ABB uncovers “sophisticated criminal scheme” at South Korean subsidiary

The Swiss engineering group ABB (NYSE:ABB) announced on Wednesday the discovery of a “sophisticated criminal scheme” in its South Korean subsidiary, which employs around 800 people.

The engineering group revealed the news that a senior employee in South Korean, who is suspected of stealing from the company, had gone missing earlier this month. The result of this being a $100 million (£80 million) pre-tax charge.

Ulrich Spiesshofer, the chief executive, described the alleged fraud as “shocking news”.

“The entire ABB group – all 132,000 of us – will have to live with the consequences,” Spiesshofer told staff in a letter.

The missing employee “is suspected of forging documentation and colluding with third parties to steal from our company through this sophisticated criminal scheme” wrote Mr Spiesshofer.

“Based on the large sums involved and the sophisticated fraud, it is almost certain that the employee in question was not acting alone; in all likelihood, third parties inside or outside our company were involved,” he added.

The company has said it has launched an investigation and is working with police. The fraud is believed to be kept to South Korea but it is likely other ABB operations will also be investigated.

“On February 9 we became aware of suspected financial irregularities in South Korea and we immediately launched an investigation,” ABB spokesman Saswato Das said.

“Given the size of the scheme, the investigation may expand to third parties inside and outside of ABB in South Korea.”

Zuercher Kantonlbank estimated that the total loss was roughly equivalent to four percent of ABB’s 2016 net profit and raised questions about corporate governance at the engineering group.

This is not the only bad news for ABB this month. The UK Serious Fraud Office recently said it had launched a criminal investigation into the Swiss group over alleged bribery.

“ABB has a zero-tolerance approach to unethical behaviour and maintains the highest standards regarding integrity and ethical business practices,” the engineering group said in a statement.