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.

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.

“Chaebol sniper” or chaebol masseur?

 

Kim Sang-jo

Last January, the Economist offered an optimistic forecast of the future of South Korea’s economy under Kim Sang-jo, that country’s newly appointed antitrust czar. Kim’s task, during his three-year term, was to “tame the chaebol,” those massive, family-run corporate conglomerates that were the engines of South Korean economic growth after since the Korean War but that in recently decades have increasingly served as a hindrance to further growth – and, in particular, to the establishment and successful development of small businesses. (The Korean language even has a word – gapjil – for the way in which the chaebol bully more modest-sized enterprises.) Moreover, the chaebols, which were once universally admired for having led South Korea out of Third World status, are now more and more the objects of public resentment because of their top leaders’ chronic corruption and impunity.

Moon Jae-in

At the time of his appointment, Kim, a former activist for the rights of shareholders, enjoyed the strong backing of President Moon Jae-in as well as of the great majority of his countrymen, who refer to him as the “chaebol sniper.” All these months later, has he lived up to that nickname? How much, exactly, has he accomplished?

For a close reader, the article in the Economist contained a few hints that Kim might, in fact, prove to be something less than a bull in the chaebols’ china shops. “The sniper,” we read, “would rather his targets surrender willingly and is encouraging ‘voluntary’ reform.” Some sniper! Indeed, the Economist admitted that some critics of the chaebols “carp that Mr Kim now seems to be more chaebol sympathiser than sniper,” though the Economist was quick to assure us that this view of Kim was “unfair.”

Hanjin Group headquarters, Seoul

Fast forward five months. Kim, reported the Korean media, was accusing the Hanjin Group, the parent company of Korean Air, of “breaching market rules.” At a press conference marking the end of his first year on the job, the “chaebol sniper” lamented the standard practice by chaebols of doing business with, say, real-estate firms and ad agencies that are affiliated with them rather than dealing with independently owned firms in those same sectors. “I honestly ask conglomerates,” said Kim, “to sincerely review if it necessarily needs these businesses that are owned solely by their controlling families.”

Wow, tough talk!

Samsung headquarters, Seoul

Kim said his agency had “tried to work on encouraging conglomerates to change their…management practices.” Tried? Encouraging? “We’re seeing positive changes,” he said, but “we still have a long way to go.” He said he regretted “not being able to bring changes that the public can actually feel,” and admitted that some observers might feel that his achievements thus far had fallen “short of expectations.”

No kidding. Is this a sniper or a masseur?

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.

South Korea: Will President Park’s 25-year sentence hold?

Samsung headquarters in Seoul

On the South Korea corruption front, the news keeps outdoing itself.

As we’ve noted before, the South Korean economy is dominated by a handful of conglomerates known as chaebols, all of them run by powerful and famous families. Over the decades, members of these families have been caught committing massive acts of corruption. They used to get away with it, usually, because the chaebols were viewed as having lifted South Korea up into the ranks of first-world nations and the families that ran them were objects of near-reverence. In recent times, however, South Koreans have increasingly viewed the chaebols as a hindrance to further economic growth, and as a result have been less tolerant of corruption on the part of their celebrated bosses.

Park Geun-hye

On this site we’ve been following the biggest corruption scandal in South Korean history. Over the past couple of years, investigators have been probing interactions between Samsung, the largest of the chaebols, and Park Geun-hye, who was president from February 2013 to March 2017. Those investigators eventually found that a close friend of Park, Choi Soon-sil, had taken a huge sum of money from Samsung in exchange for permission from Park to merge two of Samsung’s subsidiaries.

Lee Jae-yong (aka Jay Y. Lee)

The consequences of these findings have been dramatic. A quick round-up: in February 2017, prosecutors arrested Samsung’s de facto head, Lee Jae-yong, known in the West as Jay Y. Lee. In March 2017, Park was removed from office and replaced with Moon Jae-in, who promised the South Korean people that he would take action to limit the power of the chaebols. Alas, this is the oldst promise in South Korean politics. Presidents are always saying that they’ll rein in the chaebols, and they never do. In the same way, the CEOs of chaebols are always being arrested on charges of bribery, embezzlement, and the like, only to go free after little or no time in jail.

And that’s what happened to Jay Y. Lee. Last August, after a five-month trial on a range of charges, he was found guilty of everything and was sentenced to five years behind bars. This past February, however, without any warning, a judge sprung him from prison, providing an utterly absurd excuse for doing so.

To many South Koreans, this stunning move – this instant unraveling of justice – seemed to spell an end to any hopes of real reform.

Choi Soon-sil

Is there any possibility that South Korean authorities will do anything to suggest that they’re serious about tackling chaebol corruption? Look at the case of former President Park, who’s been in jail since last year. This past April, a lower court sentenced Park to 24 years and $16 million in fines for bribery, extortion, abuse of power, and other charges. In late August, a higher court, noting that she’d taken even more cash from Samsung than previously believed, bumped her sentence up to 25 years and $18 million. On the same day, her friend Choi was given a 20-year sentence. Meanwhile, in two additional trials that concluded in July, Park was sentenced to a total of eight more years in jail for breaking election laws and illegally spending government money.

Will these sentences hold? Or will Park and Choi be dealt the same get-out-of-jail-free card that Jay Y. Lee was handed? Stay tuned. In the weeks to come, we’re going to be giving these high-level hijinks the closer scrutiny they deserve.

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.