Hyundai Motor chairman Chung Mong-koo on Monday (5 February) was convicted of embezzlement and other charges arising from a slush fund scandal and sentenced to three years in prison.

According to The Associated Press (AP), prosecutors, who have been taking a hard line on corruption in South Korea, last month sought a six-year jail term, calling Chung’s alleged crimes “grave.”

However, judge Kim Dong-oh reportedly said the shorter sentence was justified because of Chung’s “big contributions to the development of the country’s economy” and noted his involvement in charity to atone for his actions.

Still, Kim said Chung’s actions were “clearly criminal acts” that “greatly undermined the transparency and soundness of business management and had many adverse effects on our business culture”, AP noted.

Chung plans to appeal the verdict, the report added.

“We are greatly disappointed by the court’s ruling and it is Chairman Chung’s intention to file an appeal,” Hyundai Motor said in a statement cited by the news agency.

Chung “retains full operational control and decision-making authority,” the statement reportedly said, adding that Hyundai Motor domestic and overseas operations “will continue to function as normal.”

AP said Chung (68) will remain free for the moment and also doesn’t face immediate detention. He missed more than two months of work after being jailed following his April arrest and entering a hospital for a health exam. He was granted bail in June and returned to work in July, the report added.

Hyundai Motor appeared to flounder in his absence, AP noted. Key decisions about overseas plant construction involving both the automaker and its affiliate Kia Motors delayed and labor problems involving Hyundai’s strike-prone labour union were also left to fester, the report added.

AP noted that Chung had apologised for his actions and his lawyers had argued he be given a suspended sentence – meaning he would not actually serve prison time unless involved in other crimes.

Three other Hyundai officials facing similar charges were also convicted but all were given suspended sentences, the report said.

AP also said it was questionable whether Chung would actually serve the three-year prison term as appeal courts in South Korea have often granted more lenient sentences than the lower court rulings in cases involving business tycoons.

Chung appeared tight-lipped and grim as the verdict was read and walked silently from the courtroom after the hearing ended. Hyundai officials who packed into the room for the hearing also were silent, AP said.

Prosecutors reportedly said Chung illegally raised 103.4bn won ($US110.4m) slush fund from affiliates from which authorities said he spent 69.6bn won ($74.3m) for private and other purposes, including payments to lobbyists for government favors.

He was also convicted for inflicting financial damage on affiliates through questionable deals and arrangements that allegedly protected or boosted the financial interests of him and his son, Eui-sun, who heads Kia Motors, the country’s second-largest carmaker. The younger Chung did not face trial, the Associated Press said.

Analysts reportedly acknowledged the company’s image could suffer from the guilty verdict. But with the appeals process expected to take up to a year and Chung still in charge, overall damage to the company was seen as limited. “He’ll still be able to run the company,” Anthony Moon, an auto analyst at Nomura International in Seoul told AP, adding: “I don’t think there will be any immediate impact.”

According to an earlier AFP news report, the case was seen as a test of efforts to improve the corporate governance of the chaebol, the industry conglomerates that dominate the South Korean economy. The Hyundai Group is South Korea’s second largest chaebol.