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[Exclusive] Unification Church Foundation Suspected of Tax Evasion of 20 Billion KRW (Equivalent to $14 million)
- Spent 13.4 Billion KRW (Equivalent to $9.7 million) in Donations to Startups Created by Employees
By Gong Sung-yoon (niceball@sisajournal.com)
Hyo Jeong International Cultural Foundation reveals that all four companies it donated to in five years were founded by employees
"A matter that may emerge as an embezzlement issue"...Gyeonggi North Police, chairman and 10 other foundation officials under investigation
The Hyo Jeong International Cultural Foundation (Hyo Jeong Foundation), a foundation affiliated with the Family Federation for World Peace and Unification (hereinafter referred to as the Unification Church), has been confirmed to have invested 13.4 billion won ($9.7 million) in donation proceeds in start-up companies founded by its employees. The amount in question exceeds 20 billion won ($14.5 million) , including undisclosed payments to affiliated construction companies. Suspicions of tax evasion and embezzlement have arisen in this regard. The amount of money is unusually large for a nonprofit organization, so investigators are keeping a close eye on it.
According to public data from the National Tax Service, the Hyojeong Foundation received a total of 38.93 billion won ($28.3 million) in donations over the five-year period from 2019-23. The donors were identified as Unification Church-related organizations, including the Unification Church Association, which oversees the Korean congregation, Cheongshim Church, a Unificationist church, and the Hyojeong Global Unification Foundation, another foundation under the Unification Church umbrella. Under the Inheritance and Gift Tax Act, public benefit corporations such as the Hyojeong Foundation must use their proceeds, including donations, for public purposes. Otherwise, they are subject to gift tax. According to the articles of incorporation, the main purpose of the Hyojeong Foundation is to provide support for the establishment of proper values among youth.
The Hyojeong Foundation distributed 13.4 billion won ($9.7 million), or 34 percent of its donation revenue, to four companies for the purpose. The four companies are 1) Studio Peach, 2) HJ SmartEdu, 3) Two Man Film, and 4) Hyojeong Family Corporation. However, they were all found to be corporations established by employees of the Hyojeong Foundation.
Raised 785 times its capital in 6 months after establishment
Studio Peach is a video production company founded by Mr. Park, secretary general of the Hyojeong Foundation, in July 2020 with a capital of 10 million won ($ 7,264). According to internal documents of the Hyojeong Foundation obtained by The Sisa Journal, the foundation signed a contract with Studio Peach in January 2021 to produce 3D animations for YouTube content. The contract is titled "Investment Contract," although it appears to be an outsourcing contract. The investment amount is 7.85 billion won ($5.7 million). This is a huge investment of 785 times the capital of a small company that was founded only six months ago. Studio Peach has no website and no history.
A PD from a terrestrial outsourcing production company pointed out, "It's hard to believe that a terrestrial documentary filmed overseas costs less than 100 million won ($72,663) per episode, but it's hard to believe that they would invest billions of won in a startup with no portfolio." There's another corner that's not so obvious. According to the Hyojeong Foundation's internal document, "Details of the use of the property," the first donation to Studio Peach was made in September 2020. The Hyojeong Foundation signed the investment contract in January 2021, but the money was delivered four months earlier. The purpose of the payment was for "operating expenses for the youth media education project (May-September)" and the amount was 342.5 million won ($ 248,833).
The Hyojeong Foundation also paid Studio Peach KRW 72.5 million ($ 52,644) per month for three months from October to December 2020 for operating expenses. The total amount of donations before the investment agreement was signed was 560 million won ($ 406,592). Including this, Studio Peach has received 5.025 billion won ($3.6 million) over the past five years, according to disclosure data. On April 24, The Sisa Journal visited Studio Peach's office in Gangnam-gu, Seoul, to ask about the history of the Hyojeong Foundation's investment and the results. "I can't tell you anything right now. We'll get back to you when we've clarified our position," Moon told the reporter. However, by the morning of the 26th, there was no response.
Hyojeong Family Corporation, another investee of the Hyojeong Foundation, was established in January 2021 by Choi Hyung-seok, vice chairman of the Hyojeong Foundation. The office is located in the Hyojeong Foundation building in Gapyeong-gun, Gyeonggi-do. It was capitalized at 1 million won ($726. Yep. This not a typo. I checked thrice). In February 2021, the Hyojeong Foundation signed a contract to invest 300 million won ($ 217,853) in the organization. It was for 'cafe operation', which seems far from youth support programs. In the end, 232 million won ($ 168,473) was actually paid.
It's Just 'A Kids Cafe' that they invested to support youths
The cafe operated by Hyojeong Family Corporation refers to the 'H Kids Cafe' in Hanam, Gyeonggi Province. The cafe is open to children up to the age of 9, but not to teenagers. The cafe occupies the second floor of a building with an area of 806 square meters. The property is owned by the Unification Church. In other words, the Unification Church provides the space, the Hyojeong Foundation funds the project through donations, and the company created by the vice president of the Hyojeong Foundation is in charge of the operation. This raises the possibility of insider trading, especially since the vice president, Choi Hyung-seok, is a registered director who shares the legal responsibility of the Hyojeong Foundation. The Enforcement Decree of the Gift Tax Act stipulates that internal transactions of public interest corporations are subject to gift tax.
In addition, HJ Smart Edu, a publishing company, and Two Man Film, a movie production company, were founded and headed by Hyojeong Foundation employees. They are capitalized at 1 million won ($726) and 50 million won ($36,310), respectively. Both companies have signed investment contracts with the Hyojeong Foundation in quick succession since their establishment. HJ Smart Edu signed an investment contract worth 337 million won ($244,740) in October 2020, just one month after its establishment, and signed an additional contract for 492 million won ($357,306) in February 2022. This means that the 1 million won ($726) company has attracted 829 million won ($602,256) worth of investment in just one and a half years. The amount delivered since then is 2.549 billion won ($1,85 million), which is more than the amount confirmed in the contract.
In the case of Two Man Film, the company was founded on November 18, 2019, and the investment contract was signed on November 25, 2019, only a week later. The date of the agreement was even earlier than the start of business on December 1, 2019. The purpose of the contract was to produce a movie called "Dreams" (tentative title). The total production cost listed in the contract is 5.3 billion won ($ 3.85 million). In addition, in October 2020, Two Man Film signed another investment agreement, stating that it would invest an additional 300 million won ($217,873) to ensure the smooth production of the movie.
In fact, the Hyojeong Foundation disclosed that it paid 2 Man Film a total of 5.6 billion ($ 4.0 million) won for production costs. This is the largest amount among the four investee companies. The movie "Dreams" was originally scheduled to be released in the first half of 2022. However, the film of the same name was never released, and instead, last year's film "It's Okay!" was named the winner of the Berlin Film Festival. To verify the facts, I visited Two Man Film's office in Yongsan-gu, Seoul on April 24th. The door was locked and there was no sign outside identifying the company.
Reference: The Movie "It's OK!"
Excluding the above investment down payment, the total amount of money paid by the Hyojeong Foundation to the four companies is 13.36 billion won ($ 9.7 million), according to publicly available data from the National Tax Service. However, Mr. A, an insider of the Hyojeong Foundation who requested anonymity, claimed that "there is another 3.57 billion won ($ 2.6 million) missing from the 2019-23 disclosure." A PDF file created by Mr. A and forwarded to The Sisa Jounal listed the sources and payment dates of the missing amounts. Including this, the donations made under the name of investment totaled 16.913 billion won ($ 12,3 million).
"No problem because it's less than 30%?"..."It's just a trick of the eye"
The Hyojeong Foundation's position is that there is "no problem" with such a huge investment contract. They explain this is because all four companies are not related parties because their employees own less than 30% of the shares. However, Ahn claimed, "The capital required to establish the corporation was also given to the employees, and the shareholding was lowered to below 30 percent." "It's just a trick to avoid any problems," he said.
Some argue that the purpose of the donation itself is illegal, regardless of the relationship. "It's hard to say that the Hyojeong Foundation's donation was spent on a unique purpose project as defined by the law," said a tax industry insider who requested anonymity. "Public interest corporations receive a gift tax reduction on the condition that the money is used for a unique purpose, but in this case, it is subject to collection," he said, adding, "Even if the money was borrowed in the form of an ostensible investment and returned, there is no problem." A tax accountant specializing in corporate accounting in Gangnam, Seoul, said, "It's hard to avoid suspicion of tax evasion if the investment process and results are not clear," adding, "In the case of the Hyojeong Foundation, it was actually an outsourcing fee, and if there are no tax receipts, it could even be embezzlement."
The chief officer of the Hyojeong Foundation, who oversaw the donations, is Yoon Young-ho. He took over as chairman in September 2017 after serving as the secretary general of the Unification Church's president, Hak Ja Han Moon. Until then, the Hyojeong Foundation was known as the Cheongshim International Cultural Foundation, and it operated with its own revenue without donations. But in 2018, the year after Yoon took over, the foundation began receiving billions of dollars in annual donations from Unification Church-affiliated organizations. The donations increased dramatically after Yoon was named head of the Unification Church's world headquarters in May 2020. In 2020, the Unification Church alone donated 600 million won ($ 435,858) to the Hyojeong Foundation; in 2021, the amount increased more than fivefold to 3.1 billion won($ 2.25 million). The total donation exceeded 10 billion won($ 7.26 million) for the first time that year.
Hyojeong Foundation clarifies that "investment contracts were in line with procedures"
On April 8, the Gyeonggi North Police Department initiated an investigation into the accounting of donations and arrested 10 officials of the Hyojeong Foundation, including Chairman Yoon. The charges under consideration include tax evasion, embezzlement, and corruption. They are also reportedly looking into the legality of outsourcing work using donations. The Hyojeong Foundation paid total of 8.963 billion won ($6.51 billion), as paied 6.68 billion won ($ 4.85 billion) in 2019 and 2.283 billion won ($1.66 billion) in 2020 to Sunwon Construction, a construction company affiliated with the Unification Church, out of the donation proceeds. The main purpose is to remodel the Hyojeong Cultural Center in Gapyeong-gun, Gyeonggi Province, which is managed by the Hyojeong Foundation. If you add up all the money spent on Sunwon Construction and four of its employee companies, it amounts to 25.76 billion won ($18.6 billion).
Meanwhile, in March, a letter was written in the name of an employee of a Unification Church affiliate that raised concerns about the implications of the Hyojeong Foundation's donation accounting. "The core of the problem is that the representatives of the companies invested in by the Hyojeong Foundation are all employees," the letter, obtained by The Sisa Journal, states, "Unjustified loss of public corporation property is beyond moral responsibility and should be subject to legal liability," and "The possibility that it could be linked to the future of the Unification Church as a whole should be examined." This shows that the illegality of the case was already recognized internally. In an email to The Sisa Journal in response to the allegations, an official from the Hyojeong Foundation claimed that "there was no tax evasion" and that "investment contracts were signed in accordance with procedures after reviewing the feasibility and status of the business." "Each company has its own output, but we cannot share the details for management reasons," the official said.
The Unification Church's rise as a 'family' organization and decline as a 'political' organization
- In Japan, the world's largest church, government seeks 'dissolution order' after Abe's death
The Family Federation for World Peace and Unification, the world's largest denomination, is an emerging religion founded in 1954 by the late Reverend Sun Myung Moon. It was originally known as the Holy Spirit Association for the Unification of World Christianity, but changed its name to the Family Federation for World Peace and Unification in 1997 to break away from the framework of institutionalized religion. The name Unification Church was formalized in 2010 when Moon's seventh son, Hyung Jin Moon, took over as the organization's world president. However, after Moon's death in 2013, his wife Han Hak Ja Han, who became president, reverted the name back to the Family Federation for World Peace and Unification. The organization refers to itself as the Family Federation for short, but the name "Unification Church" is widely used in public.
The Unification Church established its doctrine in 1966 through the scripture "the Devine Principle". Its core message is that Jesus will return to Korea, and that humanity should form one big family society with Jesus as its center. This doctrine, which is Christian in color but emphasizes the value of family and unity, is considered to have lowered the barriers of religion. Based on this, the Unification Church has expanded its influence not only in religious circles but also in politics, economics, culture, and the media.
The Unification Church claims to be active in 194 countries around the world. Its largest presence is in Japan, not its home country of South Korea. When Moon traveled to the United States in the 1970s, the majority of his followers were Japanese. Moreover, Japanese are said to be more than 90 percent of the donors to the Cheon Jeonggung Palace in Gapyeong-gun, Gyeonggi Province, the Unification Church's world headquarters. The number of Japanese adherents varies from 10,000 to as many as 600,000. However, an outside source familiar with the Unification Church's affairs said, "The fact is that Japanese adherents are the most numerous in the world." In particular, former Japanese Prime Minister Shinzo Abe's congratulatory remarks at Unification Church-related events symbolize the organization's influence in Japan.
The Unification Church's power in Japan reached an inflection point in 2022. In July of that year, Tetsuya Yamagami, the man who shot and killed former Prime Minister Abe, revealed that his family was destroyed because his mother donated large sums of money to the Unification Church. The Unification Church's ties to Japanese politics have since become scandalous. Crucially, an internal LDP investigation found that 179 of the 381 members of the ruling Liberal Democratic Party (LDP) parliament, nearly a majority, had ties to the Unification Church. Prime Minister Fumio Kishida, who also belongs to the LDP, suffered a plunge in popularity as his party was accused of ties to the Unification Church.
In October of last year, the Japanese government sought a court order to dissolve the Unification Church; the legality of the order is currently being challenged. If the dissolution order is finalized, the religious organization will be stripped of its legal personality and lose access to tax benefits. Already, there is speculation within and outside the Unification Church that the organization's financial situation is dire, as donations in Japan have plummeted since Abe's death. In the case of the Hyojeong Foundation, donation revenue in 2022 was 4.2 billion won ($3.0 million), less than half of the previous year's total.
Period.
