DAPA chief apologizes for bribery scandal; 3 of 4 tainted contracts won by LIG D&A

Defense Acquisition Program Administration chief Lee Yong-cheol issued a formal apology Tuesday over a bribery case involving one of the agency's employees — the first defense procurement corruption scandal to surface in 11 years.

Speaking to reporters, Lee said he was "deeply sorry that an unfortunate incident has occurred again, 11 years after the 2015 bribery case involving a working-level employee," adding that while the misconduct did not take place during his tenure, he felt "unlimited responsibility as the head of the agency."

Prosecutors at the Suwon District Prosecutors' Office's defense procurement and industrial technology crimes unit indicted employee A, attached to DAPA's base-force project capability-support management team, on July 28 on charges of bribery under the Act on the Aggravated Punishment of Specific Crimes.

A is accused of receiving 460 million won ($325,000) in cash and gifts from executives and employees of LIG D&A during the bidding process for major weapons development projects. Prosecutors believe A then leaked classified project information and awarded inflated scores during proposal evaluations to benefit the company.

Lee said he had been deeply skeptical about the mechanics of the scheme from the outset. "Someone at the level of a section chief cannot simply walk into a proposal evaluation committee at will, and I seriously questioned whether one person giving high scores could actually hand LIG a contract," he said, explaining how the agency came to investigate the structure of the misconduct.

DAPA conducted an internal review of 14 projects linked to LIG D&A that were subject to prosecutorial search and seizure. The review found that A had served as a proposal evaluator on four of those projects, and that LIG D&A had won three of the four.

A DAPA official said it could not be concluded that the outcome of any contract was decided solely because one employee gave high scores, but added that "when you weigh the margin in final scores and the deviation in the scores that employee assigned, there is a reasonable probability that three of the projects are connected to the criminal conduct."

Lee said prosecutors had carried out a total of 14 search-and-seizure operations covering all contracts LIG D&A won during the period A is suspected of having taken bribes. DAPA's own review found that A had participated as a proposal evaluator in four of those 14 cases, and that LIG D&A had in fact won three of those four contracts.

"What we can confirm at this point regarding a causal link to the bribery is that the probability is quite high for those three cases," Lee said.

He added, however, that it still needed to be examined in detail whether the outcome of each contract was actually determined by A's scores. "We need to look at how many points separated first and second place, and whether the deviation in this employee's scores affected that gap — but at the very least, there is a fairly strong probability that those three cases were influenced," he said.

DAPA said two separate laws could apply to sanctions against LIG D&A's future participation in procurement projects.

The Defense Acquisition Program Act requires those obligated to submit an integrity pledge to be the chief executive or a registered officer of the company. The problem, DAPA noted, is that it has not yet been confirmed whether the LIG D&A personnel who provided the bribes were officers or ordinary employees.

A DAPA official said there was no ambiguity about applying the law if the person in question was a registered officer or a regular employee, but that "if the person is an unregistered officer, it becomes unclear whether to treat them as an officer or an employee, and relevant case law is not settled, which could become a legal dispute."

If the Defense Acquisition Program Act applies, the bid-participation ban would be set at between six months and five years, proportional to the bribe amount. With the known bribe amount at around 460 million won, the restriction period would be two years, followed by an additional three years of penalty points. The act allows only a bid-participation ban and does not permit substitution with a fine.

If the bribe-giver is determined to be an employee rather than an officer, the State Contracts Act would apply instead of the Defense Acquisition Program Act. Under the State Contracts Act, the bid-participation ban is a flat two years with no upper or lower variation, also followed by three years of penalty points. Unlike the Defense Acquisition Program Act, the State Contracts Act contains a discretionary provision allowing the ban to be replaced with a fine if restricting bid participation would prevent effective competition and cause significant losses to the state, DAPA explained.

"At this point we cannot determine whether to impose a bid-participation ban or substitute it with a fine," a DAPA official said. "In principle, a bid-participation ban is the baseline."

Complicating matters further is the fact that Hanwha Aerospace, a major competitor in the same space, could also face a bid-participation ban.

An explosion at Hanwha Aerospace's Daejeon plant in June killed five workers. If Hanwha Aerospace officials are indicted in connection with the accident, the company could become subject to bid-participation restrictions under the State Contracts Act.

Should both LIG D&A and Hanwha Aerospace — which compete across a wide range of defense projects including guided weapons — face bid-participation bans simultaneously, domestic weapons procurement schedules could be significantly disrupted.

In Hanwha Aerospace's case, an actual indictment for violations of the Occupational Safety and Health Act would be required before State Contracts Act restrictions could apply. Lee said the investigation was not expected to move into full gear until interim findings are released at the end of August, meaning indictment would still be some time away. He noted, however, that given the number of workers who died, the chances of the company avoiding indictment were slim.

Contracts already awarded to LIG D&A and currently under way could also be subject to cancellation or termination if a link to criminal conduct is confirmed. Under that scenario, performance bonds would be transferred to the national treasury, project funds already paid out would be recovered, and a new contractor would be selected.

DAPA's concern, however, is that terminating contracts on projects already well advanced could delay capability deployment schedules for years.

"If a project is still in its early stages, it may be advisable to terminate the contract and restart the process, but if it is substantially under way, the result could be pushing back the country's capability deployment timeline by several years," a DAPA official said. "We need to make a judgment based on the progress of each individual project and its connection to the criminal conduct."