Business & Tech

Samsung’s Lee shown ‘no mercy’ as attitude toward chaebol shifts

A South Korean prosecutor is demanding that Samsung leader Jay Y. Lee spend 12 years in prison for his alleged role in a bribery scandal that brought down the nation’s president.
Ahn Young-joon/Associated Press/File 2017
A South Korean prosecutor is demanding that Samsung leader Jay Y. Lee spend 12 years in prison for his alleged role in a bribery scandal that brought down the nation’s president.

SEOUL — The South Korean prosecutor dubbed the “chaebol grim reaper” is living up to that moniker, demanding that Samsung Group’s Jay Y. Lee spend 12 years in prison for his alleged role in a bribery scandal that toppled the nation’s president.

The recommendation by special prosecutor Park Young-soo marks the harshest criminal sentence ever sought against a major conglomerate leader — including Lee’s father, who built Samsung Electronics Co. into a global powerhouse and was convicted twice. That severity may mark a turning point in the way Koreans view the conglomerates that helped rebuild the country in the aftermath of war.

“The prosecution spared him no mercy,” said Chung Sun-sup, chief executive of Chaebul.com, a website that tracks corporate practices. “This is a milestone in Korea’s corporate history, which is laced with tolerance for chaebol leaders.”

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A chaebol is a Korean business conglomerate structure, typically a family-owned one.

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The younger Lee, 49, is accused of bribing a confidante of former President Park Geun-hye to help him increase control over the world’s biggest maker of smartphones and memory chips. Lee — heir to an estimated $398 billion empire also encompassing TVs, ships, and life insurance — has been detained since February in what Koreans are calling the “trial of the century.”

He has consistently denied all charges. During his closing statement Monday, Lee repeated that denial while holding back tears, saying the trial gave him the opportunity to use hindsight when considering his actions.

Lee said Samsung was built by the “sweat and blood” of his father and grandfather, and he only had himself to blame morally for the troubles that had ensnared Samsung.

“I think I missed the big picture,” he said. “As we became bigger and bigger, people’s expectations for Samsung also became bigger and more strict.”

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The prosecutor, Park, who isn’t related to the former president, told the packed courtroom that Lee’s actions were criminal.

Authorities accuse the billionaire and the former president of conspiring to get a state-backed pension fund to support a merger of Samsung affiliates in return for financial favors, including a horse worth an estimated $800,000 for the confidante’s daughter.

Lee has overseen South Korea’s biggest conglomerate since 2014, when his father suffered a heart attack. In 2015, the group pushed through a merger between two units, giving the heir fresh shares in Samsung C&T Corp., a major shareholder in Samsung Electronics.

The deal, which was opposed by investor Paul Elliott Singer, gained approval after it got backing from the government-run National Pension Service.

“We have an opportunity to establish the rule of law,” Park, the prosecutor, said. “The defendants have colluded with power to seek personal interests, turning their backs on peoples’ wish to shed light on the truth behind the scandal.”

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The alleged crimes were meant to help the younger Lee maintain control over Samsung without having to pay billions of dollars in inheritance taxes, prosecutors said. His father remains hospitalized and still holds the title of chairman of the group.

The former president, who has been detained on charges of corruption and abuse of power, denies seeking bribes for her friend. She and her friend, Choi Soon-sil, refused to testify at Lee’s trial.

Lee is scheduled to be released later this month unless he’s convicted and receives a prison sentence. In the Korean judicial system, prosecutors demand a sentence before a verdict. A panel of three judges will issue a ruling Aug. 25.

“If Jay Y. Lee is convicted, prosecutors and the government will clear the stigma that they’ve let chaebol leaders off with light convictions,” said Park Ju-gun, president of corporate watchdog CEOScore.

Lee’s detention has had little effect on the performance of Samsung Electronics. The company posted a record profit in the three months ended June, fueled by sales of its Galaxy S8 smartphones and semiconductors. Its shares have surged 32 percent this year, outperforming the benchmark Kospi index of which it’s the biggest member.

Some of South Korea’s most prominent executives have cycled in and out of jail for years, often getting their sentences reduced or suspended. It wasn’t uncommon for a presidential pardon to follow.

Lee Kun-hee was convicted of bribing a former president in 1996 and of tax evasion in 2009. Both of his sentences were suspended, and he was pardoned both times.

The chairman of Hyundai Motor Group, Chung Mong-koo, was convicted of embezzlement and breach of duty in 2007 and given a suspended three-year prison sentence. He was detained for almost two months after his April 2006 arrest, and he eventually was pardoned.

Other tycoons convicted of crimes include the chairmen of SK Group, CJ Group, and Hanwha Group. All received presidential pardons.

The prosecutor in this case, Park, was involved in the investigations of the Hyundai and SK executives.

“It’s worth noting that father and son are being treated differently,” Chung, CEO of Chaebul.com, said of the Lees. “Whereas South Koreans felt little repugnance toward lenience for Lee Kun-hee because he helped lead their country’s economic rise, they feel they owe little to the son.”