Samsung’s de facto leader Jay Y. Lee has been ensnared in an influence-peddling scandal that’s transfixed South Korea and reached into the highest ranks of politics and business. A South Korean special prosecutor has indicted Lee on allegations of bribery and embezzlement, an extraordinary step that jeopardizes his ascent to the top of the country’s most powerful corporation. As the trial winds down, prosecutors have demanded a jail term of 12 years for the heir to the country’s biggest fortune.
1. Why is Samsung caught up in the investigation?
Samsung is accused of playing a central role in a scandal that has already led to the ouster of South Korea’s President Park Geun-hye. Lawmakers originally questioned the heads of nine Korean companies to understand whether they gave money to foundations controlled by the president’s friend, Choi Soon-sil, in exchange for political favors. A special prosecutor was appointed to investigate and he has focused on Samsung’s contributions, including a 1 billion won ($890,000) horse given to Choi’s daughter.
2. Why would Samsung give that kind of money?
Lee, 49, confirmed in his testimony the company gave millions to Choi’s foundations, but he denied Samsung had sought favors in return. Korean companies say they are often asked to give money to support charities and sporting events and the executive said he was scolded by Park for not doing enough to support the sport. The prosecutor won approval to detain Lee in February and has until the end of August, six months from his arrest, to secure a verdict and sentence or else the billionaire gets released. In the Korean judicial system, prosecutors demand a sentence before a verdict. A panel of three judges will decide Lee’s verdict and no jury has been involved in Lee’s case.
3. What does the prosecutor say happened?
The special prosecutor contends Samsung made the contributions to win government support for Lee’s efforts to take over management control from his father. Specifically, Samsung wanted to merge two of its affiliated companies to give the younger Lee greater control over Samsung Electronics Co., the crown jewel of the conglomerate. Korea’s National Pension Service, a multi billion-dollar fund with money from millions of citizens, cast a key vote in favor of that 2015 merger. The former chairman of the NPS has been indicted for abusing his authority. Lee has denied any wrongdoing and testified that he didn’t know about the connection between the funds and Park’s confidante.
4. How much will this hurt Lee?
Prosecutors have charged Lee with bribery, embezzlement and hiding assets overseas and said the alleged crimes deserve 12 years in jail. Even if Lee is convicted, it wouldn’t mean the end of his career. At least five chaebol executives have been convicted of wrongdoing in South Korea and eventually returned to leadership roles. In fact, Lee’s father was prosecuted for tax evasion, breach of duty and bribery, convicted and ultimately returned to the helm of his company. Separately, former President Park was arrested March 31 and later indicted. She and Choi have denied wrongdoing and also refused to testify at Lee’s trial.
5. What is all this doing to Samsung’s business?
Investors have been surprisingly sanguine. Since the trial started, the stock has surged to an an all-time high, the Galaxy S8 smartphone was released to glowing reviews and earnings topped estimates as Samsung’s profits overtook those of rival Apple Inc. thanks to memory chips. That’s helped the Suwon, South Korea-based company move on from last year’s Note 7 phone debacle, when batteries caught fire or exploded. The Lee family historically hasn’t been that involved in day-to-day operations, leaving those responsibilities to trusted lieutenants. In the case of Samsung Electronics, there are three co-chief executive officers who continue to look after the businesses.
The Reference Shelf
- Bloomberg Businessweek reports how South Korea is trying to rein in its biggest companies.
- Another Businessweek story examines the trial and the company’s history.
- Bloomberg News shows how events in South Korea in 2016 drove support for change.
- A Quicktake Q&A explainer on South Korea’s largest conglomerates and another on the scandal that led to Park’s impeachment.