Prosecutors on Monday requested an arrest warrant for Shin Young-ja, the sister of Lotte Group chairman Shin Dong-bin on charges of bribery and embezzlement.
Shin Young-ja is accused of embezzling money from a luxury consulting company owned by her son and naming her daughters as executives at the company to receive salaries.
She is also suspected of taking kickbacks totaling approximately 3 billion won (S$3.5 million) from cosmetics company Nature Republic in exchange for granting favors regarding the brand's stores in Lotte's duty-free outlets.
Shin is the eldest daughter of Lotte founder Shin Kyuk-ho.
She was brought in for 16 hours of questioning by prosecutors on Friday.
She is the first Shin family member that prosecutors have sought an arrest warrant for.
Prosecutors said they were seeking to put her under custody on possible destruction of evidence.
The Seoul Central District Court will decide the validity of the warrant on Wednesday morning.
The prosecution's request to arrest Shin Young-ja is expected to add pressure on the Lotte chairman as he faces possible summons by the investigators on allegations of creating slush funds and embezzlement.
He returned to Seoul on Sunday after a month-long business trip that included a shareholders meeting at the Tokyo-based Lotte Holdings, the de facto holding company of Lotte's operations in Korea and Japan.
At the shareholders meeting, the chairman's elder brother Shin Dong-joo attempted to oust him from the top spot, but failed to win votes.
During his overseas trip, prosecutors zeroed in on the Lotte family by grilling executives of the group's affiliates.
According to local reports, the prosecution said they obtained testimonies that it was the chairman who instructed affiliates to provide more capital to the financially ailing Lotte PS Net, which makes automated teller machines.
Investigators also said they would call in the chairman for questioning if they secure enough evidence on the allegations.
Before summoning Shin Dong-bin, they are expected to question the chairman's close aides including Lotte Group vice chairman Lee In-won, head of external relations So Jin-se and policy coordination head Hwang Gak-gyu.
Amid the widening probe, the chairman has remained mute.
The crisis has already led Lotte Group to withdraw its initial public offering of Hotel Lotte, the holding company of Lotte's Korean operations, which had been scheduled for later this month.
The group has already put major overseas deals on hold, including the planned acquisition of US-based chemical firm Axiall by Lotte Chemical.