World | Asia

January 16, 2017

Samsung Heir Faces Arrest In Presidential Corruption Scandal

The vice chairman and billionaire heir apparent of Samsung, Jay Y. Lee, is the latest high-profile figure to be implicated in the presidential corruption scandal that has rocked South Korea.
Lee Jae-Yong, vice chairman of Samsung arrives at the office of the independent counsel on 12.01

Lee Jae-Yong, vice chairman of Samsung arrives at the office of the independent counsel on 12.01

Prosecutors there claim Lee gave 43 billion won ($36 million) in bribes to President Gun-Hye Park and her close advisor, Soon-sil Choi. The money allegedly came in the form of donations to Choi’s non-profit foundations in an effort to curry favor with the government and help consolidate his family's control over Samsung.

The Central District Court of Seoul is now deciding whether or not to issue the warrant, which would make Lee the first executive in the country to be arrested because of the scandal. That decision should come in the next few days, according to The New York Times.

Lee, 48, is the vice chairman of Samsung and the company’s de facto head while his father, chairman Kun-hee Lee, is being cared for in hospital following a heart attack more than two years ago. The younger Lee has spent his entire career at the company, starting at Samsung Electronics in 1991, and then becoming its president in 2009 and vice chairman of the company in 2013.

Lee, the only son of Kun-hee Lee, was groomed from a young age to take over the family firm, one of South Korea's most powerful chaebols; his father allowed him as a child to join him in board meetings, according to Mark Newman, a senior research analyst at Bernstein Research in Hong Kong, and a former director at Samsung.

Samsung's father-and-son leaders are both billionaires: as of Monday the younger Lee was worth $6 billion, while his father Kun-hee Lee was worth $14.7 billion.

Earlier this month Seoul’s prosectors office questioned two Samsung executives as potential witnesses (not suspects) in the scandal, including Gee-sung Choi, who is Samsung’s vice chairman and special advisor to Chairman Lee and his son. Choi and the Lee's are the three people at Samsung who effectively run the company, according to Newman.

Last week, Jay Y. Lee himself was brought in for questioning for more than 20 hours, according to BBC News.

The allegations against him hinge on a mega-deal in 2015 where Cheil Industries, a holding company for the Lee family that controls much of Samsung, bought Samsung’s building subsidiary Samsung C&T for $9.3 billion, in what was seen as a move by the Lee’s to consolidate power ahead of the younger Lee officially taking the reins.

Samsung came under criticism at that time, particularly from New York hedge fund and activist shareholder Elliot Management, who tried, unsuccessfully at the time, to block the deal.

In recent months, Samsung has tried to fix its reputation for opaque business practices: in November 2016 it said it would launch a review over how it might restructure itself, potentially splitting itself into a holding unit and an operating company, one path that Elliot Management had been agitating for.

The charges against Lee will add more fuel to the fire for activists like Elliot Management, who have long complained that its billionaire founding family has too much power and that the company isn’t transparent enough.

Text by Forbes
 

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