August 31, 2017 10:00 am JST

Ongoing bribery scandal reminds South Koreans of culture of collusion

Samsung scion is the latest public figure to fall

KENICHI YAMADA, Nikkei staff writer

Lee Jae-yong, vice chairman of Samsung Electronics, arrives for his trial at Seoul Central District Court on Aug. 25. © AP

SEOUL As the Samsung group's de facto chief stares down five years in prison for corruption, the fusion of politics and business that has long powered South Korea's economy faces a reckoning of its own as public sentiment turns firmly against the nation's largest businesses.

Lee Jae-yong, vice chairman of Samsung Electronics, is the latest to fall in a scandal that led to the removal of South Korean President Park Geun-hye several months ago. The heir to the massive family-run conglomerate, or chaebol, was convicted on Aug. 25 of instructing four former Samsung executives to direct company funds to nonprofit foundations controlled by Choi Soon-sil, a confidante of Park, at the then-president's behest.

The funds amounted to bribes, and were said to have been meant to win Park's support for a merger within the Samsung group that would help keep the business within the Lee family. As "Samsung's leader," Lee "had the most to gain from a smooth transition of leadership," the presiding judge in the case said.

The trial did not turn out as poorly for Lee as it might have. The total amount of the bribes was ruled to be 8.9 billion won ($7.88 million), rather than the 43.3 billion won claimed by the prosecution. And according to the ruling, neither Lee nor his associates actively sought favors from the Park government. Though Samsung supplied the funds "expecting to benefit from the president's influence," Lee and his associates cooperated with the government only "passively," the judge ruled, handing down a lighter sentence than prosecutors had sought.

HAND IN HAND As the largest of South Korea's conglomerates, Samsung commands extraordinary economic influence in the country. The business group accounts for 20% of the nation's exports and around 30% of its stock market's value. White-collar jobs at Samsung are prized for the extraordinary upward mobility they offer. Yet only a minute fraction of workers can land such positions at Samsung or its peers, and in recent years many have begun to resent the conglomerates as a bastion of a privileged class of citizen receiving direct support from the government.

Indeed, state support is essential to these companies' operations. Samsung, for example, would not have been able to sustain its investment-heavy growth strategy through lean times had the government not provided the infrastructure needed to build factories. And while Seoul has occasionally made a show of getting tough with the conglomerates, it has consistently given them the help they needed to become competitive on the global stage.

Over the course of the investigation into Lee's case, it was discovered that he and Park had met three times behind closed doors, starting in 2014. A lower court said that Lee's case represents "an unholy alliance of political and economic power."

But many in the business community have shown sympathy for Samsung's plight, arguing that to refuse a request from the president would risk putting one's company at a severe disadvantage when seeking project permits or during tax audits. And some have argued that Lee's conviction owes as much to the tide of public opinion turning against chaebol as to real evidence of wrongdoing.

"The judiciary seems to have taken a particularly strict stance on certain matters at a time when the public is taking a hard look at political power and the way the conglomerates operate," said Lee Jong-won, a professor at Waseda University's Graduate School of Asia-Pacific Studies in Tokyo.

Sources at Samsung say the legal battle is going to go all the way to the Supreme Court, and that the matter is ultimately in the hands of the country's political leadership. But President Moon Jae-in has only encouraged the public's anti-chaebol sentiment, and has said that, in general, he will not use the pardon power that his predecessors have tended to wield freely. At least for now, one half of the "unholy alliance" seems to have pulled out.

COLLATERAL DAMAGE Meanwhile, Park's trial marches on. A verdict is expected by Oct. 16, when her current detention period is set to expire. In South Korea, "it's likely that if a person is convicted for giving a bribe, the recipient will be convicted as well," said Choi Jin-nyoung, a former spokesman for the Korean Bar Association. And soliciting a bribe carries a far harsher penalty than giving one -- from 10 years to life in prison, for an amount over 100 million won. "If Lee gets five years, Park will probably get 10 or more," Choi said.

Samsung itself, however, seems to have emerged relatively unscathed. Core unit Samsung Electronics logged roughly 24 trillion won in consolidated operating profit for the six months through June, or 62% more than a year earlier. The chiefs of various Samsung units have adopted a system of collective leadership that seems to be functioning well so far.

The flip side is that there is no clear leader to take charge should the business lose its footing. It is unclear whether collective leadership will suffice when bold, fundamental decisions need to be made.

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