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.

choi_soon_sil_afp640
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.

lee-jae-yong
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.

park-geun-hye-getty-2
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.

chung
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.

park-geun-hye
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.

choi_soon_sil_afp640
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.

lee-jae-yong
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.

10-20_blue_house_1
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.