Swiss
engineering group ABB (ABBN.S)
fell victim to a "sophisticated criminal scheme" at its South Korean
subsidiary, it said on Wednesday, with the chief suspect an
executive
responsible for ethics training.
The executive,
named by a source in South Korea as Oh Myeong-se, was treasurer and one of two
integrity ombudsmen for ABB Korea - to whom staff were supposed to report any
ethical concerns - according to an online company magazine available on ABB's
Korean website.
He was also
the head of compliance at ABB in Korea until 2010, said a source familiar with
the investigation, a role that carries responsibility for maintaining legal and
ethical integrity.
The executive
is suspected of forging documents and colluding with third parties to steal
funds, ABB said, estimating it would take a pre-tax charge of about $100
million for the affair, which analysts said raised concerns about its corporate
oversight.
Oh Myeong-se
disappeared on Feb. 7 and ABB subsequently discovered significant financial
irregularities, the company said.
Group Chief
Executive Ulrich Spiesshofer described the alleged fraud as "shocking
news", which he said could harm the power equipment and industrial firm's
reputation.
"The
entire ABB group - all 132,000 of us - will have to live with the
consequences," Spiesshofer told staff in a letter after the company said
it had uncovered significant embezzlement and misappropriation of funds at its
South Korean subsidiary.
ABB, which
already faces an investigation into suspected bribery and corruption in
Britain, has been under shareholder pressure due to a shrinking order book,
although Spiesshofer won some breathing space when the firm reported the first
uptick in new business in nearly two years in the fourth quarter of 2016.
Separately,
ABB said it had nominated Lars Forberg, managing director of Cevian Capital,
for election to its board. A call by Cevian, ABB's second-largest shareholder,
to spin off its power grids business, was rejected by ABB last year.
The Swiss
company said the alleged theft was limited to South Korea, where it employs
around 800 people and generated sales of $525 million in 2015.
"The
treasurer of the South Korean unit is suspected of forging documentation and
colluding with third parties to steal from the company," ABB said.
The company's
South Korean subsidiary declined to comment.
"On Feb.
9 we became aware of suspected financial irregularities in South Korea and we
immediately launched an investigation," ABB spokesman Saswato Das said.
"Given
the size of the scheme, the investigation may expand to third parties inside
and outside of ABB in South Korea."
Analysts at
Zuercher Kantonlbank estimated the loss was equivalent to roughly 4 percent of
ABB's 2016 net profit of $1.96 billion and raised questions about corporate
governance at ABB.
ABB's stock
drifted lower after news of the potential charge, but traders also welcomed the
nomination of Cevian's Forberg to the board.
0 Comments