SOUTH KOREA: Corruption scandal snowballs at Samsung Group in South Korea

A corruption scandal at Samsung Group, the South Korean
conglomerate, snowballed Tuesday as prosecutors vowed to open a formal
investigation into allegations that its chairman had masterminded a
massive scheme of bribery and illegal transactions.

Prosecutors were asked by civic groups to investigate three major
allegations of criminal behavior: the creation of a slush fund;
bribing prosecutors and government officials; and an effort by the
chairman, Lee Kun Hee, and his aide to help his son take over control
of Samsung illegally.

"We are ready to unveil the truth through a stern, fair and
thorough probe," said Kim Kyong Soo, a prosecution spokesman. But
he warned that a full investigation would be possible only after
prosecutors got a list of colleagues alleged to have received bribes
from Samsung.

In previous scandals that have plagued Samsung, several executives
have been convicted of illegally trying to help Lee's son, Jae Yong,
take control of management or of providing illegal election campaign
funds for politicians.

But Lee's family has emerged largely unscathed, leading critics to
charge that Samsung runs a vast network of bribery and influence
peddling through the government, the judicial branch and the media,
making the Lee family "untouchable" - a claim vehemently
rejected by Samsung.

This time, the group is facing a potent whistle-blower: its former
chief lawyer, who said he had been personally involved in bribing and
in fabricating court evidence on behalf of Lee and Samsung.

"I have no intention of avoiding punishment for what I had done,"
said Kim Yong Chul, a former prosecutor who worked as an in-house
lawyer for Samsung for seven years until 2004. "My only intention
is to help rectify the illegalities of Samsung, which wields
omnipotent influence throughout our society."

Samsung denied all of Kim's allegations Tuesday, saying that he was
turning against Samsung out of "personal grudges."

"We will sincerely cooperate with prosecutors' investigation,"
the group said in a statement. "We regret that we will have to
divert our resources into an unproductive dispute at a time when our
group has to focus all our resources on overcoming a difficult
business environment caused by high oil prices and the falling value
of the Korean currency."

Kim's allegations stunned South Koreans. People there are proud of
Samsung, which has surpassed Japanese rivals to become one of the
world's most recognized brands in computer chips, cellphones and
flat-panel screens. But in recent years, recurring scandals have led
Koreans to fear a lack of transparency at the top Korean

In a legal complaint filed with prosecutors Tuesday, Kim said that Lee
and his top aides had illegally ordered transactions that allowed his
son to acquire Samsung shares at unfairly low prices from Samsung

When prosecutors investigated one of the transactions in 2003, Kim
said, lawyers of his legal division at Samsung trained Samsung
executives to serve as scapegoats in a "fabricated scenario"
to protect Lee, even though those executives had not been not

Two of the executives were found guilty in a court ruling in October
2005, and Samsung is appealing. In interviews with the South Korean
media over the past few days, Kim said he had been "sidelined"
by Samsung after he refused to pay 3 billion won, or $3.3 million, in
a bribe to the judge presiding over the case.

Kim said Lee and his aides had raised huge sums secretly, using bank
accounts illegally opened under the names of as many as 1,000 Samsung
executives. He said that under his own name, four bank accounts had
been opened to manage 5 billion won.

Samsung regularly provided politicians, government officials, tax
collectors, prosecutors, judges, journalists and scholars with cash
bribes and expensive gifts, Kim said. The cash bribes were handed over
in packages disguised as CDs or monthly magazines, or in briefcases or
suitcases, depending on the sums, Kim has said in interviews with the
South Korean media.

Kim said he himself had doled out bribes to scores of senior
prosecutors, giving each of them between 5 million won and 20 million
won three times a year. He said sums for prosecutors had been far
smaller than those given to senior officials of the Ministry of
Finance and the National Tax Service.

Kim over the past few days has quoted Lee as saying in 2003 that if
some were reluctant to receive cash, they should instead be offered
expensive wine or gift certificates. Lee even urged his executives to
emulate the practices of an unnamed Japanese firm that he said looked
after the "concubine of the chief prosecutor in Tokyo," Kim

Kim began coming out with these statements last week, but they took on
new drama Monday, when he gave a nationally televised news conference
in a Catholic church in Seoul.

"Samsung instructed me to commit crimes," he said at the
event. "A basic responsibility for all Samsung executives is to
do illegal lobbying, buying people with money."

Samsung on Monday issued a 25-page rebuttal denying all of Kim's major
allegations. It noted that Kim had not provided evidence to support
his claims. During his news conference Monday, Kim did not keep
promises he made last week to disclose internal Samsung documents,
including lists of prosecutors he said had received bribes, and
Samsung executives under whose names bank accounts had been illegally
opened. He said that he would do so on a later date.

Two influential civic groups - People's Solidarity for Participatory
Democracy and Lawyers for a Democratic Society - filed a legal
complaint Tuesday on Kim's behalf, thus bringing about the official
opening of an investigation by prosecutors. The two groups, well known
as watchdogs of big businesses, feared prosecutors might not get to
the bottom of the case because their own ranks were among those
accused. Prosecutors urged Kim to disclose the list of colleagues
involved so that they could be excluded from the investigation

Last week, Kim won a powerful backer: the Catholic Priests Association
for Justice, which holds extensive moral authority over South Korean
society because it spearheaded pro-democracy movements during past
military rule.

Recently, the priests have called for a "second pro-democracy
campaign" in South Korea. They said that the vast tentacles of
influence and corruption from the family-controlled conglomerates,
known as chaebols, had emerged as a serious threat to "economic

President Roh Moo Hyun's office said it was "closely watching"
the case. Meanwhile, two media organizations - the Journalists
Association of Korea and the National Union of Media Workers - said
that many of the country's major newspapers and TV stations had
"become a puppy with its tail between its legs when they face

Samsung's affiliates
spent 258.7 billion won, or $285 million, for advertisements in South
Korea's television and radio stations, newspapers and magazines last
year, according to data compiled by Cheil Worldwide, an advertising
agency affiliated with Samsung. The sum accounted for 5.6 percent of
the 4.6 trillion-won news media advertising market, it
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