April 1, 2017 6:45 am JST

Park scandal forcing rethink of cozy public-private ties

Klieg light on Samsung strikes fear into South Korea's biggest businesses

KENICHI YAMADA, Nikkei staff writer

SEOUL -- The conglomerates known as chaebol are taking a second look at their historically close relationship with the South Korean government as prosecutors home in on arrested ex-President Park Geun-hye's ties to the Samsung group.

Park wore a stiff expression and looked blankly ahead while being driven to a detention center outside Seoul after her arrest early Friday. She is said to be held by herself in a cell of roughly 10 sq. meters -- more than 50% larger than a typical cell.

Prosecutors are expected to start questioning Park next week and aim to formally charge her before the next presidential race officially kicks off April 17.

Links between Park and Samsung Electronics Vice Chairman Lee Jae-yong, the de facto leader of South Korea's largest conglomerate, will likely come under the microscope. Park is said to have pressured the National Pension Service, a key shareholder, through a top government official to back a merger between two Samsung group companies. The deal passed narrowly at a shareholders meeting.

Allegedly in return for Park's support, Samsung donated 20.4 billion won ($18.2 million) to two sports and cultural foundations effectively controlled by Park confidante Choi Soon-sil. Samsung is said to have given or promised a total of 43.3 billion won in bribes.

Many South Korean ex-presidents have suffered ignominious fates. Former military leaders Chun Doo-hwan and Roh Tae-woo were both found guilty of staging a coup.

Park is the first former leader to be investigated for bribes from a major conglomerate since 1995, when Chun and Roh were charged with bribery in addition to mutiny and treason. South Korean presidents wield enormous power and so they tend to attract hangers-on.

But some say it is not clear that Park abused her presidential power to help Samsung in exchange for bribes. Lee has rebutted prosecutors' claims that his contributions were a quid pro quo for political favors.

On the other hand, Lee has acknowledged giving money to the foundations and insists that he was the victim of extortion by the Park government. Previous legal difficulties have led Samsung and other major conglomerates to try keeping their distance from the government by making financial contributions collectively through business groups. But the historic symbiotic relationship between the government and chaebol seems to have extended to Park, despite her clean image upon taking office.

Other conglomerates are suspected to have donated to Choi's foundations as well. The business community is grappling with the scrutiny of the collective-contributions approach designed precisely to avoid trouble with the law. "I don't know what kind of corruption we'd be accused of if we contribute to the government in the future," an official from a major chaebol said.

In a bid for greater transparency, more major corporations are seeking directors' approval before making any external donations. But as long as there is any risk of embroilment in political scandals, few are eager to answer government calls for financial assistance.

Chaebol now have an excuse to decline government invitations, according to presidential hopeful Ahn Cheol-soo, a former co-chief of the opposition People's Party. Park's case is an opportunity to break the cozy ties between government and big business, Ahn argues.

Lee's trial is scheduled to start Friday, according to the Seoul Central District Court. A verdict is expected by the end of May. His fate will likely have a significant impact on how South Korean companies and the government approach each other in the future.

Asia300

Samsung Electronics Co., Ltd.

South Korea

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