The South Korean aviation firm that in November paid $150,000 to a shell company run by Michael Cohen, President Trump’s personal attorney, was at the time embroiled in a major corruption scandal and seeking to land a lucrative defense contract from the U.S. government.
Korea Aerospace Industries said in a statement Wednesday the payment was for advice on matters that included “Cost Accounting Standards,” highly technical bookkeeping rules that would apply to the company’s bid for U.S. defense work. KAI said its contract with the company, Essential Consultants, ended in November.
KAI said Essential Consultants did no legal or lobbying work regarding its bid for the contract. Cohen did not respond to calls seeking comment.
From outward appearances, Cohen seems an unusual choice to advise a South Korean aviation company on U.S. government accounting standards.
A former personal-injury attorney from Long Island who ran a taxi business in New York City, Cohen was Trump’s fixer as an executive in his real estate company for more than a decade. Cohen has no known experience in government or defense contracting.
KAI’s payment to Cohen, along with payments last year from AT&T and Novartis, were revealed Tuesday by Michael Avenatti, the lawyer for adult-film star Stormy Daniels, who in 2016 was paid $130,000 through Essential Consultants to keep quiet about her alleged affair with Trump. The companies paid Cohen for a range of services, as Cohen leveraged his proximity with the president to develop a lucrative sideline business.
All three companies subsequently confirmed the payments, and AT&T and Novartis said special counsel Robert S. Mueller III sought information from them late last year.
In September 2017, two months before the payment to Cohen, former KAI chief executive Ha Seong-yong and another high-ranking company official were arrested on allegations of embezzlement and fraudulently overstating the company’s revenue by a total of $500 million over several years — a development that some industry analysts speculated could hurt the firm’s chances at winning a major contract with the U.S. government.
The company, which is majority-owned by the South Korean government, told South Korean regulators the following month that it was working to increase its “accounting transparencies” and tighten internal auditing to prevent future accounting fraud, documents show.
It’s not clear when or how the firm’s contract with Cohen began or whether his work was related to the accounting scandal. The payment came the same month that Trump visited Moon Jae-in, the president of South Korea, who has publicly backed the aviation company’s efforts to win the U.S. contract.
KAI and U.S.-based defense giant Lockheed Martin have for more than two years been pursuing a $16 billion contract with the U.S. Air Force to provide a fleet of more than 300 training jets.
The Pentagon had planned to announce an award of the contract in December 2017 but said that month that it was not ready to do so. An Air Force official said Monday that it now expects to award the contract within the next year.
In its statement, KAI said Essential Consultants provided advice on legal and accounting matters.
“KAI received legal counseling service from Essential Consultants LLC to inform reorganization of our (KAI’s) internal accounting system, which also involved several other accounting & professional service providers,” said Oh Sung-keun, deputy senior manager in the company’s public relations department. “EC provided insights into Cost Accounting Standards (CAS) and other accounting standards in the U.S. KAI’s contract with EC ended in November last year, and there hasn’t been any exchange since then.”
Oh said that KAI was unaware of Essential Consultants’ ties to Trump. “In fact, we are somewhat perplexed by these alleged connections that surfaced recently,” Oh said, without elaborating.
Lockheed Martin said in a statement that it was not aware of KAI’s contract with Cohen.
“We have no knowledge of a business relationship between Korea Aerospace Industries and Mr. Cohen, and are not aware of any connection that it may have to the U.S. Air Force Advanced Pilot Training competition,” company spokeswoman Maureen Schumann said of the jet-training contract.
Bill Lennett, an accountant who specializes in government accounting rules, said Cost Accounting Standards apply to federal contracts that exceed $50 million.
“They are rules that determine how a government contractor accounts for its costs and, in turn, how they can bill the government,” he said. “Most accountants, let alone attorneys, don’t know much about this stuff unless they are used to working with government contractors.”
It is possible that Cohen’s firm hired a consultant who specializes in this arcane area of government contracting law, Lennett said.
In September, South Korean news reports cited industry analysts who said the corruption scandal could endanger the lucrative contract with the U.S. government. “The biggest concern appears to be the company losing its credibility overseas, a crucial factor in business-to-government deals,” a report in the Korea Herald said.
According to the paper, Moon had already asked Trump for his support for the Lockheed-KAI venture. The two first met in June.
The U.S. military can bar companies from federal contracts if they are found to have engaged in financial impropriety. KAI has no suspensions or debarments restricting contract work with the U.S. government, according to a federal database.
In October, a month before the payment to Cohen, Moon urged KAI’s interim chief executive, Jeong Seong-seop, to focus on exporting its training jet fighter, according to published reports.
“Please work hard to make this business an export success,” Moon said at an international aeronautics exhibition.
On the company’s website, the current chief executive, Kim Jo-Won, wrote that the KAI would “build up a management system that is suitable for international standards.”
“As a fundamental philosophy of managing the company, I will put ethics before a short-term profit, and apply a zero-tolerance policy strictly to any ethics-breaching employee, regardless of their status.”
Tom Hamburger contributed to this report from Washington, and Min Joo Kim contributed from Seoul.