Samsung Group is embroiled in a political scandal that has dominated headlines in South Korea. It’s one of several major conglomerates accused of making donations to nonprofit foundations in exchange for political favors — which in Samsung’s case may have smoothed the path for a controversial merger approved in July 2015.
Here’s everything you need to know about the ongoing case.
Samsung’s Lee Jae-yong now on trial following investigation and arrest
After prosecutors raided Samsung’s corporate offices in Seoul, South Korea, at the end of November 2016, company executives have repeatedly appeared before a parliamentary committee, while links to bribery and corruption are being investigated by a special prosecutorial team.
Eventually, Samsung head Lee Jae-yong was questioned, leading to the issuance of an arrest warrant that named him. While the arrest warrant was rejected by a court on January 19, Lee Jae-yong was brought in for another round of questioning on February 13. On February 14, the prosecutors said they would seek a second arrest warrant for Lee, after expanding the charges to include “hiding the proceeds of a criminal act.” Following a hearing on February 16, the warrant was issued with the court saying the evidence, “showed enough reasons to take Lee into custody,” the Associated Press reports.
The Seoul Central District Court issued the requested warrant, and Lee Jae-yong was taken into custody at the Seoul Detention Centre. “It is acknowledged that it is necessary to arrest [Lee Jae-yong] in light of a newly added criminal charge and new evidence,” the court said in a statement.
After his arrest, Lee was taken to the Seoul Detention Center, where he spent the night in a single cell. Samsung Group said in a statement that it hadn’t made a decision whether to fight the arrest, or if bail had been sought. The special prosecutors have between 10 and 20 days to file charges against Lee, and his arrest doesn’t indicate his guilt, only that he is considered a flight risk during the investigation of a serious crime.
Lee Jae-yong’s trial began on April 7, where he was photographed being led into court in handcuffs. He is accused of bribery, but denies any involvement.
Samsung Group’s Lee Jae-yong first answered questions in December 2016, and investigators recalled him to appear on January 12, 2017, where the focus was on bribery, embezzlement, and perjury. A false testimony charge was threatened due to evidence discovered on a tablet computer owned by Choi Soon-sil.
Emails stored on the device allegedly show how Choi received funding from Samsung, and how the money was eventually spent. The suspicion is, Samsung’s funding came in return for Choi pushing Park to approve its 2015 merger, which in turn secured Lee’s control over Samsung Electronics.
Lee Jae-yong’s questioning lasted for 22 hours, and on January 16, an arrest warrant was sought for perjury, bribery, and embezzlement, and based on him, “giving or promising to give some $36.3 million worth of bribes to Choi Soon-sil in return for the state-run pension fund’s backing of a merger of two Samsung affiliates.” The donations, which went to Choi’s equestrian foundation, were the largest made by any business group.
An arrest warrant was also sought for Samsung Electronics president Park Sang-jin, but denied by the court, which said it had difficulty justifying the warrant, due to Park’s role and position in the company. The head of South Korea’s National Pension Scheme, Moon Hyung-pyo, who was arrested in December 2016, has already been indicted on charges of abuse of power and perjury.
What’s the background?
The accusations against Samsung and other South Korean companies, including Hyundai, SK Group, and Lotte Group, are related to the ongoing investigation into South Korea’s president Park Geun-hye, and her involvement in extorting money from major corporations.
Park has been accused of assisting in an extortion scheme with unofficial presidential aide Choi Soon-sil. More than 50 businesses were allegedly pressured to make donations potentially worth $69 million to sporting foundations backed by Choi, which were set up following the Samsung merger, then used for personal financial gain and in exchange guaranteeing deals.
The November 2016 raid of Samsung’s headquarters took place alongside another at the national pension fund, which according to a local report from the Yonhap News Agency, may have been pressured into supporting the controversial Samsung merger in 2015. The fund’s approval is regarded as vital to the merger’s success, and a surprising move at the time, due to allegations it benefited the Samsung Group’s controlling family more than the shareholders.
The head of South Korea’s National Pension Scheme, Moon Hyung-pyo, who was arrested in December 2016, has been indicted on charges of abuse of power and perjury. It wasn’t the first time Samsung had been raided in relation to the investigation into Park and Choi either. Another took place earlier in November.
Samsung says in its official statement, “It’s difficult to agree with the special prosecutor’s decision, because Samsung did not make contributions in order to receive favors,” and the company denies the allegations against itself and Lee Jae-yong.
South Korea voted to impeach president Park Geun-hye at the end of 2016, who has called the accusations against her “groundless.” She was arrested at the end of March 2017, after losing her immunity. Choi Soon-sil also denies any wrongdoing. Park, Choi, and Lee are all being held in the same detention center, but will face trial separately.
The arrest of Samsung’s Lee Jae-yong may provide more evidence for the prosecutors to use against president Park.
Lee Jae-yong’s December 2016 questioning
During the first meeting, it was revealed Samsung gave more than $17 million to Choi’s foundations in 2015, and paid for a horse as a gift to Choi Soon-sil’s daughter, valued at $850,000. It’s also accused of paying $3 million for equestrian training for Choi’s daughter. However, Lee said he wasn’t aware of the payments until recently, and stated they weren’t pay-offs or kickbacks. He apologized for paying for the horse, and said Samsung would take responsibility if any involvement in the scandal was revealed.
He also told the committee the meeting between Samsung and the national pension fund had taken place, but the merger wasn’t discussed. Additionally, Lee Jae-yong met privately with president Park at the end of July 2015.
Lee denied the accusations, and several reform decisions were taken at the committee meeting, which impact Samsung’s business operations. The strategy office which approved and sent out the payments to the foundation will be closed down, and the company will no longer take part in activities with the Federation of Korean Industries, a lobby group which acts as an intermediary between the government and businesses.
Bad to worse for Samsung
Lee’s arrest may compromise Samsung’s ability to make key decisions and investments, according to a company official quoted by Yonhap News, but the day-to-day operation of the company is unlikely to be affected. An employee called it, “business as usual,” despite the case and arrest.
The special prosecutor’s office understands the arrest may damage the company and the economy — its sales contribute a fifth of South Korea’s GDP — but says, “upholding justice takes precedence.” While the investigation continues, Yonhap News reports the Samsung Group will be managed by, “top executives,” until charges are cleared.
For Samsung, it’s the latest embarrassment after a problematic year. The Galaxy Note 7’s demise over safety concerns is expected to cost the company billions, and has left it not only with a hole in its device range, but also a PR nightmare as buyers question whether to remain loyal to the brand. Soon after the Note 7’s failure, Samsung recalled millions of washing machines for similar safety reasons.
“Samsung has become an embarrassment to Korea, where saving face is still a factor in reputation management,” a crisis management expert told The Guardian, adding the firm’s board must, ”firmly take charge of the company’s direction,” at this crucial time. Throughout the scandal and repeated questioning of Samsung’s Lee Jae-yong, the company’s shares have fallen; but recent forecasts show the company is on target for its best quarterly result in three years.
Samsung and Lee Jae-yong
Samsung Group is the largest family-owned business conglomerate in South Korea, and is the parent company to Samsung Electronics, Samsung Heavy Industries, Samsung Financial Services, and various other Samsung companies.
Lee Jae-yong is the billionaire grandson of Samsung founder Lee Byung-chul, and the only son of Lee Kun-hee, the current chairman of the Samsung group. Since his father’s heart attack in 2014, Lee has been been seen as responsible for the company, despite not being able to take the official title of chairman. His title, according to the company’s website, is still vice chairman.
Article originally published on 11-24-2016. Kyle Wiggers contributed to this report. Updated on 04-07-2017 by Andy Boxall: Added in news Lee Jae-yong’s trial has begun.