By Lee Chang-sup
Business Editor

SEOUL The Guinness Book of World Records may pick Daewoo group founder Kim Woo-choong as the "most notorious manipulator of accounting books of the century." His manipulative methods are so complex that they should be included in textbooks at major American MBA schools.

Ironically, at the height of the "Great Universe (Daewoo in Chinese character) Empire," many American universities did in fact feature Daewoo? success story, including its Global Management strategy, in their textbooks for MBA students. Perhaps it? time to replace those textbooks.

Daewoo’s pervasive manipulation of accounting books lent credence to the allegation that Korean chaebol accountants usually prepare three financial statements, one for the CEO, one for their boss, and another for the tax office. Doctoring accounting documents is not limited to Daewoo itself.

Through a systematic manipulation of financial statements, Daewoo distorted even the nation? export, import figures as well as growth rates in the past.

There were no clear-cut firewalls between Daewoo subsidiaries as Kim ran them as one unit.

Daewoo? demise symbolizes the tragic end of "imperial tycoons" who turned a deaf ear to suggestions from below.

Kim outshone Charles Ponzi, the perpetrator of a legendary financial scam in Boston more than 80 years ago.

Ponzi is an Italian who illegally entered the United States and ran an investment scheme that shook Americans in l9l9-l920. He became rich by paying returns to earlier investors entirely out of money paid into the scheme by new investors. Many Korean scamsters use the legendary "Ponzi scheme" even today. Kim and Ponzi have many similarities.

Like Ponzi, Kim borrowed money to repay maturing debts until the tragic collapse of his business empire in l999.

He fabricated financial statements to deceive lenders and investors. He made false claims about how loans were being invested and where the returns went.

Kim used heads of Daewoo affiliates as middlemen to manipulate accounting books for borrowing more money.

Much of the Daewoo money was deposited in his personal accounts in Britain. Both Ponzi and Kim expanded their scam to a global level. Kim exploited rules both at home and abroad. Ponzi and Kim created bogus companies to manage funds.

There are also some differences between them. Ponzi was born to a rich Italian family, whereas Kim came from a poor rural family. Ponzi swindled money from Americans while Kim defrauded Koreans and international investors and lenders. Ponzi caused damages of about 9.5 million dollars. Kim? cheating, however, amounted to more than 30 billion dollars.

Ponzi did not use the money he "mobilized" to peddle influence, but Kim bribed every influential person deemed a potential hindrance to his business. Ponzi did not run any manufacturing plants. But Kim borrowed money to take over insolvent firms.

According to the prosecution, Kim masterminded the cooking of accounting books in all Daewoo subsidiaries. The group inflated assets, deflated and concealed debts amounting to 49.09 trillion won.

Daewoo created "nonexistent" assets and took much of the debts off the balance sheets. Daewoo Electronics sustained a loss of 890 billion won in l997, resulting in a negative net worth.

In its attempts to borrow money, it manipulated the books and created bogus assets of l.7 trillion won. Its net worth was reported at 4 trillion won. It posed 4l.4 billion won in net income. The falsified balance sheet made it one of the best bluechips in Korea.

In reality, it was one of the most troubled firms. From l997 through l998, Daewoo Electronics and Daewoo Telecom cooked balances sheets amounting to 4.5 trillion won.

Daewoo Telecom gave 470 million won in bribes to a certified public accountant (CPA) in return for his collusion in the financial statement manipulation.

By submitting forged financial statements to lenders, the group took out more than l0 trillion won in loans. It issued astronomical amounts of bonds to raise capital two years before its demise.

Kim allegedly borrowed money to invest it overseas.

But much of the money was diverted into Kim? secret accounts in the British Financial Center. Daewoo? overseas units remitted their earnings and borrowings to the disgraced founder? personal accounts, not to the head offices. Kim? much-ballyhooed Global Management was a fake.

At the peak of the company? financial trouble, Kim ordered all Daewoo offshoots overseas to seek ways of making their financial statement attractive. The overseas units immediately concocted balance sheets, including construction orders of 500 billion won which Daewoo had never received.

Daewoo came up with an "innovative" scam involving a Ukraine assembly plant. Despite opposition from his deputies, Kim ventured to establish an automobile assembling plant there. But due to lack of operating funds, the plant could not run. Kim devised a novel idea. He ordered Daewoo Motors to export assembled cars to a place near the Ukraine? border.

After shipment to the border area, all Daewoo cars were converted into parts, which were transported to the Ukraine plant for re-assembling.

This costly process enabled Daewoo to borrow money. Daewoo created a bogus company named Northwood International (NTL) in l998 as it was unable to borrow money.

It created false documents to have NTL import bogus goods to Korea. Later, the documents were forged again to look as if Daewoo were transshipping nonexistent products to third countries.

Through this process, Daewoo diverted foreign currency overseas. From October l0, l997 through March l999, heads of Daewoo Motor? overseas units were ordered to remit funds not to Korea, but to secret accounts Kim managed.

It is estimated that Kim operated 20 billion dollars in his personal accounts. The prosecution is now tracing the whereabouts of the money.

Kim also borrowed $l5.7 billion from overseas financial institutions but none of the loans made their way to Korea.

Prosecutors said they had confirmed the above allegations in their questioning of three former executives.

The prosecution said none of the Daewoo executives, except for Kim himself, know the full picture of the financial scam.

Kim inculcated a can-do spirit in the minds of the young when he published his famous book "All Roads Are Paved With Gold." The book should now be re-titled "All Roads Are Paved With Gold As Long As You Con Innocent People Out Of Their Money." Thanks to Kim? "unique" management style, every Korean man, woman and child now has to pay an extra l million won in taxes.