ABB discovered $100m fraud in South Korean business unit

7 years ago - Published in Finance, Fiscal & Legal

Swiss-Swedish engineering giant ABB said Wednesday that it had uncovered significant embezzlement at its South Korean subsidiary, which it warned would heavily impact its 2016 earnings. The suspected theft will lead to a pre-tax charge of about $100 million.

The company said it had discovered "a sophisticated criminal scheme related to a significant embezzlement and misappropriation of funds" at the South Korean unit.
The executive 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.

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 $100m for the affair, which analysts said raised concerns about its corporate oversight.

Chief executive Ulrich Spiesshofer wrote in a letter to staff that “based on the large sums involved and the sophisticated fraud, it is almost certain that the employee in question was not acting alone”.

"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.

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.