ABB Uncovers $100 Million Korean Fraud as Suspect Vanishes
by Alice Baghdjian
February 21, 2017, 10:08 PM HST February 22, 2017, 12:52 AM HST
Swiss company says local unit treasurer may be responsible
Activist investor Cevian is nominated for seat on board
ABB Ltd. uncovered embezzlement at its South Korean subsidiary after the local treasurer suspected of stealing from the company went missing, leaving a $100 million shortfall in last year’s results.
The suspect, who disappeared Feb. 7, is suspected of forging documents and colluding with third parties in a “sophisticated criminal scheme,” Zurich-based ABB said in a statement on Wednesday. After checking balances of its global bank accounts, the company said the impact is limited to the Asian nation.
The fraud is the second such disclosure this month after the Swiss maker of power grids and robots said Feb. 8 it’s being investigated by the U.K. Serious Fraud Office after the discovery of improper payments related to another criminal probe. The cases add to the pressure on Chief Executive Officer Ulrich Spiesshofer after activist investor Cevian Capital AB pushed for a breakup of the company. Cevian co-founder Lars Forberg has been nominated for a seat on the board, ABB said in a separate statement Wednesday.
While the South Korean case “is unfortunate, we do not expect any major lasting impact,” Vontobel analyst Panagiotis Spiliopoulos wrote in a note to clients. The shares fell 0.3 percent to 23.08 francs at 11:45 a.m. in Zurich.
ABB (ASEA Brown Boveri) is a Swedish-Swiss multinational corporation headquartered in Zürich, Switzerland, operating mainly in robotics and the power and automation technology areas. It ranked as the 286th largest company by revenue for 2016 in the Fortune Global 500 list .
ABB is one of the largest engineering companies as well as one of the largest conglomerates in the world. ABB has operations in around 100 countries, with approximately 132,000 employees in December 2016.
ABB is traded on the SIX Swiss Exchange in Zürich, Nasdaq Stockholm and the New York Stock Exchange in the United States.[4
ABB resulted from the 1988 merger of the Swedish corporation Allmänna Svenska Elektriska Aktiebolaget (ASEA) and the Swiss company Brown, Boveri & Cie (BBC); the latter had absorbed the Maschinenfabrik Oerlikon in 1967. CEO at the time of the merger was the former CEO of ASEA, Percy Barnevik, who ran the company until 1996.
ASEA was founded 1883 by Ludvig Fredholm in Västerås as manufacturer of electrical light and generators. By a merging with Wenström's & Granström's Electrical Power Company (Wenströms & Granströms Elektriska Kraftbolag) the name was changed to Allmänna Svenska Elektriska Aktiebolaget, literally the "General Swedish Electrical Limited Company", or a ASEA for short.
- 1889 - the partner Jonas Wenström creates 3-phased generators, motors and transformers.
- 1933 - The company removes the swastika from the logotype, due to the symbol's association with Nazi Germany.
In 1990, ABB purchased Westinghouse's metering and control division (the load control division was spun off to Cannon Technologies in the late 1990s and the meter division was spun off to Elster Electricity in the early 2000s). Also, in the early 1990s, ABB purchased Combustion Engineering (C-E), headquartered in Stamford and Norwalk, Connecticut, a leading U.S. firm in the development of conventional fossil fuel power and nuclear power supply systems to break into the North American market. Klaus Agthe was CEO of the US operation at the time. Continuing with its expansion plans, ABB purchased Elsag Bailey, a process automation group, in 1997 which included Bailey Controls, Hartmann & Braun, and Fischer & Porter. This was the largest acquisition to date in ABB's history.
ABB bought International Combustion Ltd from Rolls-Royce in 1997.
ABB's boiler and fossil fuel businesses were purchased by Alstom in 2000, and its nuclear business was purchased by Westinghouse Electric Company in 2000. In 2000, ABB also signed a contract for the delivery of equipment and services for two North Korean nuclear powerplants to be supplied under an agreement with the Korean Peninsula Energy Development Organization (KEDO), a consortium formed in 1995 by the governments of the United States, Japan, South Korea and the European Union. ABB formally divested from a joint venture named ABB-Alstom Power in 2000, and sold its interest in conventional power generation systems to Alstom Power. ABB's nuclear business was sold to BNFL and merged into Westinghouse Electric Company.
The Korean Peninsula Energy Development Organization (KEDO) is an organization founded on March 15, 1995, by the United States, South Korea, and Japan to implement the 1994 U.S.-North Korea Agreed Framework that froze North Korea's indigenous nuclear power plant development centered at the Yongbyon Nuclear Scientific Research Center, that was suspected of being a step in a nuclear weapons program. KEDO's principal activity is to construct two light water reactor nuclear power plants in North Korea to replace North Korea's Magnox type reactors. The original target year for completion was 2003.
Since then, other members have joined:
- 1995: Australia, Canada, New Zealand
- 1996: Argentina, Chile, Indonesia
- 1997: European Union, Poland
- 1999: Czech Republic
- 2000: Uzbekistan
The KEDO Secretariat is located in New York.