Police raided the headquarters of Korean Air Lines Co Ltd on Friday as part of an investigation into allegations that company funds were used to pay for construction work at the home of Chairman Cho Yang-ho.
The firm is suspected of masking interior decoration costs at Cho's private home as expenses associated with the construction of a new hotel between May 2013 and August 2014, police said in a statement.
No suspects had been named, a police official told Reuters. A Korean Air spokesman said the airline was cooperating with police. Cho could not be reached for comment.
The firm's shares extended losses on the news to be down 2.2 per cent, while Hanjinkal, the airline's largest shareholder, also fell 2.2 per cent as of Friday's close.
Cho's daughter, Heather, gained international notoriety in 2014 when, as an executive of the airline, she forced a steward off one of its planes in New York because she was unhappy about the way she had been served macadamia nuts.
She served nearly five months in jail in Korea for violating plane safety.
The raids on Korean Air Lines are the first to target a major family-run conglomerate, or chaebol, since President Moon Jae-in came to power in May on the back of promises to reform the opaque business empires which dominate South Korea's economy.
Moon was elected after a bribery scandal which led to the ouster of his predecessor, Park Geun-hye, and the arrest of Samsung Group chief Jay Y. Lee.