The Ministry of Land, Infrastructure and Transport (MOLIT) has uncovered irregularities in the operation of highway rest areas by Doseonghoe, a retirees' association affiliated with Korea Expressway Corporation (KEC), and is moving to refer the case to prosecutors. The group was found to have exploited its nonprofit legal status for four decades to distribute profits and evade taxes.
The ministry announced the results of its audit on highway rest facility operations targeting Doseonghoe and KEC on Friday. The audit began in January following criticism from the National Assembly and media that the KEC retirees' group had effectively operated rest areas over an extended period.
The Presidential Office also strongly criticized the "revolving door" practice at a meeting of senior secretaries chaired by Presidential Chief of Staff Kang Hoon-sik on Tuesday, saying Doseonghoe had operated highway rest areas and reaped excessive profits unrelated to its founding purpose. "Due to illegal and unfair revolving door practices favoring retirees of public institutions, the public has suffered for decades," Kang said. "This is an act that betrays the responsibilities of public institutions."
The MOLIT audit found that Doseonghoe, established in 1984, has not carried out any of the public interest projects specified in its articles of association for more than 40 years. Instead, the group participated in rest facility operations through its wholly-owned subsidiary H&DE, receiving an average of 880 million won in dividends annually over the past decade and paying approximately 400 million won to members in the form of birthday gifts and other benefits. About 2.5 billion won in member dues was kept entirely in savings deposits without being used.
While nonprofit corporations are strictly prohibited from distributing profits, Doseonghoe treated the profits distributed to members as spending for its inherent purpose business, thereby evading about 400 million won in taxable income each year. The audit also uncovered a structure in which Doseonghoe effectively controlled its subsidiary, with all four H&DE executives drawn from Doseonghoe's membership and the secretary-general concurrently serving as a non-executive director at H&DE while receiving an annual salary of 40 million won.
Preferential treatment by KEC was also confirmed. In May this year, while pursuing a pilot mixed private-financing project for four aged rest facilities, KEC abruptly changed its internal policy and granted gas station operating rights to the Doseonghoe corporate group through private contract. In the process, KEC failed to complete the approval procedure with the Minister of Economy and Finance, and suspicions also emerged that bidding schedules and pricing information were leaked to Doseonghoe in advance.
KEC also allowed remodeling construction to proceed without determining the project operator's investment amount. Additional preferential treatment was confirmed in which H&DE was permitted to temporarily operate the convenience store at Munmak Rest Area and other facilities without bidding for six years and six months.
MOLIT will demand corrective actions from Doseonghoe, including revisions to its articles of association, and plans to request a tax investigation by the National Tax Service regarding the tax evasion suspicions. The ministry has also ordered KEC to correct the pilot project procedures and discipline those involved. The private contract preferences and bidding information leaks will be referred to prosecutors for investigation.
"This is the first step toward eliminating a cartel that has been entrenched for decades and returning highway rest areas to the public," Minister Kim Yoon-duk said. "We will swiftly and thoroughly push forward with reforming the operational structure of rest facilities."
