Korea Aerospace Industries (KAI) won its lawsuit to cancel the roughly 7.9 billion won penalty surcharge imposed by the Financial Services Commission in connection with allegations of accounting fraud in 2021. The "KAI accounting fraud" controversy that began with a 2017 prosecution investigation has now effectively received a legal determination in the administrative suit, following a not-guilty verdict in the criminal trial, that it was not accounting misconduct.
The Administrative Division 9 of the Seoul Administrative Court on the 19th ruled in favor of the plaintiffs in a lawsuit filed by KAI and former KAI CEO Ha Sung-yong seeking to cancel the 7,889,000,000 won penalty surcharge imposed by the Financial Services Commission. As a result, the 7,889,000,000 won penalty surcharge imposed on KAI and the 24,000,000 won penalty surcharge imposed on the former CEO Ha were both canceled.
The court said it is difficult to view that the company's financial condition was materially distorted and that, in light of principles-based accounting standards, it appears to fall within an acceptable range, and it did not accept the Financial Services Commission (FSC)'s disposition.
The case began when, on the 2017th, the Seoul Central District Prosecutors' Office announced during its probe into defense industry corruption that it had identified accounting fraud at KAI on the scale of about 500 billion won. At the time, Yoon Suk-yeol, the former president, was the Seoul Central District Prosecutors' Office chief on the investigation command line. Prosecutors alleged that the former CEO Ha inflated results by overstating intangible assets such as development costs, and they indicted and detained Ha on charges including accounting fraud, embezzlement, and hiring irregularities.
Financial authorities then conducted a detailed audit of KAI. The Financial Services Commission determined that KAI recorded advances paid to partner companies as an expense first regardless of whether the work actually proceeded, thereby calculating a higher construction progress rate, which in turn inflated revenue and cost of sales above actual levels. It also found that development costs were excessively booked as an intangible asset, while provisions that should have been set aside for defect repairs were understated as a liability. On this basis, in Mar. 2021, it imposed a 7,889,000,000 won penalty surcharge on KAI and a 24,000,000 won penalty surcharge on the former CEO Ha.
The criminal trial, however, reached a different conclusion. In the first trial, the former CEO Ha was acquitted of the accounting fraud charge, and in 2024 on appeal and in 2025 at the Supreme Court, the accounting fraud charge was also found not guilty. However, the embezzlement and hiring irregularities charges were found guilty, and a sentence of two years in prison, suspended for three years, was finalized.
KAI and the former CEO Ha filed an administrative suit against the Financial Services Commission in 2021, when the first not-guilty verdict on the accounting fraud charge was issued, seeking cancellation of the penalty surcharge, and the first decision came five years later on this day.
The former CEO Ha personally attended the hearing that day. After the hearing, he met with a reporter and only said, "There will be a time to share my position step by step."