Samsung’s Heir Jailed for Five Years: A New Era for South Korean Business?

Today’s post focuses on the largest business story today which is the news that Lee Jae-yong, the vice-chairman of Samsung and its de-facto head, has been jailed for five years after being found guilty of bribery, embezzlement, and perjury amongst a host of other offences. This massive news for South Korea, however, has the potential to fundamentally alter its environment in terms of the relationship between the massive family-owned conglomerates that dominate the South Korean landscape, and the Government. Yet, whether or not that comes to fruition is the focus for this piece because, as is usually the case, a realistic assessment suggests that the favoured outcome may not be attained.

Today’s sentencing of the heir to the sprawling Samsung Empire, Lee Jae-yong, marks the accumulation of a string of events that began in 2016 with the investigation into the then-President Park Geun-hye. Very briefly, Park Geun-hye, the country’s first female President and daughter of the Military Leader and President of South Korea Park Chung-hee, has been under investigation since 2016 for her connection with Choi Soon-sil, the daughter of a Cult leader who grew particularly close to Park Geun-hye but who was herself jailed in June for three years on charges of corruption. The complicated but fascinating story is perhaps made clearer if we understand that one of the main accusations against Choi was that she used her political connection to leverage favours and financial recompense for her daughter from some of the largest companies in South Korea. The former President, who was impeached as a result of the scandal, is currently on trial for the same crimes, with it being suggested that country’s first female leader could be imprisoned for life; many have suggested that today’s sentence will make for grim reading for Park’s future. However, the question for us is whether the current environment of punishment being administered will be a lasting one.

Lee Jae-yong is the heir to Samsung, a massive conglomerate that has assets of over £250 billion. In South Korea, firms like Samsung are known as ‘chaebols’, which are large family-owned businesses. Lee is the de facto head of Samsung because his Father, Lee Kun-hee, has been hospitalised since 2014 after suffering from a heart attack, who himself has not been a stranger to charges of corruption – in 2009 Lee Kun-hee was convicted of tax evasion and sentenced to a three-year suspended sentence, which was subsequently pardoned by then-President Lee Myung-bak. South Korea has had a long and often difficult history with its chaebols, with these multi-faceted companies being ran like operations outside of the law and general rules on a number of occasions. However, after Park Geun-hye’s impeachment her political party collapsed and ushered in a new political era – Moon Jae-in swept to power in the wake of the impeachment and immediately began establishing a hard-line against corruption in the country. On that basis, the former President should arguably be preparing herself for a lengthy, if not lasting prison sentence in October of this year.

Lee Jae-yong’s crimes are now clear for us all to see. Despite his lawyers’ claims that he was not part of the decision making process at Samsung, Mr Lee was convicted of bribery for the multiple instances of money and gifts he provided for Choi, including a £620,000 horse for her daughter. In return, the Samsung boss had wanted Choi to leverage her political affiliations to allow an $8 billion merger of two Samsung affiliates to go through, which would cement his control over the group despite the shareholder protests against the move – the merger was approved by the national pension fund, which itself is a major Samsung shareholder (thus demonstrating the interconnectedness of South Korean Business and Politics). Despite Lee’s fervent denials of complicity, prosecutors succeeded in establishing the picture of Lee being fully in control of the company and therefore his actions, with the resultant picture being a member of the South Korean elite attempting to leverage his position for further power, but coming unstuck by damaging revelations. Earlier we looked at the long history that South Korea has with its many chaebols, and that history is defined by feeble approach to justice where the chaebols are concerned, although one onlooker has suggested that this sentencing, if it holds up to the appeals process, represents the smashing of the ‘too-big-to-jail’ culture that has come to define the country. Whether or not the sentencing remains after the forthcoming appeal is another story entirely, but there are two prevailing outcomes from today’s sentencing: on the one hand there is hope that the seemingly impenetrable world of the chaebols is beginning to wear away, but on the other hand there is a feeling that nothing much will change.

As usual, which outcome one ascribes to is dependent upon one’s views on the world of business moreover. For Samsung, the future looks only ever so slightly uncertain, with the arrest certainly not reducing its position – its stock prices continue to rise, its revenues continues to increase as it cements its global position as the leader in markets like the smartphone and computer chips markets. Experts are suggesting that the company’s long-term future may be uncertain, with the prospect of internal battles taking place at some point, but in all reality Mr Lee will be released relatively shortly and will surely resume his role as the natural successor of the chaebol. The more interesting development will be the trial of Park Geun-hye in October, with the impending possibility of a former President being jailed for life containing the possibility of restructuring the country’s attitude towards high-end corruption; however, and certainly in no attempt to provide support for Park, the story of her early life and the presence of Choi and her Father Choi Tae-min should be considered, particularly if she receives life in prison whilst Mr Lee receives only 5 years – what message does that send? Ultimately, there is an overriding message from this news and that is that, although South Korea’s relationship with big business is slightly unique, there is still a picture to be extrapolated for other countries; politics and big business is fundamentally intertwined, and when we read political stories we must consider the role that big business plays in those developments, and vice versa – the biggest difference between South Korea and the West is that their business leaders have a more prominent public face; apart from that, the lesson is the same.

Keywords – South Korea, Samsung, Corruption, Bribery, White-Collar Crime, Corporate Crime, Politics, Business, @finregmatters