Construction Firms Operating as Shell Companies Caught in Gyeonggi Province's Pre-Enforcement Crackdown

[Suwon Ilbo=Park No-hoon] Construction company A and associates who submitted bids for Gyeonggi Province-commissioned projects, operating as a shell company, have been caught in the province's 'pre-enforcement crackdown' and faced disciplinary action.

According to the province on the 12th, Company A participated in a bid for a Gyeonggi Province-commissioned project valued at approximately 240 million won and ranked first at the opening ceremony. However, the pre-enforcement investigation revealed that the company's office, technical personnel, and capital—all mandatory registration requirements for construction businesses—were all fraudulent.

The investigation confirmed that the company divided the office of Company B, which it actually operates, into two locations for photographs, and submitted a false financial management status diagnostic report on August of last year listing non-existent accounts receivable of 220 million won as substantive capital to register as a paving contractor.

Furthermore, the company accepted subcontracted work from Company C general construction firm without actually executing it, disguised the received tax invoices as substantive capital, obtained a balance certificate from unregistered financial investor D, and additionally registered as a facility maintenance management business in February this year, according to the investigation.

Additionally, three construction engineers from Company A were found to be concurrent operators with individual businesses, raising suspicions of national technical certification or construction technology experience certificate lending.

Company A resisted fiercely through all available means. Not only did it refuse to disclose its registered headquarters office, but it also protested to the responsible civil servant about 'coercive investigation,' filed tips to the media, and even submitted a complaint to the Ministry of Interior and Safety.

The province clearly confirmed that Company A violated related laws including the 'Construction Industry Basic Law' as it failed to meet registration requirements and the relevant documents were forged. Following established procedures and collecting evidentiary materials, the province notified the relevant municipality, resulting in deregistration effective July 16. The province also decided to recover the bid deposit of 11.57 million won.

Furthermore, the province took strict measures against those who assisted Company A in its illegal activities. It requested the Korean Institute of Certified Public Accountants refer the certified public accountants who prepared the false financial management status diagnostic report for ethics committee review and prosecution under Article 15 of the 'Certified Public Accountants Act,' and prosecuted unregistered financial investor D under Article 11 of the 'Capital Markets Act.' Company C was issued an administrative fine for failure to notify direct construction plans.

Governor Lee Jae-myung of Gyeonggi Province stated, "In Gyeonggi Province, shell companies will face strict punishments including administrative action, legal action, and recovery of bid deposits," and added, "Going forward, without wavering under any pressure, we will absolutely root out shell companies that are the source of defective construction, budget waste, work overload, and construction corruption."

Since October of last year through the end of July this year, the province's pre-enforcement crackdowns identified 75 companies out of 370 subject to qualification review—approximately 20 percent—as failing to meet construction business registration requirements, implementing administrative measures such as bid exclusion and business suspension.

In March this year, the province identified shell company E that attempted to participate in bids for local-level construction projects, confirmed illegal matters including lack of technical personnel and national certification lending, notified relevant municipalities to implement business suspension, and requested police investigation.

Since January 10 this year, the province has recovered bid deposits that were replaced by commitment letters for companies receiving administrative action through pre-enforcement crackdowns, and raised the bid deposit from 5% to 10% of the bid amount starting in August. Through recovery of bid deposits as well as administrative action, legal measures, and bid exclusion against shell companies, the province plans to ensure that only companies maintaining construction business registration requirements can submit bids for Gyeonggi Province-commissioned projects.