Samsung Electronics

Samsung heir to be arrested in South Korea bribery scandal

Decision could harm decision-making in Korea’s biggest company

PUBLISHED : Friday, 17 February, 2017, 6:15am
UPDATED : Friday, 17 February, 2017, 6:15am

A South Korean court approved a special prosecutor’s second request to arrest Samsung Group’s Jay Y. Lee on allegations of bribery, perjury and embezzlement, an extraordinary step that risks disrupting decision-making at the country’s most powerful company.

The Seoul Central District Court issued an arrest warrant for Lee early on Friday. Including procedural steps and appeals, it may take as long as 18 months for a trial and verdict.

Investigators are looking into whether the vice chairman of Samsung Electronics Co. was involved in providing as much as 43 billion won (US$38 million) to benefit a close friend of South Korean President Park Geun-hye, in exchange for government support of his management succession. Prosecutors allege that Lee, 48, funded Park’s associates as he tried to consolidate control over the sprawling conglomerate founded by his grandfather.

After the prosecutor’s first attempt to arrest Lee was rejected by a court on January 19 due to lack of evidence, the billionaire heir was called in again for 15 hours of questioning on Monday as investigators sought more information.

In their second attempt, a spokesman for the special prosecutor said Tuesday that they found evidence of Lee concealing profit gained through criminal acts and hiding assets overseas.

Samsung has denied it made an unlawful offer or paid a bribe to the president in exchange for favours. The conglomerate’s transition to a new, younger leader was already marred by last year’s botched debut of the Note 7, a smartphone that was discontinued after it showed a tendency to catch fire and explode.

Lee has been the de facto head of Samsung with his father Lee Kun Hee hospitalised since 2014.

The Samsung probe is part of a broader investigation into contributions that dozens of Korean companies gave to Choi Soon-sil, a confidante of Park. The scandal has rocked South Korea with millions of people taking to the streets in protest.

South Korea prosecutor indicts former top aide to president, ex-culture minister

President Park has been impeached and her powers suspended. A separate constitutional court will determine whether she is ultimately removed from office, another tumultuous chapter for a country that became a full-fledged democracy in 1987.

When he testified at a parliamentary hearing in December, Lee said he never ordered donations to be made in return for preferential measures and rejected allegations he received wrongful government support to push through a merger of two Samsung affiliates in 2015.

South Korean prosecutor expands charges against Samsung heir Lee Jae-yong

Still, Lee, who has been put under a travel ban, confirmed he had private meetings with Park and that Samsung had provided a horse worth 1 billion won that was used for equestrian lessons by Choi’s daughter.

When the merger of Cheil Industries Inc. and Samsung C&T Corp. was originally proposed, shareholders including activist investor Paul Elliott Singer fought against it, arguing the purchase price was too low and would cement the founding family’s control at the expense of minority shareholders.

Samsung responded by saying it was trying to create long-term value for investors and the merger was necessary to sustain growth.

Korea’s National Pension Service, a US$452 billion fund with money from 22 million citizens, was the largest investor in Samsung C&T and voted in favour of the merger, playing a key role in its narrow approval.

With the merger, Lee ended up with a 17 per cent stake in the combined entity, making him the largest shareholder. The merged company, now just called Samsung C&T, is in turn one of the largest shareholders in Samsung Electronics.