Finally: street protests against chaebol corruption!

Moon Jae-in

On this site we’ve been reporting for some time on the lavish vows by South Korean President Moon Jae-in to reform the chaebols, those massive family-run conglomerates that have served as the foundation of that country’s economy since not long after the Korean War – and that have increasingly been viewed with disfavor by that country’s citizens because of their extraordinary levels of corruption, nepotism, and impunity, not to mention their power to choke potential competitors in the cradle.

We’ve introduced our readers to Kim Sang-jo, not exactly intimidating man who was supposedly delegated by Moon with the task of challenging chaebol corruption and who, laughably, calls himself the “chaebol sniper.” And we’ve discussed the chaebol shareholders who, after years of biting their tongues, are finally starting to rebel against the bizarre system whereby clans that own only a small percentage of their companies nonetheless rule them with an iron hand.

Kim Sang-jo

Now comes some encouraging news. On November 21, with the backing of the Korean Confederation of Trade Unions (KCTU), more than 150,000 South Korean workers walked out of factories at firms like Samsung and Hyundai in protest against the utter failure of Moon’s government to come across with the chaebol reforms he promised.

The KCTU did not mince words in describing the situation in South Korea. “There has not been any real progress in chaebol reform,” it said. The KCTU added: “We think our labour rights as well as corporate reform have actually worsened under the Moon administration.”

Park Geun-hye

The KCTU further noted that the chaebol kingpins Lee Jae-yong (Samsung) and Shin Dong-bin (Lotte) had recently been arrested, tried, and convicted of bribing former President Park Geun-hye (who left office in disgrace because of the scandal) only to be given suspended sentences. Such special treatment for chaebol top guns is a longstanding tradition in South Korean politics and jurisprudence, and one that is making the nation’s citizens increasingly restive.

Hence the worker walkout.

Lee Myung-bak

That November 21 protest, moreover, was only one part of a growing nationwide uprising against President Moon. Every weekend of late, South Koreans have poured into the streets of Seoul in huge numbers to express their rage over Moon’s failure to keep his pledges. Describing these demonstrations as “raucous,” the Financial Times noted that while President Park and another former president, Lee Myung-bak, have ended up behind bars for corruption, the chaebol masters who were involved in the same acts of corruption still seem to be above the law.

According to FT, the probability that a chaebol boss convicted of corruption will get a suspended sentence exceeds 70% – while the comparable rate among non-chaebol leaders is 40%. As for poor schlubs who are found guilty of “street crimes,” such as petty theft, only 20% of them can expect to have their sentences suspended, even though the scale of their crimes is, of course, outrageously trivial compared to the monstrous malfeasances routinely committed by chaebol royalty.

Chaebols: are the “ants” finally rebelling?

The South China Morning Post recently ran a fascinating piece by Geoffrey Cain and Max Kim. Its premise, as stated in the first sentence, was as follows: “The family-run conglomerates that power South Korea’s economy have long been above listening to individual shareholders – or ants. But as the scandals mount, and take down presidents, those ants are fighting back.”

Samsung headquarters, Seoul

We’ve written frequently at this site, of course, about those South Korean conglomerates – known as chaebols – that are notorious for their outsized power and corruption and for the perverse fact that the power is in the hands of families that own small percentages of these behemoths and not in the hands of shareholders.

Just as a certain 2016 presidential candidate called ordinary Americans who work hard and pay taxes “deplorables,” the people who actually inject their own cash into these companies – and are therefore, technically, their owners – are called “ants.”

Hyundai headquarters, Seoul

Cain and Kim noted a couple of the high-profile corruption trials and convictions that have taken place in the last year or so and that we’ve written about here. But they added this highly interesting point: “In fried chicken and beer joints, in coffee shops in Seoul’s financial district of Yeouido, and in mobile app chats where investors circulate industry gossip, individual shareholders – known as ‘ants’ in investment circles – are getting rowdy and putting up a fight.”

LG headquarters, Seoul

About time. To some of us, the passivity of chaebol shareholders has never made a great deal of sense. It can only be understood as a cultural thing, a sign of the near-reverence with which the chaebol families have long been regarded. After the Korean War, these families founded these companies, and these companies, in turn, raised South Korea up from an impoverished Third World land to an economic powerhouse. Hence the family patriarchs came to be viewed as virtual royalty.

Hanjin headquarters, Seoul

But no more. “Corporate shareholder meetings have stretched for more than a dozen hours,” wrote Cain and Kim, “as shareholders barrage CEOs with questions; others have stormed the microphone, only to be removed by security.” They quote one “ant’s” summing-up of the way South Koreans have been trained to think about these things: “Finance is like the written word of ancient times,” he said. “It is the privilege of the ruling class. It is the preserve of the elite.” Well, if these signs of revolt are portents of a new era, then that kind of old-fashioned deference to a handful of powerful clans may well be on the way out. Which, it has to be said, is a healthy sign for South Korean democracy.

The chaebol suicides

Samsung headquarters, Seoul

Another week, another stroll down memory lane. Chaebol memory lane, to be specific. In recent weeks we’ve been recounting the stories of various top-level executives of these massive South Korean conglomerates – men who, as is their wont, have ended up in hot water, and often in courtrooms (and, sometimes, at least briefly in prison cells) because of their corruption.

To be sure, chaebol leaders who get caught with their hands in the till don’t always end up arrested or imprisoned or pardoned. The South Korean shame culture leads some of them to take their lives. You might wonder why, if the shame culture is a powerful enough psychological phenomenon to drive these people to suicide, it doesn’t keep them from bribing and embezzling and so on in the first place. But that question is perhaps beyond the scope of this blog.

Chung Mong-hun

Here are a few examples of high-level South Korean self-slaughter. On August 4, 2003, Chung Mong-hun, the chairman of Hyundai and the son of its founder, jumped to his death from his 12th-floor office window. As the New York Times put it, Hyundai was South Korea’s “economic ambassador to the Communist North”; Chung had played a key role in arranging an historic summit in June 2000 between Kim Jong Il and South Korean president Kim Dae Jung. Afterward, however, South Korean auditors looked into the behind-the-scenes dealings relating to the summit and found that Chung had illegally paid a massive bribe to Pyongyang. He was about to be arrested for this crime when he chose to take the leap from his office window.

Roh Moo-hyun

On May 23, 2009, Roh Moo-hyun, who had served as president of South Korea from 2003 to 2008, killed himself by jumping off a cliff near his home. He had been under investigation for accepting $6 million in bribes from the business sector during his presidency. He had already been interrogated, and his wife was scheduled for questioning by investigators on the day of his death. He had already said that he “was losing face and that he was disappointing his supporters”; in a suicide note, he wrote: “nothing is left in my life but to be a burden to others….Don’t be too sad. Aren’t life and death both a piece of nature? Don’t be sorry. Don’t blame anyone. It is fate.”

Lee In-won


Two years ago it was Lee In-won’s turn. Lee, the #2 man at the Lotte Group, which at the time was South Korea’s fifth largest conglomerate, when he was
found dead in August 2016 beside a walking and cycling path near Seoul; he had hanged himself from a tree with his necktie. Lee, age 69, had spent 43 years at Lotte, where he was the highest ranking official not belonging to the conglomerate’s ruling Shin family. His suicide took place two months after police – tipped off about crooked deals among Lotte subsidiaries that led to the formation of a slush fund – raided the firm’s offices in search of evidence of those crooked deals. At the time of Lee’s suicide, he was scheduled to be grilled by prosecutors about these irregularities.

Lotte has less of an international profile than other major chaebols such as Samsung and Hyundai because its wealth is derived not from high-tech products exported around the world but primarily from apartment buildings, hotels, malls, cinemas, fast-food restaurants, and other such busineses in South Korea. It has about 80 subsidiaries and over 300,000 employees. The New York Times reported that Lee “was one of the professional executives commonly known in South Korea as vassals, for their loyalty to the families that control the business empires. These executives rarely betray their bosses during corruption investigations.”

A chaebol tale

Recently, we’ve been spending a lot of time here covering the chaebols, those economy-driving but corruption-ridden conglomerates that pulled South Korea out of the Third World but are now keeping its economy from shifting into even higher gear. Regular readers of this site will know that the current government in Seoul claims to be making serious efforts to reform the chaebols – but that so far there has been more big talk on this front than productive action.

Daddy Chung

As part of our attempt to educate our readers about this topic, we thought it might be advisable to take a look at some highlights of chaebol history. Today we’ll be harkening back to 2006, when Chung Mong Koo, the head of Hyundai Motor, the second largest chaebol in South Korea and (at the time) the seventh-largest carmaker in the world, and son of the man who had founded it in 1947, was arrested on charges of embezzlement and other forms of corruption.

The sum he had purportedly stolen from Hyundai was no less than 100 billion won, or $106 million. He was also accused of breach of trust for supposedly having incurred over 300 billion won, or $318 billion, in damages to the conglomerate. Moreover, government investigators had apparently uncovered evidence of “slush funds, compliant corporate boards and questionable arrangements involving affiliates that were set up to help Mr. Chung turn over the conglomerate to his son, Chung Eui Sun.”

Sonny Chung

Chung was the most powerful businessman in the country to have been arrested in a long time, and if found guilty of all charges he faced a possible life sentence. Except, of course, that he didn’t really face any such thing. The story of Chung’s brush with the law – he was sixty-eight at the time – ended up falling into the usual South Korean pattern, which can be represented by the formula A-I-R. A: arrest. I: imprisonment. R: release. Sometimes there’s a trial, and sometimes even a sentencing; sometimes these guys are pardoned before a trial can even be arranged or before a sentence can be handed down.

Chung had a trial. In February 2007, he was sentenced to three years in jail. (By this time, interestingly enough, Hyundai was being identified as the world’s sixth-largest carmaker.) The prison term came as a surprise: prosecutors had asked for six months, and it had been expected that Chung would get a suspended sentence. Certainly Chung seemed to expect that. In court, he “appeared shaken after the verdict.” He was, however, allowed to go home, prepared his appeal, and keep running Hyundai.

Hyundai headquarters, Seoul

Sure enough, as it happened, Chung stayed home. In September 2007, a three-judge panel of the Seoul High Court suspended Chung’s three-year sentence. The court’s explanation for this suspension was surprisingly frank. Presiding Judge Lee Jae-hong said that he had struggled with the decision, and had “sought the views of various people, including other judges, prosecutors, lawyers, journalists and ‘even taxi drivers and restaurant employees.’” In the end, he claimed, national interest had won the day: Chung was simply too important to South Korea’s economy not to have to go to jail. “I am also a citizen of the Republic of Korea,” he told the courtroom. “I was unwilling to engage in a gamble that would put the nation’s economy at risk.”

In a way, it was a refreshing admission. There was not the slightest pretense that the South Korean judiciary offers anything resembling equal justice for the rich and poor. No, Lee’s statement amounted to a candid acknowledgment that in South Korea, the chaebols do indeed rule.

What the hell is wrong with the chaebols?

Samsung headquarters, Seoul

We’ve been writing a good deal lately about the chaebols, those immense, influential, and staggeringly corrupt family-run conglomerates (think Samsung, Hyundai, LG, and Daewoo) that have dominated the increasingly dynamic South Korean economy during the more than half century since the Korean War. In recent decades, one government after another has promised to tame them, but, as we’ve seen, their power has yet to be seriously diminished.

We’ve wondered: what is it about Korean culture and the Korean sensibility that made the chaebols possible in the first place? How have the same crooked families – who over the years have been caught giving and taking massive bribes and embezzling fortunes from their firms – been able to maintain absolute control of them from generation to generation?

Hyundai headquarters, Seoul

After all, in most cases, these families don’t even own anywhere near a majority of company stock. The clan that runs Samsung, for example, holds just over one percent of total shares in that firm; the family that holds the reins at Hyundai owns about one-thirtieth of it. Indeed, on average, the chaebol royal families own only about three percent of the conglomerates that they run with iron fists.

But that doesn’t matter. As South Korean observers have pointed out, there’s something in the Korean mentality, with its fixation on family, that makes it well-nigh impossible for most citizens to accept the idea that the shareholders in a firm are its actual owners; instead, they reflexively view the chaebol dynasties, however little stock in their own companies they may have in their portfolios, as the real owners.

LG headquarters, Seoul

Yes, the passing down of company management from one generation of a family to the next is a worldwide phenomenon. But family is an even bigger thing in South Korea than elsewhere. There are, as it happens, ancient religious roots – Confucian roots – to this way of thinking. It’s no exaggeration, in other words, to say that in Korea, the idea of family is swathed in a kind of reverence. Especially in a time of rapid transformation in social and cultural structures, family continuity is widely seen as providing needed continuity and even giving those structures a kind of legitimacy that they otherwise would lack. From one perspective, of course, this may be an admirable way of thinking. From another, however, it is a sensibility that can create all kinds of problems for a large twenty-first-century business operating on the international financial stage.

Daewoo headquarters, Seoul

For the fact is that the curious structure of the chaebols renders shareholders all but powerless. Their investments are at the mercy of top executives who have inherited their positions and who may or may not know what they’re doing in those jobs, which are, frankly, nothing more or less than sinecures. Virtually nothing can dislodge these dynastic figures from their perches – not manifest incompetence, not proven corruption, and not an established pattern of business decisions that are obviously meant to serve their own families’ interests rather than the interests of shareholders, workers, or the firms themselves. Yes, the South Korean government is supposedly pushing reforms. But they’re weak reforms, insufficient reforms, and the degree to which the government is pushing for them is, frankly, pathetic. One thing is clear: if there’s going to be anything close to genuine change at the chaebols, the shareholders need to raise their voices more loudly, assert the power that’s rightfully theirs, and demand that these conglomerates shake off their Confucian roots and fully join the modern world economy. 

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.

Reforming chaebols? Or sucking up to Kim?

Samsung headquarters, Seoul

When it was announced last year, with big fanfare, that South Korea had finally gotten serious about tackling the outsized power of the chaebols, we were instantly cynical. This was, after all, hardly the first time that the government in Seoul had vowed to put Samsung, Hyundai, and the other family-run conglomerates in their place. But it never happened. Instead, the same old pattern continued: the chaebols kept throwing their weight around, kept paying huge bribes to public officials in exchange for laws, permits, and exemptions favorable to their business activities, and using their near-monopolistic market positions to smother fledgling firms in their cradles. Every now and then the head of a chaebol would get put on trial for corruption, and inevitably the case would either go away or the boss man, after being found guilty, would be given a get-out-of-jail-free card.


The latest case in point was that of Jay Y. Lee (Lee Jae-yong), vice chairman and de facto head of Samsung, who was sentenced to five years in prison last year only to be freed this year. On September 18, President Moon Jae-in, who not so long ago had essentially declared zero tolerance for chaebol corruption, hopped on a place with Lee and other chaebol honchos and flew with them to Pyongyang to explore the possibility of doing business with the Hermit Kingdom, perhaps even building factories in that totalitarian land. Even as their exploratory talks with Kim Jong-un were underway, Moon’s corruption czar, Kim Sang-jo, head of the Fair Trade Commission, was making his informal title of “chaebol sniper” look pathetic.

“With exports of semiconductors one of the few bright spots in an economy that’s showing signs of strain,” noted Livemint, the Indian business news website, on the day Lee & co. jetted northwards, South Korea’s “reliance on its most profitable company is deepening and thus reducing regulatory pressure on Samsung.” Chung Sun-sup, a corporate analyst, confirmed that the South Korean government “needs Samsung now.” Bruce Lee, CEO of Zebra Investment Management, agreed that the nation’s faltering economy “means a halt in chaebol reforms.” And Kwon Young-june, an expert in corporate governance at Kyung Hee University, concurred. “Reforms are dying on the vine,” he said. “The government will find itself more and more in need of conglomerates as long as it is fixated on quick results rather than long-term reforms.”

Indeed, by escorting the chaebol kingpins to Pyongyang, Moon was doing the very opposite of what he had promised: rather than limiting the power of the chaebols, he was doing his best to expand their power. What kind of head of state lowers himself to the role of chaperon, escort, cicerone, sherpa? With this one move, Moon provided the whole world with a vivid illustration of where the power really resides in South Korea. Did he serve them coffee on the plane, too?

But that wasn’t all. Far from curbing chaebol criminality, Moon was taking actions that seemed likely to invite criminality. North Korea, after all, is subject to strict international sanctions that would almost certainly be violated by any significant business arrangement with the chaebols. Lee Seok-ki, a researcher at the Korea Institute for Industrial Economics and Trade, told the Korea Joongang Daily that “if we only look at the cost side, North Korea has more labor cost effectiveness than any other country on the planet – even Vietnam and China.” Well, yes – making use of slave labor by people who are forced to live on starvation diets tends to bring down wages. Surely, to any decent observer, the very idea of the filthy-rich chaebols maximizing their profits by employing the brutalized subjects of the Kim dynasty is as reprehensible a business proposition as one could imagine – and is also, of course, as far as possible from any concept of reform.

South Korea: tame chaebol reform, or none at all?

 

Moon Jae-in

In South Korea these days, the billion-dollar question is this: is the administration of President Moon Jae-in serious about reforming the systematic corruption that’s been a national institution ever since Samsung, Hyundai, LG, and the other so-called “chaebols” began dominating its economy?

The history of chaebol criminality – which has largely taken the form of bribes to top government officials – goes back to the years following the Korean War. For decades, the South Korean public has increasingly cried out for reform. President Moon, who took office last year after his predecessor, Park Geun-hye, was removed from office on corruption charges, has called chaebol corruption a “deep-rooted evil.”

But does he mean it? Or are the stiff sentences handed down in August to Moon’s crooked predecessor, Park Geun-hye, and her friend and partner in crime, Choi Soon-sil, a fluke?

Park Geun-hye

Then, of course, there’s the other, depressingly familiar, possibility: will Park and Choi, like their fellow crook, Samsung chief Lee Jae-yong (aka Jay Y. Lee), and a raft of convicted CEO-felons and presidents before him, end up being let out of jail on some technicality that leaves the entire country even more cynical about their judiciary’s dedication to equality before the law?

Kim Sang-jo

Well, so far Park and Choi remain behind bars. And only days after their conviction was affirmed – and their sentences enhanced – by a high court, South Korea’s Fair Trade Commission (FTC) proposed new rules to govern the chaebols. The head of the FTC, Kim Sang-jo, who has acquired the nickname “the chaebol sniper,” has declared his determination to take on the ownership strucures of the two largest chaebols, Samsung and Hyundai.

Bruce Lee of Zebra Management

An abiding problem at these and other conglomerates has been that the families that founded them still rule them like kings, routinely making sweeping managerial decisions while ignoring the input of shareholders. Kim’s stated goal is to diminish the power of those families, whose grip on their conglomerates well exceeds their relative value of their ownership shares in those conglomerates.

How to address that problem? Well, under current regulations, a chaebol must own at least 20% of its listed subsidiaries and 40% of unlisted units. Kim’s new rules would raise those figures to 30% and 50% respectively.

Robyn Mak

That’s not all. Members of a chaebol’s founding family would not be allowed to have more than 15% of the voting rights in a listed affiliate of that chaebol. Other new rules would also limit the power of corporate kingpins to pull off mergers or spin off subsidiaries without shareholder support. They would also clamp down on circular shareholdings and other intra-conglomerate machinations and intensify disclosure requirements.

Yet in the eyes of serious observers, the commission’s proposed changes are too little, too late. “I would give 20 points out of 100, a basic score, to what the Moon government has done for corporate governance reform,” Bruce Lee of Seoul-based Zebra Investment Management told Bloomberg News.

Commentator Robyn Mak called the proposed new regulations “the first rewrite of antitrust rules in nearly four decades,” but added that given the slow growth of South Korea’s economy, the chaebols are in the catbird seat. “That means corporate governance reform probably will wind up weaker than originally anticipated.”

Indeed, modest though Kim’s proposed changes are, “Moon will struggle,” maintained Mak, “to gain political support to enact some of the new ideas.” We’ll keep abreast of developments.

Gangnam steal

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Park Geun-hye

Things are moving fast in South Korea. Early last week we caught up with developments in that country, where a massive scandal is roiling the chaebols (i.e. Samsung, Hyundai, and the other conglomerates that are the cornerstones of the economy) and is threatening to bring down President Park Geun-hye – who stands accused of helping her longtime chum Choi Soon-sil shake the chaebols down to the tune of some $69 million.

samsung-headquarters
Samsung headquarters, Seoul

Since we ran those pieces, there’s been a major new development. Last Wednesday, prosecutors raided Samsung’s headquarters in the Gangnam district of Seoul, the offices of the national pension service, and the office of Hong Wan-sun, who until earlier this year was chief investment officer at the pension service. Last year, as Jonathan Cheng and Eun-Young Jeong wrote in the Wall Street Journal, the pension fund “cast a decisive vote in favor of a merger of two Samsung affiliates” – namely, Cheil Industries and Samsung C&T – “that strengthened the grip of vice chairman and third-generation heir Lee Jae-yong on smartphone maker Samsung Electronics Co., the crown jewel of the business empire.” The raids were reportedly part of a probe of that merger. One detail overlooked by the Journal, but emphasized by one South Korean news source, was that this was the third raid on Samsung in a month – an indication that prosecutors had “already made significant progress in their investigation.” The same source indicated that this time around the raid focused largely on the office of Choi Ji-sung, Samsung’s Future Strategy czar.

lee-jae-yong
Lee Jae-yong

As the Journal‘s reporters noted, all this comes at a tough time for Samsung, which alone accounts for 17% of the South Korean economy. The discovery that Samsung’s Galaxy Note 7 smartphone could overheat and explode in a life-threatening conflagration led to two full recalls, cost over $5 billion, and caused the firm enormous embarrassment, leading to what may be long-lasting brand damage.

samsung-galaxy-note-7
Galaxy Note 7

The ultimate impact of this scandal, however, may be even more explosive than the Galaxy Note 7. As Bloomberg News observed in the wake of the Wednesday raids, it’s “raising fresh questions about decades of cozy ties between the nation’s big conglomerates and those in power.” While one president after another (including Park) has promised to limit the chaebols’ influence, each of those presidents has continued to play the same old game, exchanging favors, breaks, perks, etc., for cash on the barrel head. So far, it’s mostly been Park’s reputation that has suffered: once a popular leader, she’s now got an approval rating in the single digits. But as the South Korean public watches the country’s most powerful businessmen being paraded into police interrogation rooms like small-time crooks, and sees prosecutors raiding the offices of the nation’s largest and most prestigious company as if it were a Mafia operation, the chaebols – whose reputations have already been on the skids for years – are bound to lose even more of their luster. 

The only thing that’s sure here is that this story is just beginning to get underway. As the details of chaebol corruption continue to be investigated, uncovered, analyzed, and publicized, we’ll continue to monitor developments.

Seoul sisters

Berlin, Staatsbesuch Präsident von Süd-Korea
Park Chung-hee

It wasn’t much more than a couple of months ago that we took a gander at South Korea’s chaebols, the massive firms – such as Samsung and Hyundai – that make up a huge portion of that country’s economy and that have been at the center of one scandal after another, in which top politicians have been accused of taking huge sums from the giant companies in exchange for monopolies, patents, tax breaks, and the like.

This practice, known as rent sharing, became established during the dictatorship of Park Chung-hee (1963-79), and has continued into the country’s democratic era. Presidents Roh Tae Woo (1988-92) and Kim Dae-Jung (1998-2002) were both found guilty of taking chaebol cash; President Roh Moo-hyun (2003-08) responded to allegations of accepting chaebol bribes by jumping to his death in a ravine.

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Park Geun-hye

Now South Korea is embroiled in what may be the biggest chaebol scandal yet. In a case that began to make headlines just last month, President Park Geun-hye, the daughter of Park Chung-hee, has been accused of helping a longtime friend, Choi Soon-sil, extort some $69 million from several of the chaebols and letting her receive classified documents. On November 1, Choi was taken into custody by police.

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Seoul protest against Park

Members of Park’s own party have called for her impeachment; countless people have taken part in demonstrations around the country demanding her resignation or arrest; over half a million gathered in Seoul this past Saturday in the largest protest the country has experienced since the end of authoritarian government in 1987.

choi_soon_sil_afp640
Choi Soon-sil

The corruption scheme began when a South Korean TV network, JTBC, reported that Choi had improperly received secret government documents via e-mail. Choi, who is said to have received the above-mentioned $69 million through two foundations she controls, is widely viewed as the real power behind the president, who has been in office since 2013; editorial cartoons have depicted her as Park’s puppet master. Prior to her arrest, Choi apologized for having “committed a deadly sin” and asked the public for its forgiveness.

choifather
Park Chung-hee (left) meeting with Choi Tae-min

Choi and Park go back a long way: Choi’s father, Choi Tae-min, was a shady character and ecclesiastical huckster (the New York Times has called him a “religious charlatan”) who, in addition to founding a marginal sect called the Church of Eternal Life, managed to wangle his way into the role of close friend and adviser to Park’s father.

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The Blue House

Like father, like daughter: the younger Choi not only succeeded her father as head of his daffy church; she also wields a great deal of power in the Blue House, the South Korean equivalent of the White House, even though she holds no official title. For years, according to CNN, Choi “has given Park spiritual guidance.” She’s seen, in fact, as something of a Rasputin, who’s dragged into the presidential orbit a load of astrological hogwash and mystical hocus-pocus.

On Sunday, lead prosecutor Lee Young-ryol said that he would investigate President Park, whom he called an “accomplice” of Choi’s in the scandal and who has so far refused to be interrogated by police. (Park now becomes the first South Korean president to be criminally investigated while still in office.) Lee also announced that he had indicted Choi on charges of extortion and abuse of power and had charged two former Park aides with pressuring firms to donate to Choi’s foundations and handing her classified documents.

hwang_kyoahn
Hwang Kyo-ahn

Fortunately for Park – who has already dismissed ten senior policy aides, several cabinet members, and the prime minister, Hwang Kyo-ahn – she’s protected by the Constitution from prosecution (except in cases of treason and insurrection) as long as she stays in office. But her approval rating is at a miserable 5%, and things are changing quickly as the investigation passes into the hands of a parliament-appointed special prosecutor. If she gets impeached, she may go straight from the Blue House to the Big House.

Meanwhile, of course, all this has shaken up several of the chaebols, whose leaders have been questioned by the police. We’ll get to that tomorrow.