Samsung heir convicted of bribery, jailed for five years

Four other top execs too guilty

SEOUL, Aug 26, (AFP): The heir to the Samsung empire was convicted of bribery and other offences Friday and jailed for five years in connection with the scandal that brought down South Korean president Park Geun-Hye.

Lee Jae-Yong’s penalty could leave the vast conglomerate, which includes the world’s biggest smartphone maker, rudderless and hamper its ability to make key investment decisions for years.

The vice-chairman of Samsung Electronics, 49, arrived at Seoul Central District Court on a justice ministry bus handcuffed and bound with white rope around his dark jacket.

Lee was found guilty of bribery, perjury and other charges related to payments Samsung made to Park’s secret confidante Choi Soon-Sil.

In total 8.9 billion won ($7.9 million) was paid in bribes in return for favours including government support for Lee’s hereditary succession at the group after his father was left bedridden by a heart attack in 2014, the court found.

Lee had denied the charges, but presiding judge Kim Jin-Dong said: “He offered bribes in response to strong demands by the president.”

Four other top Samsung executives were also convicted, with two jailed for up to four years, and the other pair given suspended terms.

Supporters demonstrating outside the court broke down in tears while Lee’s lawyers said they would appeal “immediately”, with lead attorney Song Wu-Cheol saying he “cannot possibly accept” the court’s “interpretation of law and finding of facts”.

Samsung is by far the biggest of the chaebols, as the family-controlled conglomerates that dominate Asia’s fourth-largest economy are known, with its revenues equivalent to around a fifth of the country’s GDP.

Economy

But while the economy is still growing, frustrations have mounted over inequality and the demonstrators who mounted giant candlelit protests against Park last year also targeted Lee and other chaebol chiefs.

The verdict could add impetus to new President Moon Jae-In’s campaign pledges of chaebol reform.

In a rare statement on a court case, the presidential Blue House said: “We hope that the ruling will serve to encourage the cutting of collusive ties between politicians and businesses, which have hampered social progress.”

Chaebols have long had murky connections with political authorities in South Korea, and past trials of their leaders have often ended with light or suspended sentences, with courts citing their contributions to the economy.

Lee’s father Lee Kun-Hee was convicted of tax and other offences in 2008, receiving a suspended sentence.

But Lee’s sentence is the longest ever handed to a sitting chaebol controller, said Chung Sun-Sup, the head of corporate analysis firm chaebul.com.

“Considering the fact that Lee was found guilty on all the five charges, five years in prison is the minimum sentence the court was able to come up with,” he told AFP.

The court said Park was aware that Lee wanted state approval for a controversial merger of two Samsung units in 2015, seen as a key step to ensuring his accession.

The deal was opposed by shareholders who said it wilfully undervalued shares of one of the firms. But it eventually went through after the national pension fund — a major Samsung shareholder — approved it.

Lee has been Samsung’s de facto leader since his father fell ill and the sentence leaves the conglomerate facing an extended vacuum at its highest level, but analysts differ on its impact.

Firm

Analyst Chung said major chaebol decisions on large-scale acquisitions or investments “are often endorsed by the patriarch of a ruling family”, and with Lee in prison the firm “may move more slowly than before”.

But Geoffrey Cain, the author of a forthcoming book on the group, said: “Samsung will not be doomed without Jay Lee. It’s up to the specialists to make their own decisions.”

Credit rating agency Fitch said it did not expect the conviction “to significantly disrupt the day-to-day operations of Samsung Electronics” or “negatively affect” its A+/stable credit profile.

But Fitch warned: “It could increase longer-term business risks by delaying necessary strategic decisions and major investment plans.”

The conglomerate appears to have been unaffected by Lee’s absence so far — he was detained in custody in February — with flagship subsidiary Samsung Electronics making record profits on the back of strong demand for its memory chips and this week it unveiled a new model of its Galaxy Note “phablet”.

“Samsung Electronics has a strong management team currently in place, led by its three co-CEOs,” it said in a statement.

“This team has delivered superior performance and will endeavour to lead our operations without disruptions” from what it called “the ongoing legal process”.

Samsung Electronics shares closed 1.05 percent down on Friday after the verdict.

The convictions suggest that ousted head of state Park, who is in custody and faces 18 counts including coercion, abuse of power and bribery at her trial with Choi, is likely to be found guilty.

Park has denied all wrongdoing and blamed Choi for abusing their friendship.