One ex-prez down, several chaebol CEOs to go

Samsung headquarters, Seoul

In recent weeks, we’ve been reporting – with a good degree of skepticism – on claims by the South Korean government that it’s engaged in a serious, vigorous, and comprehensive effort to curb the power of the nation’s largest capitalist monopolies. We’re referring, of course, to the chaebols, those massive, family-run conglomerates (including Samsung, Hyundai, and LG) that have dominated the South Korean economy over the last half century and more – so much so, indeed, that they routinely kill potential competitors in the womb and thus (as has been increasingly recognized and resented) stifle economic growth, discourage entrepreneurship, and squelch innovation.

Jay Y. Lee

Our skepticism on this front has been undergirded by such events as the sudden and unexpected release from prison, earlier this year, of Jay Y. Lee (Lee Jae-yong), the vice chairman and de facto head of Samsung (and arguably his country’s most powerful figure), after serving only a few months of a five-year sentence for corruption.

As if his release weren’t disappointing enough, Lee has since been invited by President Moon Jae-in, who poses as an anti-corruption warrior, to accompany him and a group of other chaebol bosses on a flight to Pyongyang, where they all explored possible business ties with the fanatically totalitarian, slave-labor-dependent Kim regime. Some reform!  

Lee Myung-bak

Well, there’s news from the supposed chaebol wars. No, a chaebol bigwig hasn’t been tossed in the clink. But another nabob has. On October 5, seventy-six-year-old Lee Myung-bak, who was President of South Korea from 2008 to 2013, was jailed for corruption. Arrested on March 22, he had been charged with receiving hefty bribes from Samsung and other firms, embezzling funds from the government treasury that had been appropriated for use by the nation’s intelligence services, and embezzling $21 million from an auto parts company that he owned through his brother. His sentence: fifteen years behind bars plus a $16 million fine.

Park Geun-hye

He’s not the only former president of South Korea who is currently serving time for corruption. His successor, Park Geun-hye, is six months into a thirty-three-year sentence. Two other South Korean presidents, as it happens, have also spent time in the slammer: Chun Doo-hwan, who held the high office from 1980 to 1988, and Roh Tae-woo, who succeeded Chun in 1988-93, were both convicted of bribery and sedition in 1996, and both were pardoned a year later.

Kim Sang-jo

If there is anything resembling reform underway in South Korea today, it may consist in the fact that corrupt presidents are now more likely to serve out their terms instead of being pardoned after a brief period of incarceration. But of course it remains to be seen whether Park and Lee are in the can for the duration or whether, like Chun and Roh, they’ll get sprung after the headlines die down. In the meantime, the self-styled “chaebol sniper,” Fair Trade Commissioner Kim Sang-jo, has yet to prove that he’s prepared to be as tough on current chaebol leaders as on the former presidents – who are, after all, being put away for engaging in illegal shenanigans with those very leaders.

Facing the music in South Korea

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Syngman Rhee in 1956

Corruption scandals involving presidents and top-flight business leaders are to South Korea what coq au vin is to France. Vote-rigging allegations drove Syngman Rhee (president from 1948 to 1960) into exile in Hawaii; after they left office, both Chun Doo-Hwan (1980-88) and Roh Tae-Woo (1988-93) were tried and found guilty of mutiny, treason, and bribe-taking; Kim Young-Sam (1993-98) wasn’t jailed for corruption, but his son was; Roh Moo-Hyun (2003-08) was impeached and later committed suicide amidst bribery allegations. And that’s just a sampling.

Now, as we saw yesterday, it’s President Park Geun-hye’s turn to face the music. Choi Soon-sil, her friend of forty years, has already been taken into custody for a scheme, in which both women were involved, to squeeze money out of the huge – and hugely corrupt – conglomerates called chaebols that are at the heart of the country’s economy and that invariably play a big role in every major South Korean financial scandal.

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Park Geun-Hye

In July of last year, according to the charges, Park met individually with the heads of the seven largest chaebols and demanded that they fork over millions to two Choi-run institutions, the Mir Foundartion and the K-Sports Foundation. Park refuses to quit over this affair, but national outrage is mounting steadily, and opposition parties are on track to impeach her. Something’s got to give, and soon.

Naturally, the whole ugly mess has also plunged the chaebols – for what feels like the hundredth time – into yet another calamity of their own making. For them, this crisis comes at an inopportune time. They’ve already endured years of weak domestic sales and low export levels. Now, thanks to the current scandal, the possibility of serious legal consequences looms – and something close to chaos reigns. “Normally,” one leading business figure told the Korea Times, “companies have an idea about what their business plans will be like around this time of the year. But as far as I know, many haven’t even begun drawing up plans yet due to increasing uncertainties.”

Hyundai Motor Chairman Chung Mong-koo attends the company's opening ceremony for the year in Seoul in this January 2, 2012 file photo. South Korea's smartphones and cars may have won global acceptance, but back home Koreans are increasingly disturbed by the influence the chaebol have over their lives. That very public anxiety is coming at a sensitive time for the conglomerates as they prepare the transtion to a third generation of family owners and face a strong, unwelcome, focus of attention in the run-up to 2012's parliamentary election. Hyundai Motor's Chung Mong-koo was sentenced to a three year jail term in 2007 for fraud which was suspended in exchange for community service and a $1 billion charity donation as he was deemed too important to the economy to be jailed. To match Insight KOREA-CHAEBOL/ REUTERS/Kim Hong-Ji/Files
Hyundai Chairman Chung Mong-koo

One after another, the superstars of South Korean business are being called on the carpet. On the weekend of November 12-13, prosecutors interrogated Chung Mong-koo, chair of Hyundai Motor Group, Lotte Group chairman Shin Dong-bin, and Lee Jae-yong, vice chair of Samsung (and next in line to run the whole shop) about their firms’ irregular money transfers to Choi’s foundations. Two days later, as part of a probe of a suspicious payment made by Samsung to a company owned by Choi and her daughter, hard drives and financial records were confiscated in a raid on the offices of Samsung’s advertising unit, Cheil Worldwide. It now appears that Samsung (which makes up a whopping 17% of the South Korean economy) donated a total of over $15 million to Choi’s foundations, in addition to which it reportedly offered no less than $3.1 million to pay for Choi’s daughter’s equestrian training in Germany. Yes, you read that right: $3.1 million for one person’s equestrian training.

This is, as it happens, precisely the kind of royal extravagance that has turned so many South Koreans against the self-indulgent excesses of their political and corporate elite. More on that tomorrow.