The MOFAT Diamond Scandal involves allegations against a senior South Korean government official accused of insider trading and stock-price manipulation in collaboration with CNK International, a mining company that secured the rights to a diamond mine in Cameroon.
The scandal began with a press release issued by the South Korean Ministry of Foreign Affairs and Trade (MOFAT) on 17 December 2010. This announcement, led by Energy and Resources Ambassador Kim Eun-seok, claimed that CNK International had secured the rights to develop a diamond mine in Cameroon, purportedly containing approximately of diamonds. This figure was based on CNK International's research reports, which were later found to be exaggerated and misleading. Following the press release, CNK International's share price surged to approximately 18,500 Korean won. When the company was unable to substantiate the magnitude of the diamond reserve it had previously announced, the share price plummeted to 2,000 Korean won within a matter of weeks.
Ambassador Kim faced accusations of insider trading for allegedly sharing non-public information with family members. However, the timeline between the stock purchases made by his family members and the press release that inflated CNK International's stock price was substantial. As a result, the insider trading charges were ultimately dropped.
This incident prompted criticisms against the Lee Myung-bak government. The investigation also implicated other high-ranking officials and members of CNK International, leading to criminal referrals and further scrutiny. Both Ambassador Kim and CNK Chairman Oh Deok-gyun were acquitted of stock manipulation charges. Ambassador Kim was demoted, and CNK Chairman Oh was convicted of breach of fiduciary duty, being sentenced to 3 years in prison and 5 years probation.
CNK International
Originally registered as a food distribution company specializing in pork, Koko Enterprises transitioned to a metalworking business in December 2008, laying the groundwork for its entry into the diamond mining industry. In March 2009, Oh Deok-gyun assumed the role of chairman of the KOSDAQ-listed company and acquired another business engaged in the cutting, production, and wholesale and retail sale of diamonds. In April 2011, Koko Enterprises rebranded itself as CNK International, adopting the name of C&K Mining (Cameroon & Korea Mining Inc.), a company previously led by Oh Deok-gyun. By this time, the Ministry of Foreign Affairs and Trade had already issued a press release announcing CNK International's mining rights in Cameroon, triggering a significant surge in the company's stock price.
Research reports of CNK International In early 2007, Professor Kim Won-sa from the Department of Geological Sciences at Chungnam National University, leading the South Korea-Cameroon joint geological survey team, announced the discovery of a diamond deposit estimated to contain about . In March 2008, the team reported another found near the Mobilong diamond mine, estimated at .
Professor Kim died in October 2008. Before his death, he warned of challenges in accurately assessing the deposit due to thick soil layers and dense rainforest in eastern Cameroon. C&K Mining, which commissioned the exploration, aimed to reach the conglomerate layer, requiring excavation to a depth of .
In February 2009, C&K Mining submitted an exploration report to the Cameroonian government for a mining permit. A year later, in February 2010, it submitted an additional report at the government's request, estimating the diamond deposit size at .
Nevertheless, CNK International relied on 1980s United Nations Development Programme data, which estimated diamond concentrations ranging from zero to . Using an assumed value of and applying it to Mobilong's estimated of conglomerate, CNK arrived at an inflated estimate of about 2.5 times the world's total diamond production in 2007.
Lee Myung-bak's resource diplomacy The diamond scandal unfolded during the Lee Myung-bak administration's push for "resource diplomacy," a foreign policy initiative aimed at securing resource autonomy through international collaboration. In April 2008, two months after his inauguration, President Lee visited the United States, Japan, China, and Russia. During his meeting with US President George W. Bush, he proposed commercializing gas hydrates found off South Korea's coast and sought US support. Resource diplomacy also dominated Lee's September 2008 visit to Russia, where he met President Dmitry Medvedev and Prime Minister Vladimir Putin. The talks resulted in South Korea joining a project to transport Siberian natural gas via a pipeline through North Korea to Seoul.
In May 2008, Prime Minister Han Seung-soo visited three Central Asian nationsUzbekistan, Kazakhstan, and Turkmenistanas well as Azerbaijan to promote South Korea's resource diplomacy initiatives. Before his departure, Han stated that he would support South Korean businesses engaged in energy diplomacy with these countries and work to ensure stable and consistent energy partnerships. During his visit, Han discussed joint energy and resource development projects and finalized a long-term contract with Uzbekistan to secure of Uzbek uranium through 2016.
In 2008, a South Korean consortium signed agreements with the semiautonomous Kurdish government in February and September to develop oil fields in northern Iraq. However, the project's future remained uncertain due to anticipated opposition from the central government in Baghdad. In January 2009, the Iraqi central government halted oil exports to South Korea in retaliation. The Korea National Oil Corporation, which led the consortium, withdrew from the Kurdistan exploration block in 2016 and subsequently terminated its oil-field projects in the region.
Energy and Resources Ambassador Kim Eun-seok
Energy and Resources Ambassador Kim Eun-seok oversaw the press release on 17 December 2010, in which the ministry not only confirmed the exaggerated diamond deposit estimate but also promoted it as a success of the Lee Myung-bak government's "resource diplomacy." This led to CNK International's stock price quintupling shortly after.
The stock surge prompted an investigation by South Korea's financial regulators, resulting in criminal referrals. Ambassador Kim was investigated for insider trading and stock manipulation after sharing nonpublic information with family members. However, the insider trading charge was dropped as the stocks were purchased long before the press release, making a clear connection difficult to establish. He was later indicted for colluding with CNK International to manipulate stock prices but was ultimately acquitted by the Supreme Court.
During the trial, prosecutors revealed that Kim had pressured junior diplomats to support CNK International Chairman Oh Deok-gyun. Emails showed that he had asked then-Ambassador to Cameroon Lee Ho-seong to review a past United Nations Development Programme exploration, which had found no significant results. After Lee's lukewarm response, Kim turned to more aggressive tactics, threatening a lower-level foreign ministry official who suggested Lee inquire directly with CNK International. Kim warned he would report the official to the Blue House for "obstructing major diplomatic efforts". He was also suspected of introducing Chairman Oh to high-ranking government officials, including former Vice Minister of Knowledge Economy Park Young-joon, and lobbying Cameroonian officials on CNK International's behalf, fueling suspicions of collusion.
Kim was suspended almost immediately after the scandal gained media attention and was later demoted. Then-Foreign Minister Kim Sung-hwan reportedly approved the suspension before the Board of Audit and Inspection could determine whether Kim had actively colluded with CNK International or deliberately overstated the Mobilong mine's diamond reserves. Kim challenged both the suspension and demotion in court. Although acquitted of stock manipulation, the Supreme Court upheld his demotion, ruling that he had failed in his duty to verify CNK International's unfounded claims, violating public trust. However, the court reinstated him, ending his nearly six-year suspension.
Development On 17 December 2010, Energy and Resources Ambassador Kim Eun-seok's press release highlighted CNK International's acquisition of diamond mining rights in Cameroon, portraying it as a significant achievement in the Lee Myung-bak administration's resource diplomacy efforts. Issued by the Lee Myung-bak government, the press release officially confirmed that a Korean mining company had secured a significant diamond mining operation. It led to a surge in CNK International's stock price, reaching a peak of on 19 August 2011. The dramatic increase in CNK's stock price prompted the National Assembly to request an investigation by the Board of Audit and Inspection into potential stock manipulation and insider trading by government officials, including Ambassador Kim Eun-seok. In October 2011, the Board of Audit and Inspection and the Financial Supervisory Service initiated a joint investigation into the matter.
The investigation into CNK International triggered investor anxiety, causing its stock price to decline to by December 2011. On 17 January 2012, the Ministry of Foreign Affairs and Trade suspended Ambassador Kim pending the outcome of the investigation. Subsequently, on 19 January 2012, the Knowledge Economy Committee of the National Assembly referred CNK Chairman Oh Deok-gyun and Ambassador Kim Eun-seok to the Seoul Southern District Prosecutors' Office for criminal investigation, criticizing the slow pace of the ongoing investigation. This development further accelerated the selloff of CNK International shares, closing at on 19 January 2012. On 26 January 2012, the inspection board released its findings, revealing that Kim Eun-seok had shared information about CNK International's diamond project with his siblings in 2009. His siblings subsequently purchased CNK International shares between March and April 2009, and by January 2010, they had acquired a total of 80,000 shares. As of 31 August 2011, Kim's siblings had realized in capital gains while retaining 78,000 shares. The inspection board recommended Kim's dismissal, leading to a further decline in CNK International's stock price, closing at on 26 December 2012.
On 19 January 2012, the opposition Democratic United Party and the anti-Lee Myung-bak faction of the ruling Grand National Party under Park Geun-hye threatened to launch an additional National Assembly investigation into whether higher-ranking officials were involved, including President Lee's older brother. President Lee's older brother had been involved in President Lee's resource-diplomacy efforts. However, such an investigation did not materialize.
Following a recommendation for dismissal by the inspection board, Kim was referred to the Central Disciplinary Committee of the Ministry of Foreign Affairs and Trade on 27 January 2012. The committee subsequently demoted Kim from Grade 1 to Grade 3 public servant as a disciplinary measure.
On 26 January 2013, the Seoul Central District Prosecutors' Office raided the headquarters of CNK International and the residences of Chairman Oh Deok-gyun and Cho Joong-pyo, a former Vice Foreign Minister and adviser to CNK International. Cho Joong-pyo was accused of transmitting falsified CNK International reports to the Ministry of Foreign Affairs and engaging in insider trading using family members' names to generate approximately in profits.