Over the past year, Samsung Group has been embroiled in a political scandal that dominated headlines in South Korea, which ultimately saw the impeachment of president Park Geun-hye. Samsung’s acting chairman, Lee Jae-yong, was accused of making donations to nonprofit foundations in exchange for political favors, in order to smooth the path for a controversial merger approved in July 2015. After going on trial, he was found guilty of corruption in August 2017, and sentenced to prison.
Here’s everything you need to know about the case.
Guilty verdict and appeal
In August 2017 Lee Jae-yong, Samsung’s billionaire acting chairman, and the third-richest man in South Korea, was found guilty of corruption and sentenced to five years in prison. The court ruled he approved bribes from Samsung to secure government backing. The five-year sentence is lower than the 12 years sought by the prosecutors, and Lee’s lawyers appealed the verdict.
The court ruled Lee Jae-yong approved bribes from Samsung to secure government backing.
Lee’s appeal hit problems in December, when president Park’s former secretary said on the stand that Lee had visited the president in 2014. During the trial Lee’s defense team claimed he had only met the president once and for a few minutes. At least one further meeting, not revealed by Lee before, potentially strengthens the prosecutors’ case against him. Since then, prosecutors have pushed to increase Lee’s prison sentence to the original 12 years. Prosecutors told the court Lee’s control over Samsung and his massive wealth was, “none other than a result of bribery.” It’s also argued the stricter sentence would, “establish the rule of law,” and deter similar actions in the future. The appeal is set to close at the end of this year, with a final decision is expected in January 2018.
After the appeal, the case could be referred to South Korea’s supreme court in 2018, by either the special prosecutors or Lee’s legal team, depending on the outcome. However, the lawyers working for Lee have described the High Court appeal as, “the last phase,” indicating such a continuation may not happen. Lee continues to deny wrongdoing.
The trial was the culmination of a special criminal investigation that first became widely known in November 2016, and has since seen the impeachment of former South Korean president Park Geun-hye. Lee was found guilty of paying massive bribes to Choi Soon-sil, friend and confidant to the former president, in return for Park approving a Samsung merger that would give him more control over the company.
His five-year jail term is the longest given to any top executive at a South Korean conglomerate, but there is still the possibility the sentence will be suspended. However, new president Moon Jae-in is taking a hard stance on crimes of this nature, making a pardon less likely.
Lee’s conviction came just days after Samsung launched the Galaxy Note 8 at a glitzy event in New York.
The story behind Lee’s eventual guilty verdict is fascinating. Samsung is just one of several South Korean conglomerate businesses accused of paying bribes for political favors, a scandal which formed part of the investigation into South Korea’s president Park Geun-hye, and her involvement in extorting money from major corporations.
Park was 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 approval of controversial deals.
Samsung Group’s Lee Jae-yong first answered questions about his involvement in December 2016, and again on January 12, 2017. The focus was on bribery, embezzlement, and perjury. Emails stored on a tablet computer owned by Choi Soon-sil allegedly showed how Choi received funding from Samsung, and how the money was eventually spent. 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.
During the December 2016 questioning, it was revealed that in 2015 Samsung gave more than $17 million to Choi’s foundations, paid for a horse as a gift to Choi Soon-sil’s daughter valued at $850,000, and paid $3 million for her equestrian training. At the time 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.
Lee Jae-yong’s questioning lasted for 22 hours, and on January 16, an arrest warrant was sought for perjury, bribery, and embezzlement, based on him, “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 by any business group.
Trial and impeachment
Ousted President Park Geun-hye was arrested at the end of March 2017, after losing her immunity.
Lee’s arrest came in mid-February after charges were expanded to include “hiding the proceeds of a criminal act.” Lee Jae-yong was taken into custody at the Seoul Detention Centre. “It is acknowledged that it is necessary to arrest [Lee Jae-yong] in light of a newly added criminal charge and new evidence,” the court said in a statement. Lee Jae-yong’s trial began on April 7, where he was photographed being led into court in handcuffs.
South Korea voted to impeach president Park Geun-hye at the end of 2016, and she was arrested at the end of March 2017, after losing her immunity. Choi Soon-sil denies any wrongdoing. Park, Choi, and Lee were at one time all being held in the same detention center, but have faced trial separately.
The conviction of Samsung’s Lee Jae-yong may provide more evidence for the prosecutors to use against former president Park.
Implications for Samsung
Lee Jae-yong is the billionaire 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, instead going by vice chairman.
Lee has continually denied the accusations, saying any payouts were made without his knowledge, and at no time did he expect special treatment from the government. Samsung has issued statements throughout the proceedings to the same effect, saying, “Samsung did not make contributions in order to receive favors.”
The business implications of Lee’s arrest have yet to be felt. When he was first arrested a company official quoted by Yonhap News, said it may compromise Samsung’s ability to make key decisions and investments, but the day-to-day operation of the company is unlikely to be affected. Another employee called it, “business as usual.” However, on a personal level his conviction is likely to have ended any plan to take complete control of the company.
During one of the early committee meetings, decisions were made which impacted Samsung’s business operations. The strategy office which approved and sent out the payments to the foundation was 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.
The Samsung Group will be managed by, “top executives,” Yonhap News reported after Lee’s arrest. No current statement has been made by Samsung regarding the conviction at the time of writing. However, the scandal hasn’t affected sales of the company’s mobile devices, or slowed down its output. The verdict came in the same week the firm revealed the Galaxy Note 8, a $900 smartphone to replace the ill-fated Galaxy Note 7.
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.
Update: Prosecutors are pushing to increase Lee Jae-yong’s prison sentence to 12 years, after new evidence came to light.