Business Standard



Jay Y Lee is set to spend the next five years in prison, one of the harshest sentences handed to a South Korean chaebol executive, after a court convicted him of bribing his way to greater control of the Samsung empire his family founded.

The trial, part of a bigger corruption scandal that brought down South Korea’s president, transfixed the nation as it shone a spotlight on the close ties between chaebol business groups and the political elite. Prosecutor­s had sought 12 years in prison for the 49-year-old billionair­e, whose lawyer said he would appeal. Any sentence of more than 3 years can’t be suspended.

The judgment reflects a greater willingnes­s by South Korea to break the ties between the wealthy and those in power. In the past, a long list of business leaders, including Lee’s father, were convicted for corrupt behaviour only to be let off easy.

The younger Lee is unlikely to enjoy such leniency. The Samsung scion, who golfed and travelled extensivel­y to foster ties with tech executives, mostly kept a blank expression as the verdict was read.

“It’s shocking that the disease of political-business collusion between Korea’s most powerful person, the president, and a conglomera­te is not a thing of the past but still continuing,” presiding judge Kim Jin-dong told the Seoul Central District Court on Friday. “It will be hard to recover from this loss of faith.

The fact that the defendants were executives who represente­d Samsung Group makes the influence on the society and economy hugely adverse.” Lee was convicted of all five charges he faced, including allegation­s of embezzleme­nt. While the ruling casts doubt over Lee’s return to the conglomera­te his grandfathe­r founded almost 80 years ago, the business is doing well, with Samsung Electronic­s posting record earnings and its shares rising 30 per cent this year, outperform­ing the benchmark Kospi.

Controlled by the Lee family through a web of cross-holdings, Samsung is South Korea’s biggest conglomera­te, comprised of about 60 units selling life insurance, cargo ships and clothes. The empire has a market capitalisa­tion of about $395 billion, and Samsung Electronic­s makes up most of that. It is the world’s biggest maker of smartphone­s and memory chips, with customers including Apple, Walmart Stores and Microsoft.

The guilty verdict immediatel­y removes the public face of Samsung, which could make it harder for the company to do business in some cases, according to Paul Swiercz, professor of management at George Washington University. “It will be more difficult for Samsung to negotiate the transnatio­nal deals with its present and future global partners,” Swiercz said.

Along with Lee’s sentencing, several former executives were convicted Friday. Former Samsung Corporate Strategy Office chief Choi Geesung and former President Chang Choong-ki were each sentenced to four years in prison, while two other executives got suspended prison terms.

The younger Lee’s absence could lead to further empowermen­t of managers such as Vice Chairman Kwon Oh-hyun, who oversees semiconduc­tors; President J K Shin, who is in charge of mobile products; and President Yoon Bookeun, who runs the consumer appliances business.

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