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

by Choe Sang-HunInternational Herald Tribune
November 6th, 2007

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 conglomerate.

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 affiliates.

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 involved.

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 said.

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 team.

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 justice."

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."
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 said.

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