A retired general who was once chief of staff of U.S. forces in South Korea has agreed to repay $10,000 in cash he received from a Korean embassy official who had diverted the funds from commissions paid by a U.S. defense contractor.
The agreement by Robert N. Smith, now an official of E-System Inc. of Dallas, was disclosed yesterday as part of a settlement between the firm and the Securities and Exchange Commission.
The SEC charged E-Systems. Smith and two other company officials with violating federal disclosure rules in the payment of $1.4 million in commissions to the Korean official, Col. Lee Kyoo Hwan.
In a statement released yesterday in Dallas, E-Systems said Smith later attempted to return the $10,000 that Col. Lee had passed to him at a September 1975 party in Arlington.
"Eventually at the officials [Lee's] suggestion, [Smith] invested the funds for the official in the official's name," the company statement said.
While Smith has agreed to give the money back to E-Systems' the settlement papers note that E-Systems will "indemnify" Smith in case a court later determines that the money belongs properly to a "third party," apparently a reference to Col. Lee.
Smith went to work for E-Systems in Korea in late 1973 after he had retired from the Air Force. As a three-star gentral, he was one of the highest ranking U.S. military officers in Korea.
The firm, a major defense contractor, and the three officials, consented - without admitting or denying the allegations - to a court order prohibiting further violations.
E-Systems also agreed to set up a special review committee to investigate the payments.
The filings in U.S. District Court in Washington end a 20-month investigation which at times seemed to parallel the investigation of alleged Korean influence-buying in Congress.
SEC attorneys had said in court records that they believed some of the commission money may have been used to make illegal payments to U.S. officials. There was no indication in the SEC complaint, however, that its investigators found any evidence to back up that belief.
Instead, the complaint outlines what appears to be another instance of an American corporation making questionable payments to get contracts abroad.
According to the complaint, Col. Lee "was instrumental" in getting another Korean official to write U.S. military advisers in Korea in July 1973 asking that E-Systems be designated as the "sole source" for a contract to co-produce military backpack radios for the Korean armed forces.
By mid-August, the U.S. government had agreed to the arrangement for an initial $5.8 million contract. It was not until mid-September, though, the complaint noted, the E-Systems hired a group called Korean Research Institute (KRI) to be its sales representative.
E-Systems officials William R. Harter and Robert N.H. Mitchell "knew" or "should have known" that Col. Lee was associated with KRI, the SEC charged.
Over the next three years, E-Systems paid at least $1.4 million to accounts controlled by Col. Lee's brother-in-law and nephew. At Lee's instruction, the complaint said, the pair "attempted to disguise the source of the commission payments" by repeatedly transferring them through various personal and business accounts.
The funds were then withdrawn in $50 and $100 bills and delivered to Col. Lee or others designated by him, THE SEC added.
In 1974, E-System's Harter received and cashed checks from Lee's brother-in-law and kept the cash in a safe deposit box for Lee, who is the Korean military attache.
On one occasion in 1976, the SEC complaint said, Col. Lee's wife received $20,000 in cashier's checks from the brother-in-law in Los Angeles. One of the checks was used for partial payment on a new Volvo, the SEC said.
Col. Lee could not be reached for comment last night. He has told The Washington Post in previous interviews that he never used the commission payments to make illegal payments in the United States.
He refused to say, however, what he did with the money. "That's a family matter, a private matter," he said.
The SEC complaint also charges E-Systems with making "false and misleading statements" in a March 8, 1977, letter to its stockholders. In the letter, the company said it didn't know what KRI did with the money.