K-Pop Mogul Lee Soo-man's Alleged Connection to Hong Kong Shell Companies

2021년 10월 12일 16시 48분

Starting on October 4, 2021, KCIJ-Newstapa reports the findings of the project “The Pandora Papers: Koreans who Fled to Tax Havens 2021.” It is a collaborative project coordinated by the International Consortium of Investigative Journalists(ICIJ) which was joined by more than 600 journalists from all over the world. This global team of journalists has been investigating over 11.9 million documents leaked from 14 offshore service providers, including Trident Trust, Alcogal and IL SHIN CPA and IL SHIN Corporate Consulting.    
– Editor’s Note - 
SM Entertainment is a household name when it comes to K-Pop. Its founder and the largest shareholder Lee Soo-man was identified with a number of Hong Kong companies found in the Pandora Papers.    
The leaked client files from IL SHIN CPA and IL SHIN Corporate Consulting, which were obtained by Korea Center for Investigative Journalism-Newstapa along with International Consortium of Investigative Journalists(ICIJ), expose a number of Hong Kong companies owned by Lee Soo-man. Some of them appear to be tightly linked to Lee, although his name is not shown on their list of shareholders and directors. 

Eight Hong Kong Companies Found Linked to Lee and SM Entertainment, Nominees are Used in Five 

In the Pandora Papers data, a total of eight Hong Kong companies are found to be related to Lee Soo-man and SM Entertainment.  
Two among the eight - Dream Maker Entertainment Limited and Culture Technology Group Asia Limited - are publicly listed as SM Entertainment’s overseas affiliates. The former does overseas concert planning while the latter manages music copyrights. On IL SHIN’s internal document, Lee Soo-man appears as a director of CT Planning Limited.
But Lee’s name is missing on the list of directors and shareholders for the other five Hong Kong companies - namely, Success Maker Investment Limited, Polex Development Limited, Sky Creative Development Limited, Pacific Leading Development and JG Christian Charity Foundation. It requires IL SHIN’s internal records to know how Lee has been engaged with these companies. The above five used nominee service provided by IL SHIN and other similar firms in Hong Kong. In other words, they borrowed other people’s names to create and manage a company and to open a corporate account so that its real owners could remain unrevealed.

IL SHIN’s Internal Records Show Lee Soo-man as Beneficial Owner 

Success Maker was the first to be established among the five in 2006. IS Nominee Limited, which is a shell company made by IL SHIN to provide nominee service to its clients, is shown as its shareholder. One of IL SHIN’s employees Chen Sau Lin is listed as its initial and sole director. 
While Hong Kong corporate registry is open to the public, it only shows as far as nominee directors’ names. In Hong Kong, having nominees registered on the registry is not illegal. Still, it lacks transparency. In order to state a beneficial owner, they often use a declaration of trust, mention relevant information in a company resolution, or clarify who could authorize various banking issues. Of course, most of these documents are kept internally.
Newstapa was able to obtain the information regarding beneficial owners from IL SHIN’s internal documents. For example, an application for nominee service was filed on behalf of Success Maker as part of the company’s incorporation process. The request was made under Lee Soo-man’s name. 
Another document shows only Lee Soo-man has the authority to manage the corporate account set up at HSBC. It means without Lee’s signature or approval, no one could move money in and out of the account. And Lee Soo-man is designated as its beneficial owner. A lot of leaked documents from IL Shin involving the other Hong Kong companies exhibit similar patterns. 
One year after the incorporation of Success Maker, in March 2007, Polex Development was established, having Chen Sau Lin as its director. Its shareholder was Success Maker, which is owned by Lee Soo-man. Again, Lee Soo is the beneficial owner of Polex Development. One month after Polex’ incorporation, Lee Soo-man bought a Malibu villa. Its co-buyer was Polex.
In June 2010, another Hong Kong company, Sky Creative, was established, having another IL SHIN employee, Cheugn Hon Keung as a director. A Korea-American with the surname Sohn is also named as a director. While its shareholder was listed as Cheung Hon Keung, its beneficial owner is Lee Soo-man. 
Created in October of the same year, Pacific Leading Development has Chen Sau Lin, an IL Shin employee, listed as director and shareholder. The firm’s beneficial owner is Lee Soo-man.
For JG Christian Charity Foundation, two people with the surnames Sohn and Kim are listed as directors. Financial transactions, which sometimes involved millions of US dollars, were made among Lee’s five Hong Kong companies.
▲Financial transactions sent from Success Maker, Polex Development and Sky Creative to Pacific Leading.

SM Entertainment, “Hong Kong Companies Belong to Lee Soo-man’s Father. Lee Soo-man and SM Have Nothing to Do with It”

SM Entertainment explained to Newstapa that the Hong Kong companies including Success Maker and Polex were created by Lee Hee-jae, Lee Soo-man’s late father as he moved his 4-billion-won deposit to Hong Kong in 2006. Reportedly, the ownership was transferred to his wife Lee Kyung-hyun after Lee Hee-jae’s death in 2010. SM claimed that neither Lee Soo-man nor SM Entertainment has been involved in the ownership or management of these companies.
Newstapa went to SM Entertainment headquarters in Seoul to ask them why Lee Soo-man’s name appears as the beneficial owner of the Hong Kong companies in question.
An employee at SM Entertainment told Newstapa, “According to the IL SHIN CEO, Lee’s father(Lee Hee-jae) or his U.S. lawyer wanted to put Lee Soo-man’s name as an account holder and beneficial owner.” He added, “I also heard from IL SHIN that in Hong Kong, anyone’s name can be put as a beneficial owner.”
Chief accountant at IL SHIN CPA, Kim Chan Su, told Newstapa otherwise. He said an accounting firm can only perform administrative work and  decision-making is only up to clients. Kim told Newstapa that Han Se-min, ex-CEO at SM Entertainment, was their point of contact.

Lee’s Mother in Her 90s Trying to Make Money out of Intellectual Property?

There is another point left unresolved by SM Entertainment’s explanation. Among the five Hong Kong companies, Sky Creative and Pacific Leading were established in 2010. It was the year that Lee Soo-man’s father died. Reportedly, Lee Hee-jae’s wife(Lee Kyung-hyun), who was already in her 90s, inherited the wealth kept in Hong Kong. However, it is not very plausible that a person in that age could craft such an elaborate scheme of offshore companies.
An internal document of IL SHIN that lays out a business structure and tax plan for Sky Creative makes the suspicion grow only bigger. The document was written in October 2010, shortly after the establishment of Sky Creative. According to the document, Sky Creative is defined as a parent company that owns various intellectual property, trademark rights, brand marketing, and restaurants. When its affiliates in Korea, Japan, U.S. and other countries use the parent company’s intellectual property, Sky Creative could earn royalties. Sky Creative’s shareholder is an individual who lives in the U.S. 
▲This file contains IL SHIN's recommendations for Sky Creative, such as business operations and tax plans. Sky Creative was set up in June 2010.
▲Flowchart illustrating how Sky Creative could make profit out of IP and trademarks it owns.
Another document from IL SHIN shows that Lee Soo-man owns more than 5 million out of 7 million shares of Sky Creative. When IP and trademark owned by Sky Creative are used outside of Hong Kong, much of the royalties would eventually flow into Lee Soo-man’s pocket. 
In Hong Kong, revenue earned outside Hong Kong is not subject to tax. It is highly possible that the scheme only existed in plans. Its complexity, however, insinuates the little chance that Sky Creative could really belong to Lee Soo-man’s mother.
Of the five companies, four were liquidated by 2014. It was the year when the Korean tax authority, National Tax Service, conducted a massive tax crackdown on Lee Soo-man and SM Entertainment over alleged offshore tax evasion. JG Christian Charity Foundation, which was set up in 2014, is the only one that still exists. Presumably, a significant amount of funds from the liquidated firms were transferred to this foundation through Pacific Leading.
ReportingKim Ji-yoon, Kim Yong-jin Hong Woo-ram, Kang Hye-in, Lee Myung-ju
Video reportingShin Young-cheol, Jeong Hyeong-min, Lee Sang-chan, Choi Hyeong-seok, Kim Ki-cheol
Video editingYoon Seok-min
CGJung Dong-woo
DesignLee Do-hyun
Data Choi Yun-won, Kim Kang-min
Web PublishingHeo Hyeon-jae