the merits of her arrest warrant, Shin Young-ja denied all claims.

The official stance of the Lotte Group is that the investigation into Shin Young-ja is completely separate from the investigation into Lotte Group. However, the group is aware that Shin will be able to provide information to prosecutors based on her knowledge about the inner workings of the group.

Shin, the eldest daughter of Lotte founder Shin Kyuk-ho, has held various posts at Hotel Lotte, Lotte Department Store and Lotte Shopping since 1973. She served as CEO of Lotte Shopping from 2008 to 2012, but was pushed aside when the Korean operations of Lotte Group were taken over by her half-brother and current chairman Shin Dong-bin.

Shin Young-ja is largely credited with raising the stature of Lotte Shopping in the retail market. In 2005, she supervised the creation and opening of Lotte Department Store’s luxury wing Avenuel.

She remains listed as one of the board of directors at eight Lotte companies.

Questions have been raised on whether Shin Young-ja will give prosecutors leads in their continued probe into Lotte chairman Shin Dong-bin’s alleged wrongdoings -- perhaps in an attempt to work out a deal to lighten her own sentence.

Meanwhile, industry watchers say that Shin Young-ja’s arrest will likely lead to her removal from top spots at the Lotte Group. Although Shin Dong-bin has firmly established himself as chairman of Lotte both in Korea and Japan, continued questions about the ethics of top executives may weaken his position and lend more influence to his rival brother Shin Dong-joo.

SDJ Corporation, which speaks for Shin Dong-joo, has already said that a financial analysis of Lotte’s books has yielded some information that may be pertinent to the prosecutor’s investigation.

With Shin Young-ja now in custody, Shin Dong-bin now has to keep his eye on two siblings.

By Won Ho-jung (hjwon@heraldcorp.com)