updated 4/14/2006 8:26:47 AM ET 2006-04-14T12:26:47

Prosecutors said Friday they detained two top executives of Hyundai Motor Co. and a former executive of a state-run bank in an escalating scandal over allegations the company created a slush fund to buy influence with government officials.

Chief Financial Officer Lee Jung-dae and Kim Seung-nyun, a vice president in charge of procurement, were the first Hyundai Motor executives to be detained in the investigation. Also detained on Friday was Park Sang-bae, former deputy governor of the state-run Korea Development Bank, prosecutors said.

The investigation centers on suspicions that the country’s largest automaker embezzled money from affiliates to create a slush fund and used it via at least two lobbyists to seek business favors from the government.

One lobbyist, Kim Jae-rok, was arrested last month on charges of receiving billions of won (millions of dollars) from Hyundai with a request that he use his influence to help the company win construction approvals and permits.

It wasn’t clear if Kim used the Hyundai money to bribe government officials. In any case, it’s illegal in South Korea to accept money in return for exercising influence, prosecutors said.

Another lobbyist, Kim Dong-hun, a certified public accountant, was arrested on Thursday also on suspicions of taking money from Hyundai in exchange for lobbying for the company, prosecutors said.

Prosecutors didn’t provide details, but local media, including Yonhap news, reported that the second lobbyist allegedly arranged a series of shady deals that resulted in a reduction of debts at two Hyundai affiliates and that Park, the detained former banker, is suspected of playing a role in those deals in exchange for money from the lobbyist.

Hyundai Motor declined to make any comment.

Over the past month, prosecutors have raided offices of Hyundai and its three affiliates — Kia Motors Corp., logistics unit Glovis Co. and auto-parts maker Hyundai Autonet — and questioned key officials.

Hyundai Motor Chairman Chung Mong-koo has not been questioned. But it won’t be long before prosecutors call him in for questioning, the newspaper Chosun Ilbo said.

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