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Korean corporations on edge after Samsung heir’s arrest

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Published : 2017-02-17 16:32
Updated : 2017-02-17 20:57

The arrest of Samsung Group’s de facto leader Lee Jae-yong on Friday has ignited alarm among South Korea’s top conglomerates whose chiefs face similar charges of bribing the government.

Lee, the son of Samsung’s ailing Chairman Lee Kun-hee, was detained on charges of bribery, perjury and embezzlement over his involvement in the influence-peddling scandal that led to the impeachment of President Park Geun-hye.

(Yonhap)

The special prosecutor team had been examining whether the vice chairman of Samsung Electronics provided up to 43 billion won ($38 million) to President Park’s close friend Choi Soon-sil in exchange for the government’s backing of a controversial merger between two Samsung units.

By obtaining the court’s approval to arrest Korea’s most powerful business tycoon, prosecutors are poised to direct their attention to other big businesses implicated in the scandal such as Lotte, SK, CJ and Posco.

Earlier this week the special prosecutor team asked acting President Hwang Kyo-ahn to extend the term of its investigation team, which formally ends at the end of this month.

If the extension is allowed, the prosecution is expected to zero in on conglomerates that made large donations to two foundations run by Choi, allegedly in return for business favors.

According to investigators, 53 businesses, including Samsung, SK, Lotte and CJ were found to have made contributions totaling 77.4 billion won for the creation of the Mir and K-Sports foundations.

Like Samsung, SK, Lotte and CJ face allegations of making large donations to the foundations in exchange for preferential treatment from the government toward their leaders and businesses.

SK Group has been accused of making donations in exchange for the release of its Chairman Chey Tae-won from jail via a presidential pardon in August 2015.

Former presidential secretary An Chong-bum testified that Cheong Wa Dae reviewed Chey’s pardon on the request of the president, fueling suspicions over SK’s relationship to Choi and the president.

Lotte Group faces charges of making an additional donation to the K-Sports foundation in exchange for a key government license to reopen its second-largest duty-free store in Jamsil of southeastern Seoul.

The firm allegedly provided 4.5 billion won for the creation of the two foundations. It later donated an additional 7 billion won to the K-Sports Foundation, and retrieved its funds before prosecutors began a probe into the group, igniting suspicions over the firm’s motives.

CJ Group has also been accused of making donations to the foundations in exchange for the presidential pardon that led to the release of CJ Group Chairman Lee Jae-hyun in August 2016.

Posco was allegedly pressured by Choi to appoint select figures to high posts in the company as well as provide business favors to companies related to her.

While Korean businesses remain nervous over the arrest of Samsung’s de facto leader, Korea’s representative business bodies raised concerns over its impact on the economy and business landscape.

“We express regret over the negative impact that the arrest of the leader of Korea’s representative global company is slated to bring to our economy at a time of economic hardship, and wonder whether the authorities sufficiently reviewed such considerations,” said the Korea Employers Federation.

The Korea International Trade Association echoed similar concerns, saying that the arrest of the Samsung Electronics vice chairman will “tarnish not only Samsung’s corporate image but also the perception of Korean businesses as a whole.”

The Korea Chamber of Commerce and Industry expressed regret that “Korea’s top globally-competitive company will face a leadership vacuum,” calling for “a quick and swift conclusion to the ongoing investigation.”

By Sohn Ji-young (jys@heraldcorp.com)