Samsung Bribery Charges Rock Korea Pol
A probe of possible bribery and wrongdoing at the icon of Korean corporate success is emerging as a red-hot issue in the country's presidential election
by Moon Ihlwan
Is South Korea the Republic of Samsung? That's shaping up as a key question as the nation braces for a presidential election on Dec. 19. With just over a month before the vote to replace unpopular President Roh Moo Hyun, a total of 150 lawmakers from three liberal parties on Nov. 14 jointly tabled a bill in the National Assembly, the country's parliament, requiring an independent prosecutor to probe dramatic allegations of bribery and policy manipulation by the giant Samsung Group.
The allegations in the past two weeks by Samsung's former chief attorney, Kim Yong Chul, call into question a major achievement of reform that Roh has claimed. The outgoing president, who can't run for a second term, was elected five years ago on a platform of ending corruption and abuses by giant industrial conglomerates, called chaebol in Korean. He has taken pride in ushering in what he and his supporters say is an era of less corrupt government and society.
"The allegations, if confirmed, are about building a Samsung republic," laments Kim Sang Jo, the Hansung University economics professor heading Solidarity for Economic Reform, a civic activist group. "A corrupt and totally unbridled Samsung will be right at the heart of the failure of Roh's reform," he says.
A Ubiquitous Presence in Korean Society
Samsung, denying all corruption and bribery allegations, last week issued a 25-page statement with detailed rebuttals and stressed that it was not involved in illegal bookkeeping. The allegations are "nothing but one-sided claims lacking any ground or specific evidence," a Samsung statement said. Kim's "repeated false and groundless disclosures only amplify misunderstanding and wild guesses."
Already it is difficult for Koreans to get away from Samsung, which comprises 58 companies, including Samsung Electronics (SSNGY). From TVs and music players to insurance and brokerage services, citizens in the nation have to live with products and services offered by the group, which commands respect as an icon of Korean corporate success (BusinessWeek.com, 10/4/07).
Yet Samsung has sought much greater and "wrongful" influence, according to attorney Kim, who worked as Samsung's in-house lawyer from 1997 to 2004 and the head of its legal department for the last two years of his tenure. Through news conferences and interviews with local media in the past two weeks, he has accused Samsung of running many multimillion dollar slush funds to maintain a huge bribery network covering policymakers, supervisory agents, the judiciary, and the media to lobby against new systems unfavorable to the group and the founding family. No substantiating evidence has been presented so far.
Weak Candidates Jumping on the Bandwagon
Kim also admitted to personal involvement in "falsifying" evidence to cover up schemes designed to transfer management control of Samsung from Chairman Lee Kun Hee to his son. Samsung denies all the allegations and says Kim's wife had threatened the company before his disclosures. No details on the threats were given. In 2005, a Seoul court found two top Samsung Group executives guilty of conspiring in a 1996 deal to help Lee's children buy a majority stake at a discount in the amusement park operator Everland, which serves as a de facto holding company by playing a crucial connecting role in a complicated web of cross-shareholdings among group affiliates that ensure the Lee family controls the whole chaebol with a small stake.
Now with lawmakers demanding a thorough investigation into the alleged corruption and manipulation of national affairs, the Samsung affair is quickly emerging as a hot election issue. The 150 lawmakers, representing the majority in the 299-seat single-chamber National Assembly, were acting on behalf of three presidential candidates who on Nov.
13 agreed to cooperate to ferret out all facts about abuses and legal violations alleged by Kim
"This appears to be a desperate attempt by weak candidates to narrow their popularity gap with the leading candidate," says Yoon Young O, political science professor at Kookmin University in Seoul. The clear leader in the presidential race is Lee Myung Bak of the main opposition Grand National Party, who pledges to lift restrictions on the chaebol, including restrictions on their ownership of banks. Lee, the torchbearer of the conservative camp, is himself embroiled in a separate corruption scandal, with his former business partner being extradited from the U.S. to face charges of embezzlement and money laundering. Lee, who has denied involvement, has consistently enjoyed a popularity rate of about 40% with his promise to place priority on economic growth.
A Culture of Corruption?
The three liberal candidates, including Chung Dong Young of the United New Democratic Party supported by Roh, trail badly in the presidential race. Chung's popularity rate hovers around or below 15% while the other two—from the Democratic Labor Party, representing workers, and the freshly minted Create Korea Party—have only garnered single-digit support levels. The biggest challenge to Lee, a former Seoul mayor and onetime chief executive of Hyundai Engineering & Construction (HYEHF), comes from three-time presidential candidate Lee Hoi Chang, another conservative candidate who quit Grand National to run separately and has seized the No. 2 slot in popularity polls with around 20%.
Chung, who has been attacking both Lees for being an incarnation of the corrupt old guards, has seized on Kim's accusations. "All political parties and civic society must join hands to stop the back-stepping of our society with the return of the corrupt forces of the past," he said in a party meeting this week. "The question of Samsung slush funds is not an isolated matter like an island in the sea. It is linked to chronic [culture of] corruption."
Political analysts say the candidates from the liberal camp want to turn their campaign into a crusade against corruption, painting the conservatives as the corrupt establishment. "But that's not likely to work, given a recent string of bribery scandals involving Roh's associates," says Yoon at Kookmin University.
The Catholic Church Gets Involved
The call for an independent counsel for the investigation into Samsung follows a disclosure by Kim through a group of Catholic priests that three top government legal officers fighting corruption had been on the take from the chaebol. The priests, who call Kim a courageous whistleblower and have been serving as his spokesmen, named prosecutor-general appointee Lim Chai Jin, along with Lee Gui Nam, director of the Central Investigation Bureau in the prosecution office, and Lee Jong Baek, the head of the Korea Independent Commission Against Corruption. The three, who have been recently appointed by Roh, have all denied accepting bribes from Samsung, which calls the accusation "malicious and fabricated."
The crimes alleged by the priests, who describe the prosecutors' office as "a symbol of bribery-tainted government agency," prompted lawmakers from both ruling and opposition parties to seek an independent investigation. The priests belong to the Catholic Priests' Association for Justice, an influential group that played a leading role in sparking protests against military dictatorship in the 1980s.
The accusations by Kim and the priests have further tarnished Roh's image. While he has become increasingly unpopular for sapping the country's economic vitality, he has widely been credited with cleaning up Korean politics. But even his reputation as a corruption fighter has been fading with recent corruption scandals.
Significant Implications for Investors
Last week the head of the National Tax Service, Jeon Goon Pyo, was arrested on charges of accepting more than $65,000 from a senior tax officer seeking a promotion, while prosecutors indicted Jung Yun Jae, Roh's former protocol secretary, for receiving bribes from a contractor in return for helping him evade a tax investigation. Also last week, Byeon Yang Kyoon, Roh's top policy adviser until earlier this year, appeared in court on charges of using his influence to win favors for his girlfriend. Jeon says he is innocent, and both Jung and Byeon deny any wrongdoing.
Major corruption scandals have traditionally erupted during election years. Yet this year's probe into Samsung has significant implications for investors as well. That's because Samsung has epitomized Korea's embrace of global standards for accounting and accountability to shareholders in recent years. The revelation of a culture of corruption involving Samsung might logically sow doubt in the minds of those seeking to invest in the chaebol.
But for now, few investors seem much worried by the accusations. "I don't see any signs of negative impact on share prices of Samsung companies from allegations so far," says Michael Min, a director at Seoul-based fund manager Tempis Capital Management. "No one is sure what the facts are and Samsung Electronics shareholders, for example, seem to be paying more attention to memory chip prices and sales of mobile phones and flat-panel TV sales at this stage."
Moon is BusinessWeek's Seoul bureau chief .
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