The decision highlights the emerging risk of an end to light sanctions for lawbreakers from South Korea's family-owned conglomerates, also known as "chaebol". The firms have been credited with the rapid growth of Asia's fourth-biggest economy, but at the same time dogged by allegations of poor corporate governance and undue political influence.

The Seoul Western District Court ruled that Hanwha chairman Kim Seung-youn, regarded by management as "God" and "the object of unconditional loyalty", used Hanwha group affiliates to "unfairly support" companies which he owned, as did members of his family who used false names on title documents.

The sentencing of Kim, who was also ordered to pay a 5.1 billion Korean won ($4.51 million) fine for breach of trust and other charges, sent shares in Hanwha Corp (000880.KS) skidding down by 5 percent.

"As a controlling shareholder of Hanwha Group, the defendant is passing on his responsibility to working-level officials and he has not shown remorse. Considering this, he needs to be strictly punished," Judge Seo Kyung-hwan said in a packed courtroom.

Kim, 60, who appeared before the judge wearing a navy suit, was taken from the courtroom for prison soon after the ruling, court officials said.

Hanwha spokesman Kang Kee-soo told reporters that the firm would immediately appeal against the verdict.

In 2007, Kim was briefly imprisoned when he was sentenced to 18 months for beating karaoke bar workers he believed had assaulted his son. Soon after he was jailed, an appeal court ruled the punishment was too harsh and suspended his term for three years.

GO DIRECTLY TO JAIL

For the chaebol, the immediate risk is that Thursday's ruling signals stricter punishments are to be expected in upcoming court cases, including one involving Chey Tae-won, chief of South Korea's No.3 conglomerate SK Group, who has been charged with embezzlement.

In January this year, prosecutors said Chey and his brother used more than 200 billion won of corporate funds for personal investments.

Heads of major chaebol including Samsung, Hyundai, SK and Hanwha have previously been convicted of crimes, but until Thursday's case the offenders have been given suspended sentences, and subsequently received presidential pardons.

The ruling comes at a sensitive time, ahead of December's presidential elections and amid calls from the main opposition party and many voters for the government to rein in South Korea's chaebol, huge businesses whose size and economic power gives them political sway.

Last month, 23 lawmakers from the ruling conservative Saenuri Party proposed blocking courts from giving suspended jail terms to some of those convicted of embezzlement, citing public criticism about leniency towards convicted tycoons.

Hanwha is the tenth biggest of South Korea's business groups by assets, and has interests including explosives, construction, chemicals and solar energy.

($1 = 1129.6500 Korean won)

(Editing by David Chance and Daniel Magnowski)

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