Special investigators last week used fresh evidence to find their way through Samsung Group’s de facto leader Lee Jae-yong’ legal defense and arrest him on suspicion of bribery, embezzlement and perjury.

The approval came a month after a district court had rejected the special prosecutors’ request to arrest him, citing a lack of evidence of Lee’s involvement in the scandal. 

At that time, the investigators claimed that Samsung’s suspicious donation to Choi Soon-sil, President Park Geun-hye’s confidante and the woman at the center of scandal, was made in exchange for supporting a controversial merger between two Samsung affiliates.

The independent counsel’s reasoning, however, was challenged by Samsung that claimed that the merger of Samsung C&T and Cheil Industries took place before the company provided financial support to Choi, highlighting that it had no strings attached.

The independent counsel has since added allegations of embezzlement and illegal transfer of embezzled funds to abroad, expanding the scope of its investigation to the overall managerial succession of the group.

The court on Friday ruled that the reason and need for a detainment was recognized based on the added allegations and evidence.

Surrounded by a group of the nation’s top lawyers, the 48-year-old heir to the nation’s largest conglomerate insists that he was forced by Park to make donations totaling 43 billion won and that it had nothing to do with the merger or his succession.

With regard to the other charges of embezzlement and illegal transfer of embezzled funds abroad, Samsung claims that the group had provided the funds in accordance to a contract signed between Choi and Samsung Electronics.

The counsel claims at least three transactions have been the rewards for Samsung’s donations.

They include the National Pension Service’s fast-tracked approval of the Samsung C&T and Cheil Industries merger, the Fair Trade Commission’s scaling down of the required shares to be disposed of by Samsung SDI as part of regulatory measures after the merger, and the Kospi market debut of Samsung Biologics through revised requirements.

The special counsel is confident that it can prove there was bribery through 39 sets of personal notes kept by former presidential secretary An Chong-bum, which it secured at the end of January, as well as documents seized from the antitrust agency.

Samsung, on the other hand, argues that there was no request or lobbying made toward Cheong Wa Dae.

The conglomerates’ legal representatives also argue that the evidence and testimonies secured by the investigators are all circumstantial.

The problem for the investigators is that there is yet to be any questioning of President Park Geun-hye, who in their theory, would be the recipient of the bribe. In order to prove Park was the direct recipient of the bribe, the prosecutors must either prove that Park and Choi share economic interests or that the funds provided by Samsung also benefited Park. To prove Park as the third-party recipient of bribe, the investigators must prove that Choi requested Park to give advantages to Samsung.

Furthermore, the special counsel must prove that the Samsung C&T and Cheil merger is part of the Lee succession scheme, as without that, Lee would have no motive.

The special counsel must also present evidence that prove how it overturned the previous investigation results by state prosecutors, which had defined the conglomerates as “victims.”

Samsung has remained steadfast that the subsidies provided to Choi’s foundations and her daughter, as well as an organization run by Choi’s niece, were all “forced” by Cheong Wa Dae, meaning it was not an act of bribery seeking compensation in return, but extortion.

Samsung is also likely to emphasize how the group is only among 53 large conglomerates that donated funds to the foundations initiated by Choi to emphasize the forced nature of the donations.

In order for Samsung to fend off the special counsel’s case, it must also resolve the allegations surrounding Samsung SDI.

The FTC in Dec. 2015, suggested Samsung SDI to dispose its 5 million shares, or 2.6 percent, in Samsung C&T, saying that the merger between Samsung C&T and Cheil Industries had increased cross-shareholdings among the group companies. But the decision was a watered-down one, the counsel said after raiding the FTC and questioning the officials. It said that the antitrust agency had initially planned to order Samsung’s battery unit to dispose 10 million shares.

To counter the allegation, the group has said in a statement, “There have been different views on FTC’s authoritative interpretation, and outside experts also pointed out that (the order) had problems, but Samsung was disposing 5 million shares out of (the group’s) strong will to improve transparency in its cross-shareholding structure.”

Disposing 5 million, not 10 million shares, had no direct impact on the family’s ownership structure, as the Lee family members and favorable investors own a combined stake of more than 50 percent in Samsung C&T, some market analysts said.

With regard to the special counsel’s allegation regarding the Financial Service Commission’s revision of its regulations to allow companies in the red to be listed on the country’s main bourse, Samsung maintains that it has received no preferential treatment in listing its Samsung BioLogics as the company had originally pushed to debut in the US-based Nasdaq, where many global biopharmaceutical companies are listed. Its Kospi listing was allowed due to repeated requests to the Korea Exchange.

The counsel also alleges that Samsung may have lobbied Choi in return for Park pressuring FSC to push ahead with legislating a new law that allows the creation of a financial holding company. The legislative move was seen as beneficial to Samsung Group, which holds relatively more shares in their financial affiliates, than non-financial affiliates.

But Samsung counters that while the group had spoken to the FSC in regard to a plan to turn Samsung Life & Insurance into a financial holding company last year, the move was dropped due to complications and a negative response from the regulator.

By Cho Chung-un (christory@heraldcorp.com)