Lotte Tower looms over the south of Seoul, a 123-story, granite-colored pillar that dwarfs the rest of the skyline.

In the shadow of the not-quite-completed skyscraper are businesses that represent the many components of the Lotte corporate empire: a hotel, department store, apartment complex, burger joint and other enterprises, all branded with the red Lotte logo, one of the most familiar in South Korea.

But there is also a shadow looming over the tower, and the entire Lotte company.

Since ground was broken in 2010, accidents have caused the deaths of three construction workers. Starting in 2014, and as recently as this month, large sinkholes have been found in roads around the tower, raising questions over the safety of the building.


A fire drill at Lotte World Tower, a skyscraper in southern Seoul, in May 2016. (European Pressphoto Agency )

Lotte as a whole is the subject of a widening South Korean government investigation into allegations of slush funds and embezzlement by executives. Last month, prosecutors raided some of Lotte’s offices, and since then, the head of Lotte’s home shopping branch was summoned for questioning over allegations of illegal lobbying.

Lotte is South Korea’s fifth-largest family-run conglomerate, and perhaps the most prominent target of long-running government efforts to control the massive companies that drove the country’s economic miracle, but regularly make headlines for corporate malfeasance and bullying of smaller players in the economy.

The most high-profile figure directly implicated in the probe is Shin Young-ja, a director of Lotte’s hotel branch and daughter of Lotte’s founder. Shin, 73, was arrested this month on suspicion of accepting kickbacks from a cosmetics brand in exchange for giving the brand pride of place in Lotte duty-free stores. She also is accused of embezzling about $3.5 million, and registering her three daughters as company board members so they could draw salaries.


Reached by phone, Han Bo-young, a member of Lotte’s public relations team, said the company would not comment because Shin’s case is under investigation.

The inquiry is hitting Lotte in the wallet, as the government investigation forced the group to indefinitely postpone an initial public offering for its hotel business, which was worth up to $4.5 billion.

The story of Lotte’s rise is a bootstrapping tale built on chewing gum. Lotte founder and Chief Executive Shin Kyuk-ho went into business in the chaos of postwar Japan, founding Lotte in 1948 as a confectionery, selling gum and cakes. His idea was to take advantage of the new tastes for sweets brought to Japan by U.S. soldiers after World War II.

Shin Young-ja, the head of Lotte Foundation and daughter of the Lotte Group founder, appears before the Seoul Central District Prosecutors’ Office in Seoul on July 6, 2016. (European Pressphoto Agency )


Shin, now 93, expanded operations to his native South Korea in the 1960s, which is now where the lion’s share of Lotte’s revenue is generated, though its controlling companies are based mostly in Japan.

Beyond Shin Young-ja’s case, an even more heated issue in the Lotte camp is a bitter feud for control of the group between Shin Kyuk-ho’s two sons. Group Chairman Shin Dong-bin, 61, has built support among Lotte employees and shareholders to push aside his 62-year-old brother, Shin Dong-joo. In March, Dong-bin survived a third attempt by his brother to have him ousted as director of Lotte Holdings, and appears to have solidified his hold on the group.

Most of South Korea’s family-owned conglomerates are in the process of passing the reins of leadership on to the third generation, while Lotte is the only one still run by its founder.

Analysts have pointed to Lotte’s corporate structure, where family members carve out spheres of influence and even top performing employees have limited room for advancement, as one thing holding it back.


“Lotte is a lot more opaque than, say, Hyundai and Samsung, which are both run by their owning families’ third generations, people who have studied abroad and are familiar with different ways of doing business,” said Lee Ji-soo, an attorney at the Law & Business Research Center in Seoul.

The nation was built around these big conglomerates, and they control such huge swaths of the economy that reining them in has proven almost impossible. Geoffrey Cain, Seoul-based business analyst

Also, despite growing public discontent in recent years with the conglomerates’ dominant role in the economy, President Park Geun-hye has become the latest South Korean leader who has proved unable, or unwilling, to more tightly regulate the business titans, despite having won office in 2012 on promises to “democratize” the economy.

“The nation was built around these big conglomerates, and they control such huge swaths of the economy that reining them in has proven almost impossible,” said Geoffrey Cain, a Seoul-based business analyst and author of a forthcoming book about Samsung.


While Lotte is one of the biggest businesses in South Korea, there is a long-running debate over just how Korean the company is. The company was founded in Japan, and the two Shin brothers are both more comfortable speaking Japanese than Korean. (They were born to Shin Kyuk-ho’s second wife, who is Japanese; Young-ja was born to his first wife, a Korean.)

Lee says Lotte’s relatively shallow roots in Korea make it more of a target for prosecutors. “Hyundai and Samsung have stronger connections in government and the newspapers to deal with this kind of thing,” Lee said.

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Japan’s 1910-45 occupation of Korea is a wound that still stings for many Koreans, and some resent overt displays of Japanese presence here. This identity crisis was played out last summer when Lotte displayed a massive South Korean flag on Lotte Tower, ostensibly to celebrate the 70th anniversary of Korea’s independence from Japan.


Civic groups called the decision to put up the flag a misuse of the national symbol and a cheap attempt at appearing patriotic. Seoul’s government asked Lotte to take the flag down, contending that the national flag should not be used for marketing purposes.

Today there is no flag on the building’s exterior, only construction scaffolds.

Borowiec is a special correspondent.

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