Will Samsung Case Mark A Turning Point For South Korean Business Ties To Government?

8 hours ago
Originally published on August 25, 2017 5:40 pm

A South Korean court's decision Friday to sentence Lee Jae-yong, the de facto leader of Samsung, to five years in prison on corruption charges is reverberating across the country. The nation's economy and Samsung's fortunes have been inextricably linked for decades. Now both face questions about what they'll look like going forward.

Lee, also known as Jay Y. Lee, stood silently as he learned his fate inside a Seoul courtroom. Outside, nationalist supporters of Lee — and ousted former President Park Geun-hye — didn't hold back, screaming that the judge and prosecutors should release him.

Choi Tae-son was one of the demonstrators angry with the guilty verdict.

"Guilty means if he's guilty, then she's guilty," Choi said.

"She" in this case refers to the former president, who is standing trial on her own charges of criminal bribery and abuse of power. Park was impeached and removed from office in the spring, in a sprawling public corruption scandal linked to Lee.

The court convicted Lee on charges that Samsung paid millions in bribes to slush funds intended for Park, all in exchange for government approval for a controversial merger. It helped cement family rule of company: Lee is the son of Samsung Group chairman Lee Kun-hee, and grandson of the founder, Lee Byung-chul.

"That is the reason he is well-known and his importance in Korean society is so big," says Seoul National University economist Park Sangin.

Lee maintains his innocence, and his attorneys say he will appeal. It's unclear who will lead Samsung if he is in prison. The question matters because the company has played such a key role in the nation's emergence as an economic powerhouse. South Korea is even referred to sometimes as the "Republic of Samsung."

The Samsung conglomerate, known globally for its electronics and smartphones, is South Korea's biggest and touches almost every aspect of South Korean life. Samsung encompasses more than 50 affiliates involved in life insurance, shipping, cars, construction, hospitals, hotels — even seeing-eye dogs.

"You can live your entire life here, from cradle to the grave, on Samsung products. So you can die, go to the Samsung morgue when you're dead, get married at the Samsung wedding hall in the company," says author Geoffrey Cain, who has written a forthcoming book on the company.

Economist Park believes Lee's conviction will have serious symbolic meaning in South Korea.

"This is the kind of the moment we have to change, fundamentally, for us to go further," he says.

As the country's leading chaebol — the Korean term for family-run super-conglomerates — Samsung is inextricably tied to state power centers. But after this giant scandal, Koreans are asking: Should chaebol be so centrally powerful, aligned with the government and led by dynasties?

"There will be more argument and more momentum built up for the reform of Korean chaebol," economist Park says.

The new South Korean president, Moon Jae-in, seems to agree.

After the verdict, his press secretary, Yoon Young-chan, said in a statement: "I hope this is a starting point to cutting off businesses' close relationship to the government that has held our society back from going forward."

Jihye Lee contributed to this story.

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