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.

Lee is free – and South Korean reform is dead

We’ve been writing about Samsung since September 2016, when we explained the distinctively South Korean type of family-run corporate conglomerate known as the chaebol. “The simple fact,” we noted, “is that pretty much everybody in the South Korean government is on the chaebols’ payrolls – or wants to be. And the growing popular resentment of this grand corruption is an extremely good sign.”

Park Geun-hye

A couple of months later we reported on charges that South Korea’s then President, Park Geun-hye, had helped a friend, Choi Soon-sil, extort huge sums of money from several of the chaebols. The largest chaebol, Samsung, which accounts for some 17% of South Korea’s economy, gave Choi over $15 million. By December 2016, the official probe into this corruption uncovered that the sum extracted from Samsung was closer to $20 million. In return, President Park allowed the merger of two Samsung entities.

Lee Jae-yong (aka Jay Y. Lee)

In January of last year came the news that prosecutors had barred Lee Jae-yong – the de facto head of Samsung, grandson of its founder, Lee Byung-chul, son of its official chairman, Lee Kun-Hee (who stepped down from day-to-day management, but did not relinquish his title, after a 2014 heart attack), and arguably the most powerful man in South Korea – from leaving the country. In February Lee (who in the West goes by the name Jay Y. Lee) was arrested; in March, Park was removed from office.

Her replacement, Moon Jae-in, promised to curb the power of the chaebols, whose domination of the nation’s economy has thwarted new business development, whose cozy ties to government leaders have caused widespread suspicion and resentment, and whose leaders’ ability to escape punishment for large-scale corruption has made them seem to be above the law.

Moon Jae-in

Lee’s trial began in March. Dubbed “the trial of the century” in South Korea, it involved five charges: bribery (maximum possible sentence: five years), embezzlement (eight years) perjury (ten years), concealing criminal proceeds (five years), and hiding assets abroad (life). Prosecutors asked for a sentence of twelve years. In August, after five months of testimony, Lee was found guilty of all five charges and sentenced to five years in prison. He was thereupon “sent to a prison for white collar criminals in Uijeongbu.”

Then, last month, came a startling development. Lee, who had appealed his sentence, was taken from his prison cell and transported to the Seoul High Court. There, presiding senior judge Cheong Hyung-sik informed him that he was to be released immediately and would be on probation for four years.

Lee in handcuffs

Cheong – who, technically speaking, had not reversed or commuted Lee’s sentence but cut it in half and then suspended it – maintained that Lee’s only real offense was to have succumbed understandably to inordinate pressure exerted on him by Park Geun-hye while she was serving as President. “Park threatened Samsung Electronics executives,” claimed the judge. “The defendant provided a bribe, knowing it was bribery…but was unable to refuse.” Not a small number of South Koreans regarded this as a thoroughly absurd argument. 

More on Thursday.

South Korea kicks out Samsung’s pet prez

Park Geun-hye

For the last few months, we’ve been following the growing South Korean corruption scandal that involves the Samsung Corporation, President Park Geun-hye, and the President’s best friend Choi Soon-sil. In a country where corruption scandals involving ties between top political leaders and the powerful chaebol – the immense, family-controlled conglomerates that are the pillars of the nation’s economy – are a frequent occurrence, the present scandal was the biggest ever.

South Korea’s Constitutional Court

On Friday, that scandal came to a climax as the eight justices on the country’s Constitutional Court voted unanimously to remove Park Geun-hye from the office of the presidency for committing acts that “betrayed the trust of the people and were of the kind that cannot be tolerated for the sake of protecting the Constitution.” The court’s move, which followed the suspension of Park’s powers in December when the national legislature voted for impeachment, and which took effect immediately, was without precedent in South Korean political history.

Choi Soon-sil in police custody

The unseating of Park caused joy in some quarters and fury in others. A protest outside the courthouse by supporters of Park turned violent, with two protesters dying in the melee. As for Park, now that she no longer enjoys the immunity from prosecution that comes with being president, she is likely to be tried on charges of bribery, extortion, conspiracy, and abuse of power for having extorted millions of dollars from Samsung and other firms in collaboration with her lifelong friend Choi Soon-sil.

Lee Jae-yong

Park’s ouster on Friday followed the arrest, on February 17, of Lee Jae-yong, the de facto head of Samsung, and the announcement on February 28 that prosecutors would be indicting Lee “on charges of bribery and four other offenses.” As Choe Sang-hun wrote in the New York Times, “Samsung, the nation’s largest conglomerate, has been tainted by corruption before. But the company has been considered too important to the economy for any of its top leaders to spend time behind bars — until now. The jailing of Mr. Lee, who is facing trial, is another potent sign that the old order is not holding.”

The Constitutional Court’s ruling marked a victory for honest government and above-board business practices. As Choe noted, the constitutional orderliness of the process also demonstrated how how far South Korean democracy has come in the last half-century. Ahn Byong-jin of Seoul’s Kyung Hee University told the Times that “the curtain is finally drawing on the authoritarian political and economic order that has dominated South Korea for decades.”

Park’s supporters clash with police

The verdict may also, alas, turn out to have a serious downside. To quote Choe, Park’s departure “is expected to shift South Korean politics to the opposition, whose leaders want more engagement with North Korea and are wary of a major confrontation in the region. They say they will re-examine the country’s joint strategy on North Korea with the United States and defuse tensions with China, which has sounded alarms about the growing American military footprint in Asia.”

Hwang Kyo-ahn

In other words, South Korea, which in recent years has been a reliable bulwark of democracy in the region, may end up being led by people who are eager to appease Kim Jong-un and Beijing and to distance themselves from the U.S. and other democratic allies. The election to replace Park must take place within sixty days; in the meantime, an ally of Park’s, Hwang Kyo-ahn, will serve as acting president. According to the Times, the Trump government “is rushing a missile defense system to South Korea so that it can be in place before the election.”

Will Samsung’s Lee be in handcuffs tomorrow?

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Samsung headquarters in Seoul

When we last left our South Korean friends in the Blue House and the chaebol boardrooms, the probe into Samsung’s cash transfers to foundations linked to presidential chum Choi Soon-sil – apparently in exchange for support for a merger between two Samsung subsidiaries – had entered a new phase. Documents had been confiscated at several locations, including the homes of several Samsung executives; the independent counsel had issued an arrest warrant for Choi’s daughter; and Samsung vice-chairman Lee Jae-yong, who is the firm’s de facto top dog and the son of its founder and chairman, Lee Kung-hee, had been barred from leaving the country.

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Lee Jae-yong

The latest update came on Monday in the Wall Street Journal. The special prosecutors, reported Eun-Young Jeong, Jonathan Cheng, and Timothy W. Martin, were seeking an arrest warrant for Lee on charges of bribery, embezzlement, and perjury. In order to be able to issue the warrant, they need to solicit approval from a South Korean court, which is scheduled to hold a hearing tomorrow to entertain that request. If approval is granted, Lee – who spent 22 hours last week being interrogated – will be taken into custody while the prosecutors continue to pursue their investigation. Samsung was quick to reply to the prosecutors’ request for an arrest warrant, repeating previous denials that it had made contributions in exchange for favors or made any “improper requests related to the merger of Samsung affiliates or the leadership transition.”

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Lee Kun-hee

The Journal noted that if Lee is indeed incarcerated for any length of time, the conglomerate “could face a leadership vacuum while smartphone maker Samsung Electronics Co. is also reeling from a massive recall of its Galaxy Note 7 device. It could also put on hold any further attempts to reorganize one of the world’s most complex business empires.” Indeed, it would almost certainly have a significant impact on the South Korean economy, given that Samsung alone, as the Journal pointed out, “accounts for nearly one-third of South Korea’s stock-market value.”

Meanwhile President Park Geun-hye’s fate also lies in the balance. Last month the National Assembly voted to impeach her, and the Constitutional Court is debating whether to unseat her from the office she has held since February 2013. If the evidence proves that Lee is guilty of the charges leveled against him, it is more likely that the same evidence will help convict Park as well.

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Park Geun-hye

It should be underscored that the current Samsung probe is far from the first to target one of the chaebol – the massive, family-run conglomerates that have formed the foundation of the postwar South Korean economy. Over the years, other chaebol executives – including Lee’s father, who reportedly pocketed $8.9 billion in Samsung funds – have been indicted and convicted on corruption charges. But almost all of them have received presidential pardons that kept them out of jail. The history of brazen, high-level corruption at the conglomerates has underscored the special privileges enjoyed by the clans that own and run them as well as the intimate, one-hand-washes-the-other relationship that has long existed between them and the office of the president.

This time, however, the story may take a fresh turn: the #1 man at the nation’s #1 company may end up going down for good, and when he does, he may very well take the president down with him. Stay tuned.

Digging up Samsung’s dirt

samsung-headquarters
Samsung headquarters

The probe into corruption at Samsung and the Blue House – South Korea’s presidential palace – entered a new stage on Wednesday, with investigators racing to get to the bottom of last year’s shady merger between Samsung C&T and another Samsung affiliate, Cheil Industries.

A quick summary of what we already know: last year, Samsung donated $20 million to two entities, the Mir Foundation and K-Sports Foundation, that are linked to Choi Soon-sil, an intimate of President Park Geun-hye. Samsung also funneled sizable amounts of cash to Choi and her family through a German corporation she controls and even underwrote her teenage daughter’s pricey equestrian activities.

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Choi Soon-sil

Why exactly did they fork over all this dough to Choi & co.? The working theory, in three words: quid pro quo. Try to follow this reaction pathway: Samsung bigwigs are believed to have bribed Choi to lean on her BFF, President Park, to order the National Pension Service – a major Samsung stockholder – to approve of the C&T/Chiel merger. The pension execs, as it happens, did indeed end up voting for the merger, even though their analysts had urged them to give it a thumbs-down.

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Lee Jae-yong

In short, the guardians of South Korea’s retirement funds didn’t do what was best for retirees or for fellow C&T and Cheil stockholders (who, recognizing the merger as unfavorable to their interests, fiercely opposed the merger). They did what was best for the powers that be at Samsung, period. Especially Samsung vice chairman Lee Jae-yong.

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President Park Geun-hye

At least that’s where the available evidence – largely acquired during a previous round of prosecutorial raids – seems to point. Now two investigative teams, one of them led by special independent counsel Park Young-soo, are intensifying the probe. On Wednesday, seeking further evidence, Park’s team – which has 70 days (with a 30-day extension if necessary) to complete its work – confiscated documents and hard drives at about ten locations, including the National Pension Service’s asset management office, the headquarters of the Ministry of Health and Welfare, and the homes of several Samsung executives.

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Chung Yoo-rah

That’s not all. The independent counsel has also secured an arrest warrant for Chung Yoo-rah, Choi’s horse-happy daughter, now 19. Since Chung is believed to be in Germany, the counsel has asked German officials to extradite her, has requested her German credit-card and phone records,  and has arranged for the cancellation of her passport. The investigators are even scrutinizing Chung’s high-school record, which turns out to have been faked. (The national educational department has already revoked her diploma.)

Meanwhile Lee – who, since his father, Lee Kung-hee, suffered a heart attack in May 2014, has been Samsung’s de facto top dog, and hence South Korea’s most powerful businessperson – has been barred from leaving the country. Earlier this month, the younger Lee testified at a parliamentary hearing that he didn’t know Choi and that Samsung’s payouts to her and her organizations were not bribes. According to one source, the independent counsel’s main goal is to find out whether or not that’s true.

samsungcar
A car that was reportedly set on fire by an exploding Samsung Galaxy 7 phone

The whole scandal is, of course, a huge blow to Samsung, South Korea’s largest conglomerate and the ultimate symbol of the nation’s postwar economic success. And it’s happening, note well, at a time when Samsung is still smarting from its exploding-phone fiasco.

So start the countdown: seventy days. For our part, we can’t wait to see what Park Young-soo and his colleagues dig up.

Did Park take Samsung cash to push a merger? Looks like it.

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Park Geun-hye

The soap opera in Seoul continues. On Tuesday, in a brief TV address, President Park Geun-hye offered to avoid impeachment by resigning – although not immediately – from office. Opposition legislators, viewing the offer as an attempt to quash the impeachment effort, said no, promising to go ahead with the impeachment vote, which had been planned for today, but which has now been postponed to next Friday. By day before yesterday, however, parliamentarians from Park’s party had switched from supporting impeachment to going along with a deal to let her resign – even though she might not quit until some time in April.

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Choi Sun-sil

Meanwhile prosecutors continue to uncover details of the corruption scandal that set all this drama in motion. As we’ve seen in the last couple of weeks, the probe centers on fishy payouts by various family-run conglomerates – known in South Korea as chaebols – to foundations under the control of Park’s close friend Choi Sun-sil. Among these suspicious outlays are multiple contributions by the Samsung Group, the biggest chaebol of all, that added up to a cool $20 million.

What did Samsung get in return for its $20 million? That’s under investigation, too. One focus is on last year’s merger between two companies in the Samsung Group – Samsung C&T, which is involved in construction, trade, apparel, and resorts, and Cheil Industries, which sells textiles, apparel, and chemicals.

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Lee Jae-yong

The merger was a subject of fierce contention. On one side were the top honchos at the Samsung Group, who strongly favored the merger because they considered it necessary to keep the group under strict family control – a chaebol tradition. Lee Jae-yong, Vice Chairman of Samsung Electronics, was especially pro-merger, because he and his family owned 42% of Cheil, and the merger terms were highly favorable to Cheil shareholders.

These insiders were vigorously opposed, however, by various outsider shareholders in Samsung C&T, who believed – with good reason – that the merger wasn’t in their own best interests.

So who cast the deciding votes – the votes that put the merger over the top? South Korea’s National Pension Service, which owned 11% of Samsung C&T. Which raises another question: why did the pension fund vote the way it did?

samsung-headquarters
Samsung headquarters

Now comes an answer. In a major revelation, a member of the pension fund’s decision-making advisory board has told the Hankyoreh – South Korea’s most respected independent newspaper – the story behind its pro-merger vote. The fund, he said, didn’t vote for the merger because its analysts decided that was the preferred choice for South Korean pensioners. On the contrary, a consulting firm that the fund had hired to advise it on the question had come down firmly against the merger.

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Blue House

Why, then, did the fund give the merger a thumbs-up? According to the official who spoke to the Hankyoreh, it did so in response to direct pressure from two quarters. One was the Minister of Health and Welfare, who phoned the official and urged a pro-merger vote. The other was a friend of the official who called him on behalf of the Blue House itself – South Korea’s White House.

“My friend told me,” the pension official recounted, “that the Blue House’s position was that I should vote in favor of the merger. If the merger was rejected, he said, the transfer of power at the Samsung Group would run into trouble, which might damage a company that is so important to the Korean economy. A few days later, I got another phone call to the same effect, again representing the Blue House’s position.”

As Hankyoreh puts it, there are “deepening suspicions that the Blue House’s actions were made to compensate Samsung for the assistance it was giving to Choi.” No kidding. Let’s see how this develops.