SOUTH KOREA: Indicted Samsung Chairman Resigns

Publisher Name: 
Washington Post Foreign Service

SEOUL,
April 22 -- It's been an awful week for the family that for two
generations has controlled the largest business conglomerate in South
Korea.

Samsung Group Chairman Lee Kun-hee was indicted last
Thursday for tax evasion and breach of trust. He resigned in disgrace
Tuesday, after apologizing to South Koreans for causing "much grief."

His
wife is also resigning as head of a Samsung art gallery and cultural
foundation. And his son -- long regarded as heir-apparent to the
Samsung throne -- was pushed out of his senior management position and
will be sent into exile as a manager in a yet-to-be-named emerging
market.

But don't count the Lee family out just yet.

A
peculiar tick of the South Korean legal system is that judges here --
not wanting to upset the economic apple cart -- rarely sentence
corporate titans to long prison terms and seldom strip them of their
empires.

The Lee family, for all its public-relations woes and
legal entanglements, remains the dominant shareholder in Samsung, the
jewel in South Korea's conglomerate crown.

The highly profitable
cluster of 59 companies makes everything from memory chips to ships,
employs a quarter-million people around the world and accounts for a
fifth of South Korea's exports. About 55 percent of the company is
owned by foreign investors.

History suggests that Lee Kun-hee's
chances of going to jail -- on charges that include evading about $120
million in taxes -- are slim.

A recent study of white-collar
prosecutions found that South Korean judges in 82 percent of cases
released convicted executives without requiring that they serve time in
prison.

This pattern of leniency derives, in most cases, from a
judge's determination that a corporate defendant has contributed to the
growth of South Korea's economy.

And while Lee Jae-yong, the son
of the longtime chairman, is to be sent abroad by Samsung for an
unspecified period of corporate penance, his long-term ability to shape
the company's future seems likely to endure, owing to his family's
complex web of stock cross-ownership throughout the conglomerate.

"I
do not expect to see substantial change in who runs Samsung," said Kim
Sang-jo, an economics professor at Seoul's Hansung University.

"The
power of the Lee family over succession at Samsung will remain," said
Kim, who is also the executive director of Solidarity for Economic
Reform, a group that for 18 years has been lobbying for corporate and
legal reform.

Still, the shakeup announced Tuesday at Samsung
headquarters -- and broadcast live across South Korea -- went further
than many here had expected.

As part of its self-imposed reforms,
Samsung said it would abolish its much-criticized strategic planning
office, a legally nebulous unit of top managers that overseas all
company operations and has periodically run afoul of the law.

In
2006, in the denouement to an earlier Samsung scandal, that office
voluntarily gave $800 million to the government to be distributed in
scholarships to deserving South Koreans.

The vice chairman and
president of the strategic planning office are also resigning, as are
the presidents of two other major Samsung companies implicated in the
tax evasion charges.

In what he described as his "sincere
apology" to the nation, Lee, 66, said he accepted "all legal and
ethical responsibility" for "mistakes" made in the past.

According
to an indictment last week, the largest of those mistakes was hiding
about $4.5 billion worth of Samsung stock in accounts that used
"borrowed names."

Lee hid the money from the government in order
to preserve his management control over Samsung's various companies,
the company acknowledged Tuesday.

Lee was charged with evading about $120 million in taxes on those hidden accounts.

Samsung officials said Lee would pay the back taxes and donate an additional $2 billion to "good causes" in South Korea.

Lee,
who took control of Samsung after the death of his father in 1987, was
also indicted for breach of public trust. Those charges focus on Lee's
apparent efforts to keep the company in the family for a third
generation. He allegedly arranged sweetheart stock purchases so that
his son could control Samsung Group.

The scandal that forced Lee
out of corporate management began last fall -- with sensational
accusations of corporate bribery of leading figures in the South Korean
power structure.

A former chief legal counsel for the company
went public in October with claims that Samsung had a huge slush fund
that it used to pay off politicians, prosecutors and other officials.

The
lawyer, Kim Yong-chul, said he personally delivered some of those
bribes and named senior officials and prosecutors who allegedly took
them.

Parliament appointed a special prosecutor, Cho Joon-woong,
and gave him three months to investigate. Authorities soon raided
Samsung offices and found $4.5 billion worth of hidden stock.

Cho said last week, however, that his investigators did not find sufficient evidence of bribery or of the alleged slush fund.

The
prosecutor also declined to arrest Lee -- or any of nine indicted
Samsung executives -- on the grounds that they had admitted to the
charges against them and because their arrest could harm the South
Korean economy.

The betting among some longtime students of this
country's criminal justice system is that Lee and other Samsung
executives will remain out of jail, even if they are found guilty in
the trial that is scheduled to start within two months.

"In order
for South Korea's legal system to really establish its authority, I
believe Lee should go to jail," said Kim, the economist who advocates
for good corporate governance. "But I don't think he will. It is highly
likely he will get a suspended sentence and a pardon."

Special correspondent Stella Kim contributed to this report.

AMP Section Name:Corruption
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