Backing the wrong horse? Samsung executive arrested on alleged corruption and bribery charges

On Friday 17 February, Vice Chairman of Samsung Lee Jae-yong was arrested and detained on corruption and bribery charges. How this case plays out will send a strong signal as to the continuing position of South Korean conglomerates and the relative power and independence of the local judiciary.

We also list out some take-aways you should consider (beyond South Korea).

This post was written by Urszula McCormack and Marina Lauer

Key facts

Samsung is South Korea’s largest family-owned conglomerate or “chaebol”, and Mr Lee is now its third-generation de facto leader.

It is alleged that Mr Lee paid around US$37 million to organisations and individuals linked to Choi Soon-sil, a close friend of South Korean President Park Guen-hye, to secure political favours including government support for a merger of Samsung subsidiaries in 2015.

Reports suggested that the 2015 merger was considered a controversial move to pave the way for Mr Lee to take over the Samsung group from his father Chairman Lee Kun-hee, who has been incapacitated by a heart attack since 2014.

The alleged bribes include Samsung’s US$6 million sponsorship of an equestrian team which allegedly never expanded beyond Ms Choi’s daughter and her coach. While Samsung admits it donated money to the organisations at the centre of the corruption scandal that led to the impeachment of President Park in December, it says it did not receive anything in return. Mr Lee, Ms Choi and President Park have denied any legal wrongdoing.

Prosecutors are yet to formally indict Mr Lee. Other charges being brought against Mr Lee relate to alleged embezzlement, perjury during a parliamentary hearing and hiding assets illegally overseas.

Why this case matters

These proceedings will be a test for South Korea’s judicial system in relation to the ongoing position of chaebols and the approach to combating bribery and corruption. Opponents of the chaebol system are hoping that, if Mr Lee is convicted, white collar crime will no longer receive the leniency of the past, and that this could signal an end to the chaebols’ political influence.

By way of contrast, in 2008, Mr Lee’s father was found guilty of embezzlement and tax evasion and resigned from Samsung amidst another scandal. While prosecutors sought a seven year jail term and heavy fines, Lee Kun-hee received a suspended sentence and subsequent Presidential pardon, returning as Samsung Chairman the following year. In part, this leniency was attributed by some to the significance of Samsung to South Korea’s economy.

We also expect that President Park’s upcoming impeachment proceedings before the Constitutional court will be an important development – if the impeachment is upheld, President Park would be South Korea’s first democratically-elected leader to be removed from office.

What should you do?

This case raises important issues – not unique to South Korea.

You may wish to ask yourself:

  1. How politically exposed is our business?
  2. Are we doing the right amount of due diligence on corporate sponsorships and other contributions?
  3. How much influence do “important clients” have on compliance?
  4. Is it clear to staff that bribery and corruption can occur even when nothing is received in return?

The authors do not practise South Korean law. All materials are based on public sources.

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