Samsung Group is embroiled in a political scandal that has dominated headlines in South Korea recently. It’s one of several major conglomerates accused of making donations to non-profit foundations in exchange for political favors, which in Samsung’s case may have smoothed the path for a controversial merger, which was approved in July 2015.
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 investigated. Here’s everything you need to know about the ongoing case.
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.
President 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 benefitted the Samsung Group’s controlling family more than the shareholders. 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,
Lee Jae-yong’s December 2016 questioning
The head of Samsung Group, Lee Jae-yong, first answered the committee’s questions in December 2016, recalled in January 2017, and subsequently had an arrest warrant issued on charges of bribery, embezzlement, and perjury.
During the first meeting, it was revealed Samsung gave more than $17m 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 $3m 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.
Arrest warrant in January 2017
This wasn’t the end of the investigation into Lee Jae-yong and Samsung Group. Investigators recalled Lee to appear on January 12, where he answered further questions on bribery. A false testimony charge was threatened ahead of questioning, due to new 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. He’s accused of perjury, bribery, and embezzlement. According to the official spokesman for the investigation team, the warrant is based on, “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 any business group.
Three other Samsung executives from the senior team are also under investigation, but no arrest warrant has been issued yet. 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. A court will decide if Lee Jae-yong can be legally detained later this week, but the outcome isn’t certain at this time.
“It’s difficult to agree with the special prosecutor’s decision, because Samsung did not make contributions in order to receive favors,” Samsung says in its official statement, and the company denies the allegations against itself and Lee Jae-yong. The recall and arrest warrant come just a month after South Korea voted to impeach president Park Geun-hye, who has called the accusations against her “groundless.” Choi Soon-sil also denies any wrong doing,
Bad to worse
Should Lee be arrested and detained, Samsung’s ability to make key decisions and investments may be compromised, according to a company official quoted by Yonhap News. 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.”
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.
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 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. Updated on 01-16-2017 by Andy Boxall: Added in news an arrest warrant is being sought for Samsung head Lee Jae-yong.