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Samsung heir Lee Jae-yong charged with bribery

South Korean prosecutors have charged Lee Jae-yong, Samsung’s de facto boss, with bribery, embezzlement and other offences in connection with the country’s sprawling corruption scandal.

The move on Tuesday is a blow to the leadership transition to the third generation of the founding family of South Korea’s largest conglomerate.

The indictment of the 48-year-old vice-chairman of Samsung Electronics, along with four other Samsung executives, comes as the technology-to-finance group announced reforms including the dismantling of its corporate strategy office, which has come under scrutiny for its role in lobbying political figures.

Prosecutors have charged Mr Lee with bribing South Korea’s President Park Geun-hye and her confidante Choi Soon-sil with Won43bn ($38m) to seek political favours to smooth his succession and consolidate control over key group units.

Samsung has claimed that Mr Lee was a victim of the scandal and that he was forced by Ms Park to make such donations. Ms Park said on Monday that the companies made such contributions in the public interest, and that they were not bribes.

Mr Lee, the grandson of the group’s founder, has headed Samsung since his father and company chairman, Lee Kun-hee, was incapacitated by a heart attack in 2014.

Mr Lee was arrested earlier this month, sparking concerns over a leadership vacuum at the conglomerate, just as Samsung Electronics, the group’s crown jewel, scrambled to revive the fortunes of its mobile business. The company plans to launch its flagship smartphone Galaxy S8 on March 29, following last year’s costly safety debacle over its fire-prone Galaxy Note 7 smartphone.

The Samsung executives are among a group of more than 10 people facing indictment for their involvement in the scandal, which is poised to topple Ms Park, as the special prosecutor’s team wraps up its three-month investigation into the influence-peddling scandal.

Although bribery can carry a life sentence in South Korea, heads of South Korea’s biggest companies have previously been convicted on such charges only to return to management after receiving a presidential pardon.

Prosecutors said the Samsung heir had also been charged with hiding assets overseas, concealing profits allegedly made from illicit business activities, and lying under oath during a parliamentary hearing about his role in the scandal. Mr Lee denies any wrongdoing.

Mr Lee has previously admitted making political donations to Ms Choi’s foundations but denied they were aimed at receiving business favours in return.

The four other Samsung executives who have also been charged include Choi Gee-sung, the head of the Samsung’s Corporate Strategy Office, and Park Sang Jin, president of Samsung Electronics who allegedly arranged Samsung’s financial support for Ms Choi, who acted as an unofficial adviser to Ms Park.

The other two are president Chang Choong-ki and executive vice-president Hwang Sung-soo. Mr Choi, Mr Chang and Mr Park have resigned, Samsung said on Tuesday.

The company has denied any wrongdoing on their behalf but on Tuesday executive vice-president Lee June apologised “for the social controversy and distress we have caused”.

The group also announced its corporate strategy office, comprising 200 staff, would be disbanded following allegations it had served as the main vehicle through which Samsung’s founding family protected its interests.

In an attempt to restore its bruised corporate image, Samsung said its nearly 60 affiliates would be run independently by professional managers and their board of directors, while any sizeable external donations would require board approval. 

The legal wrangling, which is expected to continue throughout this year, is expected to hamper Samsung’s restructuring.

“The fundamental solution for resolving its governance problems is to set up a holding company but this would be difficult now that Mr Lee stands trial,” said Kim Sang-jo, a professor at Hansung University. “This restructuring process would require many spin-offs and mergers of various units. But Samsung and Mr Lee would find it difficult to push for this unless they regain public trust.”

Via FT