Prosecutor Says Samsung Scandal a Sign of ‘Chronic Corruption’

  • Jay Y. Lee allegedly conspired to create fake documents
  • Prosecutor alleges bribes paid to win government influence

Samsung Investors Shrug Off Scandal as Shares Rise

South Korea’s special prosecutor accused Jay Y. Lee and other Samsung Group executives of conspiring to create fake documents to mask millions of dollars in bribes funneled to a confidante of the nation’s president.

Lee, the de facto head of Samsung, is alleged to have committed perjury when he said he didn’t know his company had paid money to entities controlled by Choi Soon-sil, and that he wasn’t asked by President Park Geun-hye to provide financial support. The accusations were released Monday by Park Young-soo, the prosecutor spearheading an investigation that’s reached the highest levels of business and government.

The prosecutor has indicted 30 people in an investigation into corruption surrounding the president, in a probe that’s led to her impeachment and the detention of Lee, the country’s most prominent business leader. It’s spurred millions to take to the streets in protest over cozy ties between the government and the family-run chaebol that control much of the country’s corporate landscape. The president, Lee and Samsung have denied wrongdoing, a position the company reiterated Monday.

QuickTake South Korea's Chaebol

“The target of the investigation has been the collusion between government and economy, and how state power was abused for a private person’s profits,” special prosecutor Park Young-soo told reporters, calling business-political collusion South Korea’s “chronic corruption.”

Putting the heir to a $238 billion empire behind bars would be the biggest accomplishment yet for the prosecutor, whose career includes arresting two other chaebol bosses. In its report Monday, the special prosecutor’s team accused Lee and four other executives of conspiring to pay Choi a bribe of 7.8 billion won ($6.7 million) for purchasing and taking care of a horse for her daughter’s training in Germany, between Sept. 2015 and Feb. 2016.

“We disagree with the Special Prosecutor’s findings,” Samsung said in an emailed statement. “Samsung has not paid bribes nor made improper requests seeking favors. Future court proceedings will reveal the truth.”

They allegedly worked together to make it seem the money was used to support the overseas training of a Samsung-run equestrian squad that didn’t exist, the prosecutor said. And the executives created a fake contract to pretend that money promised to Choi would be paid to a paper company that Samsung Electronics Co. and Choi together created to receive the bribe, the prosecuting team said. The smartphone maker was a victim of the embezzlement, the prosecutor said.

Read more: Park Young-soo’s storied career

Employees responsible for accounting at Samsung affiliates worked with Lee and two other indicted executives and took part in embezzling 22 billion won from the companies and paying it to Choi’s entities, the prosecutor said.

“What the special prosecutor is saying is, the reality in Korea is that the authority creates the scenario and then the chaebol, which at first is a victim, later ends up a conspirator,” said Chung Sun-sup, who runs corporate researcher Chaebul.com. “If we can’t change the political authority, I think there’s a need to change the entire system, and by that I think the results of the investigation were a step forward.”

Jay Y. Lee has been in detention since his arrest last month, with his predicament casting uncertainty over his succession. The conglomerate’s transition to a younger leader after patriarch Lee Kun-hee’s hospitalization in 2014 was already marred by last year’s botched debut of the Note 7, a smartphone pulled from shelves because of a tendency to burst into flame. It also hampers the group’s ability to make major decisions, from acquisitions to management changes. The next test for Samsung Electronics without Lee will be the debut of the S8, its flagship smartphone model, due later this month.

Shares of Samsung rose 1.2 percent in Seoul to a record close of 2,004,000 won.

The younger Lee has been indicted on five charges, including bribery, embezzlement, hiding assets overseas, perjury and hiding criminal profits. He is accused of directing money to entities controlled by Choi in return for the government-backed National Pension Service supporting the 2015 merger of Cheil Industries Inc. and Samsung C&T Corp that cemented his control of the group.

Korean Conglomerates Take Hit in Wake of Samsung Scandal

The controversial deal was narrowly approved over the opposition of activist investor Paul Elliott Singer.

What’s Behind the Samsung Bribery Allegations: a Q&A

Although a typical trial and verdict could take up to 18 months, the special-prosecutor law recommends resolving the case much sooner.

The investigation has already spurred changes within Samsung, the electronics to shipping conglomerate that rakes in annual revenue equivalent to about a fifth of the country’s gross domestic product. 

Samsung Group said it would disband its Corporate Strategy Office, a high-level decision-making unit for the conglomerate that’s been linked to the corruption investigation. Vice Chairman Choi Gee-sung, who was indicted alongside Lee, and other executives at the strategy office are stepping down, with affiliates to be managed by their respective boards and CEOs instead.

The constitutional court is expected to rule on the validity of Park Geun-hye’s impeachment as soon as this month. If the court upholds parliament’s Dec. 9 decision, she will lose her presidential immunity to indictment and a special election to replace her will take place within 60 days. Choi has denied wrongdoing, while a lawyer for president Park on Monday reiterated her denial of the allegations.

The prosecutor accused Park of colluding with Choi Soon-sil to get bribes from Samsung and Lee in return for business favors. Park is also accused of pressuring a bank to promote an employee and of colluding with former aides and the culture minister to block artists critical of the administration from getting state support. The president’s lawyer, Yoo Yeoung-ha, said Park had indeed met with Samsung’s Lee on multiple occasions but never asked him to sponsor Choi’s daughter nor pressured the pension fund to vote for the merger.

“To accuse Park of having received bribes and hold her responsible for the case where Choi got support from Samsung, the special prosecutor has to be able to prove that Park and Choi shared economic interest. But there’s no reason to believe so,” Yoo said in a statement. The investigation results are “a claim not worth attention and a nonsensical tale remote from facts.”

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