Investigators Monday morning seized financial documents at Samsung Electro-Mechanics Co and its subcontractor Dongyang Electric Industrial Co.

Prosecutors allege that the firm created a slush fund for illegal political donations by inflating its transactions with Dongyang Electric Industrial, according to Yonhap news agency.

South Korea's top conglomerates, known as chaebols, have been under investigation for allegedly channelling funds to politicians during last year's presidential election campaign.

South Korea's business lobby, the Federation of Korean Industries, has said the probe should be scaled down because it is hurting the country's economy.

Last week, prosecutors raided LG Home Shopping, affiliated with the second largest chaebol, the LG Group, after imposing an overseas travel ban on the group's chairman Koo Bon-Moo. 

"The probe should be scaled down because it is hurting the country's economy"

Federation of Korean Industries

Kumho Group Chairman Park Sam-Koo has been already questioned over whether he had created a secret fund and channelled cash to political parties last year.  Kumho runs Asiana Airlines, one of the country's two carriers.

The slush fund probe was triggered in October following allegations that South Korea's third largest conglomerate, the SK Group, had made illicit contributions during the elections.

Three weeks ago prosecutors said they would widen the investigation to include other major business groups after more revelations illustrated the deep-rooted connections between politics and business in South Korea. 

Last week, media reports said prosecutors had verified
'irregular' political donations offered by Hyundai Motor, the country's biggest automaker.

Credit card crisis

Meanwhile, a credit card crisis has raised fears of another hit to South Korea's economy. The card industry is struggling to cope with the aftermath of a credit boom that has left consumers unable to repay loans and card issuers with piles of bad debt.

South Korea's largest credit card issuer, LG Card Co, said on Monday that customers could withdraw cash again later in the day after creditors agreed to extend emergency loans and averted a liquidity crunch that threatened the country's financial system.

"Despite the emergency financial aid, LG Card is at a very critical point"

Park Seok-hyun,
Kyobo Securities analyst

Debt-laden LG Card suspended cash advances over the weekend, raising the spectre of a spiralling series of defaults as many South Koreans heavily rely on credit cards for daily purchases.

LG Card has 14 million customers, almost a third of South Korea's population. They owe $22.7 billion and payments on
about 10 percent of these debts are overdue. 

"Despite the emergency financial aid, the company is at a very critical point," said Park Seok-hyun, an analyst at Kyobo Securities.

Fallout from the credit card crisis spread into the foreign exchange and stock markets. The won fell 7.8 won to 1,203.0 per US dollar and the wider stock market fell 1.96%. 

Total credit card debt in South Korea at the end of August was 78.43 trillion won ($66 billion) or about 14% of annual GDP. Payments are overdue on about 11% of the debt.