The Head of Samsung Could Be in Big Trouble in South Korea

Samsung chief to be questioned in South Korean political scandal

A South Korean special prosecutor's office will question Samsung Group leader Jay Y. Lee as a suspect in a widening influence-peddling scandal that may force President Park Geun-hye from office.

Prosecutors have been looking into whether Samsung payments of about 30 billion won ($25 million) for a business and foundations backed by Park's friend, Choi Soon-sil, were connected to a 2015 decision by the national pension fund to back a controversial merger of two group affiliates.

Park could become South Korea's first democratically elected leader to leave office early after parliament voted in December to impeach her over the corruption scandal, which has triggered big weekly rallies calling for her to step down. The impeachment must be upheld or overturned by the Constitutional Court.

A spokesman for prosecutors, Lee Kyu-chul, told a briefing the Samsung leader had been summoned for questioning at 9:30 a.m. (12:30 a.m. GMT) on Thursday over suspicions including bribery.

He declined to comment on whether Jay Y. Lee or other Samsung executives will be indicted but would not rule out the possibility of the prosecution seeking an arrest warrant against Lee. A Samsung Group spokeswoman declined to comment.

Proving quid-pro-quo dealings between the Choi-linked organizations and Samsung are critical to prosecution efforts to bolster its case against President Park and show that she, or a surrogate such as Choi, collected bribes in exchange for favors, analysts said.

For Samsung and its founding Lee family, an indictment or conviction of Jay Y. Lee would deal a blow to efforts to secure a stable transfer of control to heirs from ailing patriarch Lee Kun-hee.

The conglomerate has undergone major restructuring since 2014 to streamline its ownership structure and consolidate power under Jay Y. Lee and his two sisters.

Park Ju-gun, head of corporate analysis firm CEO Score, said while professional managers at affiliates such as Samsung Electronics would be able to keep the companies operating smoothly in the absence of Jay Y. Lee, key initiatives such as acquisitions and investments into new businesses would inevitably be slowed should the 48-year-old be imprisoned.

I think Samsung Group is facing a bigger crisis than even the death of Chairman Lee Kun-hee, he said, referring to billions of dollars in inheritance taxes the Lee family heirs will be forced to pay when their father dies.

Seeking a Link

Samsung has acknowledged making contributions to two foundations as well as a consulting firm controlled by Choi but has repeatedly denied accusations of lobbying to push through a controversial 2015 merger of its Samsung C&T and Cheil Industries units.

The prosecution this week summoned two senior Samsung Group officials for questioning, though they were listed as witnesses.

National Pension Service chief Moon Hyung-pyo was arrested in December after acknowledging he pressured the fund to approve the merger while he was health minister.

Park, 64, has described support of the merger as a policy decision made by the world's third-largest pension fund in the national interest.

Lee denied bribery accusations during a December parliamentary hearing, rejecting assertions from lawmakers that Samsung lobbied to get the fund to back the merger.

The special prosecutors' office said on Wednesday it was looking into whether Lee gave false testimony during the parliamentary hearing.

The special prosecutor needs Samsung to establish a potential bribery charge against President Park Geun-hye, said Shin Yul, a political science professor at Myongji University.

Samsung is the one that has made the biggest contributions among conglomerates and it had an exclusive relationship with Choi Soon-sil, buying a horse, Shin said, referring to the firm's sponsorship of Choi's daughter's equestrian career.

The daughter, Chung Yoo-ra, was arrested in Denmark this month after being sought by South Korean authorities.

De Facto Leader

Lee, the vice chairman of flagship affiliate Samsung Electronics ssnlf, has been leading South Korea's top conglomerate since his father was incapacitated by a May 2014 heart attack.

Shares in Samsung units did not move sharply following the news that Jay Y. Lee was named a suspect, as some investors had anticipated the possibility that he could be formally indicted. Shares of Samsung Electronics ended up 2.8%, though off its high for the day, after trading at a record 1.928 million won.

The shares could see a correction because of heightened uncertainties, but the stock will see support from strong earnings prospects, said HDC Asset Management fund manager Park Jung-hoon.

Shares of firms such as Samsung C&T that are more closely linked with potential succession-related restructuring may weaken further, Park said, as formal prosecution of Lee could delay the process.

I think some investors are still uncertain on whether the special prosecutors will go as far as arresting and detaining Jay Y. Lee, given the uncertainties such an action might trigger on Samsung companies, he said.

In 2008, Lee Kun-hee stepped down as Samsung Group chairman after group executives were indicted on suspicion of brokering a sweetheart deal for his children to have a greater ownership stake in Samsung's de facto holding company.

He was handed a suspended 3-year sentence for tax evasion, but was eventually pardoned.

© Photograph by Jung Yeon-AFP/Getty Images Samsung Group's heir-apparent Lee Jae-Yong AKA Jay Y. Lee (L) answers a question as Lotte Group Chairman Shin Dong-Bin (R) listens to during a parliamentary probe into a scandal engulfing…

Samsung chief questioned by prosecutors in South Korea political scandal

Special South Korean prosecutors questioned the head of top conglomerate Samsung Group [SAGR.UL] on suspicion of bribery on Thursday in an influence-peddling scandal that led to President Park Geun-hye's impeachment.

Park remains in office but has been stripped of her powers while the Constitutional Court decides whether to uphold the December impeachment and make her the first democratically elected leader to be forced from office.

Park has denied wrongdoing.

"I am very sorry to the South Korean people for not showing a better side," Samsung Group leader Jay Y. Lee told reporters as he arrived at the prosecution office in a black sedan, greeted by protesters holding signs calling for his arrest and accusing him of being the president's accomplice.

Investigators would now decide whether to seek an arrest warrant against Lee, 48, special prosecution spokesman Lee Kyu-chul told reporters.

Parliament impeached Park over allegations she allowed a friend, Choi Soon-sil, to exert inappropriate influence over state affairs.

Choi is accused of colluding with Park to pressure big businesses, including the Samsung Group, to contribute to non-profit foundations backing the president's initiatives.

Choi, in detention and on trial on charges of abuse of power and attempted fraud, has denied wrongdoing.

Prosecutors named Lee a suspect on Wednesday and are investigating whether Samsung gave 30 billion won ($25.28 million) to a business and foundations backed by Choi in exchange for the national pension fund's support for a 2015 merger of Samsung C&T Corp and Cheil Industries Inc.

Lee in December denied accusations the conglomerate sought to curry favor with Park or Choi to secure the 2015 merger, a deal seen as critical for ensuring family control of the conglomerate as generational succession looms.

Wearing a dark suit, white shirt and dark red tie, Lee bowed after making brief remarks to reporters. A Samsung Group spokeswoman declined to comment on the investigation.

Proving improper dealings between Park, or Choi, and Samsung would be key for the prosecutors' case, analysts said, noting their goal was to prove Park or her surrogates took bribes from corporations in exchange for favors.

The special prosecution spokesman said investigators were also looking into whether Lee lied during a December parliamentary hearing about Samsung's involvement in the scandal, as well as whether he could be charged with breach of trust or embezzlement.

Investigators questioned two senior Samsung Group executives this week as witnesses.

The special prosecution has not begun investigations into any other conglomerates. Dozens of South Korean corporate groups made contributions to the two foundations, but Samsung's donations were the largest.

"NATIONAL INTEREST"

The scandal has triggered weekly rallies calling for Park to step down. She has apologized and said this month the pension fund's support for the Samsung companies' merger was in the national interest.

If Park were to leave office, a presidential election would be held within 60 days. Among the expected contenders is former U.N. Secretary-General Ban Ki-moon.

Lee took over as leader of the smartphones-to-pharmaceuticals conglomerate after his father, founding family patriarch Lee Kun-hee, had a heart attack in 2014.

Jay Y. Lee's arrest or indictment would be a blow to Samsung and the family, which has been streamlining its business to ensure a stable transfer of control from the ailing Lee Kun-hee to his children.

While analysts and investors said management would be able to keep the various affiliates including Samsung Electronics Co Ltd in good shape, the conglomerate as a whole may be slower to commit to major investments or acquisitions should Jay Y. Lee be imprisoned.

Some also said Samsung and the Lee family may lose credibility among investors.

"A corruption scandal is the most embarrassing thing for a pension fund like us," said Park Yoo-kyung, a Hong Kong-based director for Dutch pension fund APG Asset Management, which holds shares in Samsung Electronics.

"We have an obligation to invest in a clean company."

Share prices of most Samsung companies have shown muted reaction to Lee's implication in the scandal, however. Samsung Electronics shares rose 1.4 percent to a record high 1.94 million won on Thursday and Samsung C&T shares gained 1.6 percent, compared with a 0.6 percent rise for the broader market.

"It's possible that Samsung Group companies will try to behave more transparently in response and operate in a more fair manner that shareholders can rationally understand," said IBK Asset Management fund manager Kim Hyun-su.

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