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SAMSUNG SLUSH FUND SCANDALNovember 2007Samsung chairman implicated in slush fund scandal (Nov 2007) Samsung Chairman Lee Kun-hee, chairman of Samsung Group, was found to be directly involved in the company's practice of regularly giving bribes to politicians and prosecutors, following allegations against the nation's largest conglomerate that emerged earlier in the week. The group's internal documents, recently obtained by The Hankyoreh, show that Lee had also directed officials to consider cutting back on ads by media outlets that were critical of the conglomerate, or chaebol, and to devise a way to provide indirect support to civic organizations critical of Samsung.According to documents obtained by The Hankyoreh on November 2, Chairman Lee, speaking on December 12, 2003 at Phoenix Park, a resort complex owned by Lee's brother-in-law in Pyeongchang, Gangwon Province, said, "It is unreasonable to give cash to people working in finance and the government and lawyers, prosecutors and judges. However, hotel discount coupons will be fine for them." Since then, Samsung affiliates have purchased vouchers from the Shilla Hotel and given them to people outside of the company who are on the list of people to be "managed" by the group. The documents, which contain instructions from Lee to top executives made at official meetings or his residence, were prepared by Samsung's corporate restructuring office (now called the strategic planning office). "After pasting articles from The Hankyoreh that give a negative impression of Samsung into a scrapbook, show it to them and have them to compare what they see with other newspapers," Lee said on October 18, 2003, in Tokyo. Lee then ordered Samsung to consider adjusting their ad contracts against The Hankyoreh, according to the documents. Lee also suggested that the conglomerate give indirect support to civic organizations critical of Samsung Group. "Let's consider donating several billions of won to non-governmental organizations like the People's Solidarity for Participatory Democracy, but such donations should not go to projects that could hurt us," Lee said on October 22, 2003, in Tokyo. The documents also showed that Lee was directly involved in the management of group affiliates, despite Samsung's repeated assertions to the contrary. "Consider selling Bundang Plaza or operating it under another management," Lee said on Sept. 5, 2003, in his home in Hannam-dong, Seoul. Samsung Corp.'s Bundang Plaza was sold to Aekyung last year. In response to the documents, a senior executive at Samsung Group's strategy planning division said, "At this stage, I have never seen the documents and don't know where they were released." He added, "We are now in the process of confirming whether the documents are true or false," The allegations against Samsung were first brought to light earlier this week when Kim Yong-cheol, who was once the director of a legal department attached to the secretarial office of the group's chairman, stated that in addition to having given cash bribes to over 1,000 of its top tier executives in amounts of 5-10 million won (US$5,500-11,000) according to their positions, Samsung had also given hotel vouchers or gift certificates when cash was not acceptable. Kim's statements against the company, which were released by the civic organization Catholic Priests' Association for Justice, also included the allegation that the conglomerate was keeping an account in the amount of 5 billion won (US$5.5 million) under his name without his knowledge. Kim also revealed that some 40 prosecutors had been bribed by the conglomerate, along with government officials and members of the press. Samsung has denied the allegations and says that the account held under Kim's name is now being managed by the third party, after Kim handed it over to a fellow colleague and someone outside of the company. According to Kim, Samsung pays approximately 1 billion won (US$1.1 million) per year to manage slush funds such as these. (Source: Hankyoreh News.) Samsung Bribes for Prosecutors 'Tip of the Iceberg' (Nov 2007) Kim Yong-cheol, the former director of Samsung Group's legal department said 5 Oct some of the currently most senior public prosecutors have taken money from Samsung. Kim Yong-chul has sprung a string of allegations capable of embarrassing Korea's biggest conglomerate and judicial authorities. He claimed he delivered between W5 million (US$1=W908) and tens of millions of won every Lunar New Year's Day, Chuseok and during summer vacation. He named no names but said, "I hope that a public opportunity will come" when he would. But he added, "Public prosecutors are a small group managed by Samsung. The Ministry of Finance and Economy and the National Tax Service, with which Samsung shares interests, are much bigger groups managed by Samsung." That suggests the company delivered still more money to senior officials at the ministry and the NTS than to senior prosecutors. He said that the source of the bribes were slush funds raised by Samsung's affiliates. "Samsung holds many accounts in the borrowed names of executives and staff that contain slush funds. I still have a list of some Samsung executives who hold such accounts," he added. A former prosecutor himself, Kim left Samsung after working there as an executive for financial affairs and head of legal department at Samsung Restructuring Office from 1997 until 2004. He first came clean about the alleged slush funds through the Catholic organization on Oct. 29. Samsung denied the allegations, saying it neither bribed prosecutors or judges nor ordered Kim to do such a thing. (Source: Chosun Ilbo.) The corruption scandal at Samsung Group snowballed 6 Nov as prosecutors opened a formal investigation into allegations that its chairman masterminded a massive scheme of bribery and illegal transactions. Prosecutors are investigating 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 illegally help his son take over control of Samsung. This time, the group is facing a potent whistle-blower: its former chief lawyer, who said he was personally involved in bribing, and 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 on Tuesday denied all of Kim's allegations, saying that he was turning against Samsung out of "personal grudges." In a legal complaint filed with prosecutors, Kim Yong-cheol said that Lee and his top aides 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 that 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 were not involved. Two of the executives were found guilty in a court ruling in October 2005, and Samsung is appealing. In interviews with South Korean media over the past few days, Kim said he was "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. 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, and of bribing politicians. But Lee's family has escaped largely unscathed. This has lead 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. Kim said Lee and his aides had raised huge sums of secret funds, using bank accounts illegally opened under the names of up to 1,000 Samsung executives. He said that under his own name, four bank accounts were 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 South Korean media. Kim said he himself 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 were 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. (Source: International Herald Tribune .) The prosecution is caught in a quandary. The civic group People's Solidarity for Participatory Democracy (PSPD) and Lawyers for a Democratic Society have filed a criminal complaint with the Supreme Prosecutor's Office against Samsung Group chairman Lee Kun-hee on suspicion of embezzlement, bribery and malfeasance. But prosecutors say they want a list of the prosecutors who were allegedly taking bribes first. It has to investigate a case against Samsung where there are accusations that prosecutors are on the "payroll" of Samsung. The prosecution has demanded the list of all prosecutors accused and stated that they would be "sidelined" in the investigation -- and not take any part in the investigation. However, once the lists are released, the second problem will arise for the prosecution as to how to investigate the accusations of corruption -- especially as accusations are against senior prosecutors. Kim Yong-cheol had stated that he would reveal them at an "appropriate" time. However, the bombshell still ticking was further revelations into Samsung's control of Ministry of Finance and Economy and the National Tax Service senior personnel through payoffs. Bar Association Could Censure Samsung Whistleblower (Nov 2007) The Korean Bar Association on 7 Oct said it is considering disciplining the former head of Samsung's legal team Kim Yong-chul because Kim's revelations violate confidentiality clauses. When a lawyer violates client confidentiality, the KBA is obliged to take disciplinary action. That includes disbarring, suspension of duty and imposing fines. A senior figure in the association said the KBA "will decide whether to discipline Kim after watching the result of prosecutor's investigation." (SITE NOTE: Notice that the KBA lawyers are closing ranks -- as the accusations against fellow lawyers in the prosecutors office are involved. This is the start of the mud-slinging attempts to discredit Kim.) Regarding Kim's allegations that the Samsung Group opened a bank account in his name to deposit secret funds, The Financial Supervisory Commission said an investigation will have to wait. Woori Bank, where the accounts were allegedly opened, is carrying out an internal investigation. Only after the investigation is complete, will the FSC take action. Head of Samsung Legal Department Resigns claiming Kim's Statements "Lies" (Nov 2007) Lee Jong-wang, who had advised Samsung on legal affairs and led its legal division, resigned on 9 Oct. In his e-mail sent to the Samsung planning division staff prior to the announcement, he criticized former Samsung legal division chief Kim Yong-cheol, 49, and branded Kim's allegations as total lies. Kim recently made allegations about Samsung's slush funds. Lee was a star prosecutor who held major posts in the prosecutor's office. In 1999, when a bribery scandal engulfed the attorney general, he also resigned in protest. "Kim was a former prosecutor and had worked for our company for seven years as a senior in-house lawyer. Those facts embellish his allegations with persuasiveness and truthfulness. But they are not true. Kim and I are practicing lawyers. I am ashamed my fellow lawyer would tell such a blatant lie," criticized Lee. Lee explained, "Last August and September, Kim's wife sent threatening letters to our company. I suggested that we should not respond to the blackmail attempts. I believed in integrity and the rule of law. Contrary to my belief, Samsung now faces a difficult time. I think I have to take responsibility. That's why I'm resigning." Samsung confirmed that Kim's wife sent threatening letters over three occasions to Samsung, which could reasonably be interpreted as "demanding money." (SITE NOTE: Notice that start of the mud-slinging attempts to discredit Kim.) (Source: Donga Ilbo.) Prosecutor General-Designate 'on Samsung Bribery List' (Nov 2007) Prosecutor-general nominee Lim Chai-jin, the head of the Central Investigation Department of the Supreme Prosecutor's Office Lee Kwi-nam, and Lee Jong-baek, a former chief of the Seoul Central District Prosecutors' Office, were regularly bribed by Samsung, the Catholic Priests' Association for Justice alleged on 12 Nov. The three high-profile figures are said to be on a list of some 40 alleged recipients of regular Samsung bribes. The Seoul Central District Prosecutors' Office the same day started an investigation of allegations about Samsung slush funds and bribery of public prosecutors raised by the conglomerate's former top attorney Kim Yong-chul. (SITE NOTE: The parliamentary judiciary committee approved Lim Chai-jin as the next prosecutor-general at a nomination hearing on 14 Oct, despite allegations that Lim was one of some 40 senior prosecutors who took regular bribes from Samsung. The committee approved Lim's nomination, saying he had sufficient experience and shown outstanding capabilities while serving in the prosecution for 25 years. It added Lim is qualified for the post since he is "committed to the fair management of the 2007 presidential election and respect for human rights" and believed in justice. On the corruption allegation, the committee said some members opposed the decision but did not block approval since Lim denies the allegations and vowed to uncover the truth if he is appointed. A bill was tabled by the UNDP and GNP to appoint an independent counsel to investigate the matter. The Grand National Party (GNP) decided to submit a bill today for appointing a special prosecutor to investigate both the election funds in 2002 and a "congratulatory fund", which set up for Roh Moo-hyun, the president-elect in 2002. Cheong Wa Dae's view is that the GNP's bill will include probes into President Roh's alleged illegal election and congratulatory funds, saying, "It is a malicious attempt to include groundless accusations in the bill." (Source: Donga Ilbo.) The Catholic organization disclosed part of the list to spur the prosecution, which had unusually demanded the list before launching a probe. The CPAJ cited a memo by Kim, who headed the legal department of Samsung's Restructuring Office from 1997 to 2004, as saying the former personnel chief at the Restructuring Office, Lee Woo-hee, took charge of looking after Lim, while Je Jin-hoon, CEO of Samsung subsidiary Cheil Industries, looked after Lee Jong-baek, who is now chairman of the Korea Independent Commission Against Corruption. Lim denied the allegations through Kim Kyung-soo, the public affairs officer at the Supreme Prosecutor's Office. The spokesman quoted Lim as saying he was not acquainted with Kim Yong-chul or had any recollection of bumping into him when he met with others. Lim said he never received any request from Samsung for any favors or was lobbied by the conglomerate. The others also denied the charge. (Source: Chosun Ilbo.) National Assembly Agree to Special Counsel (Nov 2007) The National Assembly's Legislation and Judiciary Committee on Thursday approved a bill charging a special counsel with investigating the Samsung corruption scandal. Both opposition and ruling-camp lawmakers on the subcommittee scrutinizing the bill gave the green light to a draft that could have wide-ranging repercussions for Korean society. The law charges the special counsel with investigating all suspicions about the Samsung Group -- from the conglomerate's attempt to transfer group ownership to chairman Lee Kun-hee's son by underhand means to use of slush funds to lobby powerful public figures since 1997 including senior prosecutors, illegal setting up of bank accounts in executives' names to hide the slush funds, and alleged delivery of congratulatory money to President-elect Roh Moo-hyun in 2002. The Grand National Party's demand for an investigation of the congratulatory money is reflected in the bill in the form of the special counsel's task to probe Samsung's suspected lobbying of the "senior-most government official." The parties did not discuss another pending bill that would establish an independent anti-corruption body, which Cheong Wa Dae has insisted must pass; therefore the president will likely veto the special counsel bill. A presidential veto could delay passage, but the combined number of house seats of the three parties backing the bill -- the United New Democratic Party (140), the GNP (129) and the Democratic Labor Party (9) -- is at 278 far larger than the quorum of 200 or two-thirds of lawmakers required to re-approve a vetoed bill. In any case, it is unlikely that an investigation will start before the presidential election, considering that it will take more than a month to appoint a special counsel and prepare for the investigation. That means the issue is unlikely to become a major campaign issue in the last hectic weeks before the election, though it could encourage the broader ruling camp to up its offensive against corruption. Under the bill, the Korean Bar Association would recommend three candidates for the president to choose a special counsel from. The counsel could appoint three assistants and would then be authorized to investigate for 60 days, in addition to 20 days for preparation. If necessary, that can be extended for another 45 days -- first 30 days and then another 15. The counsel could make just one announcement of interim results. (Source: Chosun Ilbo.) In a related story, Cheong Wa Dae says that "the monetary gift" accusations are smear tactics orchestrated by the GNP and will likely to rebut their validity, saying, "An investigation target that is too broad undermines judicial order." Roh could possibly veto the bill. In the wake of the whistle blowing over the Samsung scandal by Lee Yong-cheol, the former Cheong Wa Dae secretary for legal affairs, the public is paying close attention to Cheong Wa Dae's reactions. Under these circumstances, if the president wields his veto power against the special counsel bill, suspicions will only increase. More Allegations: Samsung Group Raised W200 Bil. Slush Fund' (Nov 2007) Samsung Group created a slush fund amounting to 200 billion won through improper deals among affiliates, according to the group's former insider on 26 Nov. He also said the group Chairman Lee Kun-hee's wife and other executives bought artwork with the family-owned conglomerate's slush fund. Kim Yong-chul, the former director of the legal department at Samsung Group, disclosed documents as evidence for his claim about the company's alleged slush fund creation at a media briefing in Seoul. It was the last of a series of his ``disclosures'' about Samsung's alleged slush fund creation, bribery and other irregularities. The prosecution banned several people involved from traveling overseas during the investigation but did not disclose who they were. The prosecution banned four to five people involved in the allegations from leaving the country, including Samsung executives, but did not disclose their names. It also demanded Kim present himself for questioning within the week. (NOTE: YTN reported that 8-9 executives, including Chairman Lee, were banned from travel.) According to Kim, Samsung Corporation, one of the group affiliates, made contracts with another subsidiary Samsung SDI's offices in London, Taiwan and New York, to create the slush fund. For example, the London unit bought memory chips at 100 won overseas and resold them to Samsung SDI at 120 won, having one won as commission and diverting the remaining 19 won into the slush fund. He showed a memorandum with signatures of a Samsung Corporation executive and the company's London office head. Kim said one Samsung SDI executive, who retired and went to the U.S., blackmailed Samsung with copies of documents related to the slush fund, demanding the company appoint him as resident executive there and provide living expenses. A former Samsung Display employee in charge of purchasing blackmailed his former employer by using the secret memoranda, Kim claimed. Kim In-soo, then president of the Samsung restructuring headquarters, the highest management body for the company, had consulted him about the extortion, he added. Kim said parts of the fund were spent in purchasing artwork in 2002 and 2003 by the chairman's wife Hong Ra-hee, who is director of Leeum Samsung Museum of Art, and other Samsung-related figures including Shinsegae Group Chairwoman Lee Myung-hee. The price of the artwork totaled 60 billion won, and Kim disclosed a list of pieces, including Happy Tears by Roy Lichtenstein. Kim yesterday released a list of artwork he said the Lee family collected from February 2002 to September 2003. Kim said "Bethlehem's Hospital" by Frank Stella was purchased for $8 million and Roy Lichtenstein's "Happy Tears" cost $7.16 million. "I was told by Jay Y. Lee [Lee Kun-hee's son] that Happy Tears was hung on the wall of Chairman Lee's home," Kim said. The group said Lee's wife once put Happy Tears in her house but did not buy it. (NOTE: The Joongang Ilbo stated, "Samsung yesterday said the claim that the Lee family purchased art with slush fund money was absurd. Leeum and Ra Hee Hong Lee did not purchase Bethlehem's Hospital or Happy Tears, Samsung said.) Kim also said several Samsung affiliates conducted accounting fraud in 2000, but Samil PricewaterhouseCoopers, an accounting firm, connived with this in return for entertainment. (NOTE: Naver reported that Kim also alleged that five Samsung companies cooked the books to the tune of 7 trillion Won(about 7 billion USD) and that Samil PriceWaterhouseCoopers helped in the effort.) Kim & Chang, the nation's largest law firm, actively participated in fabricating facts for the trial of Lee on charges of illegally transferring his wealth to his son through an illicit convertible bonds deal. The former insider also said Samsung monitored civic groups and made a list of 110 lawyers working with the People's Solidarity for Participatory Democracy in order to bribe them. He also claimed the JoongAng Ilbo's detachment from Samsung in 1999 was fake, saying that Lee secretly entrusted the newspaper's then publisher Hong Seok-hyun with his shares in the newspaper, but retained the voting rights. (NOTE: The Joongang Ilbo story stated "The separation of the JoongAng Ilbo, the JoongAng Daily's parent newspaper, from the Samsung Group in 1999 was a disguise, Kim also asserted. "The JoongAng Ilbo had made a number of public declarations that it would be spun off from the conglomerate, but its chairman, Hong Seok-hyun, had no money to buy the majority shares," Kim said. "In 1999, Kim In-soo asked me to write a secret agreement to put the shares in trust. According to the agreement, Hong will be the majority shareholder of the newspaper only in name, but he will have no voting rights, and Lee Kun-hee will exercise voting rights." Kim said only one copy of the secret agreement exists. The JoongAng Ilbo denied Kim's accusation, calling it "groundless." The newspaper said its separation from Samsung was legitimately carried out, adding that Hong spent his own money to purchase the shares, while Lee Kun-hee donated his stake to a nonprofit organization, the Yumin Cultural Foundation. "The Fair Trade Commission supervised and approved the entire process," the newspaper said. Samsung agreed. "The JoongAng-Ilbo was separated from the Samsung Group in April 1999, and Chairman Hong purchased his shares in the JoongAng Ilbo with his own money," Samsung said. "Kim's claim about a secret trust agreement is groundless." Both Samsung and JoongAng Ilbo criticized Kim for lying in public. "Kim claimed that JoongAng Ilbo sought money from Samsung whenever it needed, adding that it asked for money to repair an underground car park when it was damaged by a flood," the JoongAng Ilbo said. "In July 2001, the newspaper's printing facility, not the car park, was damaged by a flood. "The JoongAng Ilbo sought compensation from Samsung Life Insurance, which owned the building at the time. Samsung Life Insurance rejected the demand, so we even filed a lawsuit," the newspaper said. "We were later advised that the building owner is not responsible for damages incurred by a natural disaster, so we gave up the claim. "Because of Kim's accusations full of lies and distortion, the newspaper and its employees' pride and honor have been severely damaged. We will hold Kim legally accountable for his action," the newspaper said.) Samsung said Kim's claims were exaggerated and faked. It said in a statement that there was no slush fund created through Samsung SDI's deals, although it cannot find related documents from 1994 as memorandums are usually kept for only five years. It also denied all other allegations, saying Kim defamed all related figures and firms. The JoongAng Ilbo, Samil and Kim & Chang said that Kim's claims were lies, with Samil planning to file a suit against him for defamation. (Source: Korea Times.) December 2007Samsung Slush Funds Confirmed and Independent Counsel Appointed (Dec 2007) The special investigation team working on the Samsung slush fund case has confirmed circumstances in which hundreds of billions of won were received and withdrawn from 150 bank accounts under other names. As the data on tracing bank account records is expected to go to the upcoming prosecutors' team, the funds' purpose and use will be disclosed soon. The investigation team's head said, "I can say for sure that the actions of the prosecutors' team have been well founded and proceeded. Most of accusations made by Kim Yong-chul, the former lawyer of Samsung, have turned out to be true." Prosecutor Park Han-cheol, who oversaw the special investigation, said the conglomerate managed "considerable" slush funds. He added his team laid "a solid foundation" for an independent counsel to uncover the truth. He confirmed most of the allegations by the whistleblower Kim Yong-chul, a Samsung legal adviser from 1997 until 2004, who among other things accused the conglomerate of regularly bribing senior prosecutors and other officials on a so-called "Samsung scholarship."When asked which parts are true, however, he said, "I cannot tell the whole story yet." Just one month after its establishment, the special investigation team has completed 22 books of investigation records with 11,000 pages. Prosecutors after a raid on Samsung Securities found more than 500 proxy bank accounts among thousands of accounts held by 200 Samsung employees. Regarding account fraud, 160 boxes of documents have been submitted. The team is expected to hand over 79 books of records (42,000 pages) to prosecutors with prosecutors' documents included. The team received and executed six arrest warrants at Samsung headquarters, the SDS center in Gwacheon, the data center and the Financial Supervisory Service. Samsung executives including Lee Kun-hee, the group chairman, and Lee Jae-yong, a vice president of Samsung, have been banned from going overseas. The head of the team dissolved the investigation today, saying, "Under the law, two investigative bodies cannot exist at the same time." President Roh Moo-hyun appointed former senior prosecutor Cho Jun-woong as the special counsel who will investigate the Samsung scandal. (Source: Donga Ilbo and Chosun Ilbo.) Massive volume of artwork found in warehouses of Samsung's amusement park (Jan 2008) Investigators on 21 Jan found a massive volume of artwork in the warehouses of Samsung's Everland Resort, an amusement park located in a suburb southeast of Seoul. The raid on the company's warehouses in Yongin was part of an independent investigation probing allegations of bribery and shady business transactions by the family-owned conglomerate. (SITE NOTE: This seems to substantiate that Samsung CEO and his wife Hong Ra-hee did invest heavily in art works as alleged by Kim. Previously, the investigators raided Samsung headquarters in Jan 2008 to seek an alleged secret vault, but no such vault could be found. The on-going investigation has verified the existence of "secret" accounts and that some banks had worked in collusion with the Samsung executives to illegally create these accounts. The evidence continues to mount.) January 2008Special Prosecution Finds Alleged 1 Trillion Won Samsung Slush Fund (Jan 2008) A team of special prosecutors reportedly discovered slush funds amounting to one trillion won in bond accounts under the names of Samsung’s employed and retired high-level executives in financial institutions including Samsung Securities. The special prosecution team explained that the sum does not include sums double-counted in the course of money transfers.Accordingly, the special prosecution has summoned Samsung’s employed and retired high-level executives whose names were used in the accounts. The prosecution is expected to look into where the money came from and whether they managed the accounts themselves. The team also summoned four or five employees of Samsung affiliates such as Samsung Securities as references to examine whether they managed these accounts and the slush funds. Prior to this, the special investigation-audit headquarters of the prosecution discovered slush funds worth about 700 billion won until it was dissolved last December and the case turned over to the special prosecution team. Special prosecutors also said that it is confirming whether the paintings suspected of being purchased with slush funds are included among the thousands of paintings and antiques preserved in a warehouse in Everland, Yongin, Gyeonggi Province. Last November, the group’s former lawyer Kim Yong-chul disclosed the list of 30 high-priced paintings of famous modern artists, arguing, “Samsung purchased 30 expensive paintings from Christie’s, an auction house in the U.S., through Seomi Gallery, between 2002 and 2003.” At a press conference on the same day, assistant prosecutor Yun Jeong-seok said, “We are looking into whether the list of art pieces presented by Kim and the photographs we took (in the warehouse of Everland) match.” “For example, we can not be assured that Lichtenstein’s work was purchased with slush fund. We are making sure because there can be two works with the same title,” he noted. Special prosecutors plan to examine the source of money with which the works were purchased and how they were purchased, focusing on works suspected to have been bought with slush funds. For this purpose special prosecution sent President Hong Song-won (55) of Seomi Gallery a letter requesting her attendance. (Source: Donga Ilbo.) Over 20 investigators searched the headquarters of Samsung Fire and Marine Insurance Co. in downtown Seoul, the officials said, amid reports that the firm accumulated about 1.5 billion won (US$1.5 million) in a secret safe by failing to make proper insurance payments to clients. Over the past couple of weeks the independent counsel's team has raided a dozen Samsung offices, including Chairman Lee Kun-hee's house and personal office. Suspicions have mounted that Samsung hid evidence ahead of the raids. Surprise searches conducted on Lee Kun-hee's house and private office in Jan produced little evidence, according to sources at the independent counsel team. A group of lawyers and civic activists filed a complaint with the prosecution on 23 Jan alleging Samsung destroyed evidence. They claim Samsung issued a directive to destroy files that might injury company investors and executives prior to the raids. On 26 Jan investigators questioned three senior Samsung Group officials Saturday as part of a widening independent investigation into allegations that the nation's largest conglomerate amassed a huge amount of slush funds to bribe government officials, politicians, and prosecutors. Won Jong-un, managing director of Samsung's textile arm, Cheil Industries, was among the three. The two others were not immediately identified, but they reportedly work at Samsung Electronics. February 2008Investigation into One Trillion Won Slush Fund Bearing Fruit (Feb 2008) Independent Prosecutors Uncover Samsung Group’s 1 Trillion Won Slush Fund in Hidden Accounts Independent prosecutors have focused on Samsung Group’s alleged slush funds as their efforts are now considered to be yielding results. The investigation team, which was formed a month ago, confirmed that the amount of money hidden in the bank accounts of executives exceeded one trillion won, most of it deposited in cash. (SITE NOTE: Investigators said the group systematically laundered certain funds before they were deposited into the accounts in cash. They are also looking into methods that Samsung might have used to launder the money, including internal trading and cross-subsidiary transactions, window dressing and investing the late Samsung founder’s money into Samsung stock for bigger returns.)They summoned 30 former and current Samsung Group executives beginning with Hotel Shilla President Sung Young-mok on Jan. 18. Prosecutors secured testimonies regarding the names and bank accounts related to the slush funds. The deposed witnesses claim that the accounts are their own but failed to explain details surrounding the establishment and management of the accounts. Some of those who were summoned said that they had agreed to open the accounts, but discovered that multiple accounts were created later. Investigators are speculating that Samsung may have secretly used the names of its executives. Prosecutors raided Samsung Fire and Marine Insurance’s headquarters and its data center on Jan. 25. There was speculation that Korea`s largest non-life insurer created slush funds with insurance money intended to go to its subscribers. Prosecutors think that attempts to destroy evidence by Samsung Fire and Marine Insurance hampered the securing of critical evidence. The team called Samsung F&M Insurance Executive Director Kim Seung-eon and Manager Kim as its first suspects. It remains to be seen how the investigation into the destruction of evidence will affect the slush fund investigation. (SITE NOTE: Two Samsung Life staff members have been arrested on charges of obstruction of justice and destruction of evidence. A further investigation will precede their indictment. If convicted, the managers could face up to five years in prison for obstruction of justice and up to five years and fines of up to seven million won for destruction of evidence.) Independent investigators found that thousands of expensive artworks were stored in a warehouse in Everland, the Samsung-affiliated amusement park, in a raid on Jan. 21. They focused on locating 30 pieces of artworks allegedly bought with illicit slush funds, which Kim Yong-chul, the former head of Samsung Group’s legal department, claimed in a press conference in last November, but which prosecutors have yet to yield. Prosecutors state that the investigation into the art is not directly associated with the broader investigation. However, speculation that expensive artworks were purchased with the slush fund remains unresolved. Hong Song-won, head of Seomi Gallery which is alleged to have bought artwork on behalf of Samsung’s chief and his wife, released Roy Lichtenstein’s “Happy Tears” on Feb. 1. The piece had been missing for some time. Hong, however, said nothing about the owner of the work, the origin of the money for the purchase, and did not say whether she had any other artworks related to the investigation. With the end of the Lunar New Year Holiday, an investigation into the illegal transfer of wealth related to illegalities surrounding Samsung Everland’s issuance of convertible bonds is expected to begin. In the Everland case, both former Everland President Heo Tae-hak and current President Park Roh-bin were found guilty in an appeals court. The case is now pending in the Supreme Court. Samsung Card Executive Director Shin Eung-hwan, a former chief executive of e-Samsung, was summoned for the so-called “e-Samsung case.” E-Samsung was charged for causing harm to the company and stockholders when other Samsung-affiliated companies bought its stocks at high prices to make up for the 20 billion won in losses in 2001. The company’s chief stockholder was Samsung Electronics Executive Director Lee Jae-yong, son of Samsung Group Chairman Lee Kun-hee. (SITE NOTE: Despite the findings, the team is apparently cautious about subpoenaing key players in the scandal, such as Samsung Vice Chairman Lee Hak-soo and the strategic planning division’s President Kim In-joo. The two will be grilled after the preliminary probe is completed.) (Source: Donga Ilbo.) Investigators raid Samsung Electronics in corruption probe (Feb 2008) Investigators raided the headquarters of Samsung Electronics on 15 Feb as part of their high-profile probe of the company's parent Samsung Group that allegedly created a huge slush fund to bribe government officials. The agents from an independent counsel team were searching the head office of the world's biggest memory chip maker in Suwon, Gyeonggi Province, the sources at the team said. The search is to find materials related to other suspicions over Samsung's alleged illegal management practices, including a transfer of managerial control from Samsung Chairman Lee Kun-hee to his only son, Jae-yong. The 40-year-old Jae-yong is a senior vice president of Samsung Electronics. Samsung Electronics officials could not be immediately reached for comment. In the past several weeks, prosecutors have raided several of Samsung's buildings for the probe, including the group chairman's house and his private office that have been beyond the reach of law enforcement officials. But the surprise searches yielded little evidence, raising suspicions that Samsung hid or destroyed pertinent materials ahead of the raids. The high-profile probe kicked off last month after a former lawyer for Samsung raised a slew of bombshell allegations against South Korea's biggest conglomerate. (Source: Yonhap News.) South Korean special prosecutors on 15 Feb summoned Lee Hak-soo, vice chairman of Samsung Group, for questioning over allegations of creating a huge slush fund to bribe government Independent counsel's travel ban leads to destruction of evidence in Samsung investigation (Feb 2008) One day after the independent counsel who is investigating allegations that Samsung Group created a network of slush funds asked the Ministry of Justice to ban a Samsung Medical Center official from leaving the country, a witness who spoke to journalists from The Hankyoreh reported that he had seen officials from the center deleting computer files and destroying and moving documents. This has led to charges that tips about the independent counsel’s investigation are being leaked to Samsung. On February 20, a team of prosecutors assembled by the independent counsel to investigate the case asked the justice ministry to impose an overseas travel ban on a senior member of the hospital’s administrative staff, identified only by the surname Lee. Regarding the travel ban, an official on investigative team said, “We are figuring things out having received a tip about Samsung Medical Center.” On February 21, from the early hours of the morning and into the night, Samsung Medical Center officials deleted files from their computer hard disks and moved dozens of boxes filled with documents to a vehicle near an emergency treatment room, according to journalists from The Hankyoreh. At around 11:00 p.m. on February 20, a taxi driver, who wished to be identified only by his surname, Lee, was dropping a passenger off at the hospital, when he overheard a conversation between his passenger and another person. Lee said, “I happened to have been listening to the passenger’s mobile phone conversation. The passenger said, ‘Come to the hospital tonight wearing hospital attire. We have to get rid of some records because there might be a raid tomorrow.’” The independent counsel is also looking into transfers of property made by Chairman Lee Kun-hee and his family, to determine if there was an illegal transfer of management rights from father-to-son, which is illegal in South Korea. On February 19, the independent counsel asked the Ministry of Construction and Transportation and the Ministry of Government Administration and Home Affairs to provide information related to the rights transfer. Prior to this, the independent counsel’s request for a warrant to conduct a raid on the National Tax Service, had been rejected by a Seoul district court. The independent counsel had asked for the warrant because the NTS had refused to give the information to the team. The team is also working to analyze the results of its investigation into the Financial Supervisory Commission. This aspect of the investigation is focused on allegations that Lee Jae-yong, the 40-year-old senior vice president of Samsung Electronics and the only son of the Samsung chairman, had pocketed tens of billions of won in investment gains when he allegedly bought stocks in S1 Corp. based on internal information. In addition, the team is reviewing data that it obtained from the Fair Trade Commission. The team is looking into suspicions that Samsung affiliates, including Samsung Life Insurance, Samsung Securities, and Samsung Fire and Marine Insurance, gave unfair support to the now-defunct Samsung Motors. The collected data also includes documents related to the issuance of convertible bonds at Samsung SDS. The team also questioned Kim Hong-ki, 61, the former CEO of Samsung SDS, as to whether the company had allegedly sold the bonds to Lee Jae-yong at a below-market price. It is suspected that the bonds purchase was used to transfer management rights from the Samsung chairman to his son. Meanwhile, the team has confirmed that Samsung Group created dummy accounts using the names of its executives and their family members. It is suspected that the accounts are masking a large network of slush funds used to bribe public officials and members of the press. The team requested that the offices of some 30 cities and provinces, including Seoul, Daegu, and South Gyeongsang Province, submit documents listing the names of the executives and their family members. To understand how much money Chairman Lee, his family members and key Samsung executives actually earn, the independent counsel’s team asked the National Pension Service and the National Health Insurance Corporation to submit related information. The team also banned Hong Ra-hee, 63, the wife of the Samsung chairman, from leaving the country following allegations that she used the group’s slush funds to buy expensive pieces of art. The Korea Customs Service was also asked to submit customs data on foreign artworks imported into the nation. The team also interviewed Hong Song-won, 55, the director of Seomi Gallery who is suspected of having bought works of art for the wife of the Samsung chairman, to discover how she may have purchased the works. The two Hongs are not related. (Source: Hankyoreh News.) Prosecutors question Samsung Group heir (Feb 2008) The heir to the Samsung Group appeared at the independent counsel's office on 28 Feb for a day-long session related to an ongoing investigation into slush funds and corporate irregularities at the nation's largest conglomerate. Jay Y. Lee, 40, an executive with Samsung Electronics and the only son of Samsung Chairman Lee Kun-hee, arrived at Independent Counsel Cho Joon-woong's office in Hannam-dong, Seoul, with his attorney at 9:10 a.m. He was there until late in the evening. ''I know there are a lot of concerns about me and Samsung,'' Lee told reporters before being questioned. ''I will answer the questions fully and honestly.'' It is the first time that the independent prosecutor's probe has summoned a member of the Lee family for questioning. Prosecutors said Lee would be questioned on the transfer of ownership of Samsung from his father to himself. ''We will question him in general about allegations related to four petitions filed about the ownership transfer,'' said Yun Jung-sok, an assistant prosecutor. Civic groups have claimed that Samsung affiliates provided inappropriate funding to an Internet business affiliate, eSamsung, whose majority shareholder was Jay Y. Lee. The younger Lee has also been accused of taking over ownership of the conglomerate by purchasing bonds issued by Samsung affiliates at prices lower than the market value. A Seoul appeals court last year upheld a ruling that found two Samsung officials guilty of selling bonds convertible to shares to Chairman Lee's children, including Jay Y. Lee, at a steep discount. The ruling has been appealed to the Supreme Court. One of the allegations against Lee relates to whether the affiliates were ordered to absorb losses during the ownership transfer and if senior management had colluded in the deal, thus harming shareholders. (Source: Joongang Ilbo.) JoongAng Ilbo Chairman Hong Questioned (Mar 2008) Hong Seok-hyun, the chairman and publisher of the JoongAng Ilbo newspaper, was questioned as a ``suspect'' on 4 Mar over his alleged involvement in the Samsung Group's alleged illicit wealth transfer from its chairman to his only son. The brother-in-law of Samsung Chairman Lee Kun-hee presented himself at the independent counsel's office at 2:00 p.m. for questioning. ``I'll cooperate with the investigators. There are false rumors (about the wealth transfer and other illegalities surrounding Samsung and me) but this probe will reveal the truth,'' he told reporters. Prior to being interrogated, Hong submitted a written statement with regard to his alleged involvement in Samsung's activities. (SITE NOTE: There are allegations that JoongAng hid the fact that it had NOT separated from Samsung Group, as it had declared publicly. These allegations, as well as the others against the conglomerate fueling the current investigation, were brought by whistleblower Kim Yong-cheol in the fall.) Investigators questioned him over why the JoongAng Ilbo, which was the major shareholder of Everland in 1996, decided against buying convertible bonds (CBs) issued by the amusement park, the de facto holding company of Samsung, although their price was much lower than their market value. The Samsung chairman's son, Lee Jae-yong, later bought the CBs, becoming the biggest shareholder of Everland and thus taking over managerial control of the conglomerate. It was alleged that the group orchestrated the deal and that Lee Kun-hee gave his shares in the newspaper to Hong in exchange for him not buying the CBs. (SITE NOTE: This kind of father-to-son transfer of management rights is illegal in South Korea.) The counsel also looked into the allegation that Hong and other Samsung executives gave false testimony to the prosecution and manipulated evidence in 2006 when prosecutors examined the father-to-son wealth transfer. Investigators also probed the allegation that the daily's detachment from Samsung in 1999 was faked. A former Samsung lawyer claimed Lee secretly entrusted Hong with his shares in the newspaper but retained their associated voting rights. In addition, they questioned Hong over allegations that emerged in 2005 after a recording of phone conversations tapped by the National Intelligence Service was made public. According to the recording, Hong delivered bribes from the group to high-ranking prosecutors -- an allegation linked to the group's alleged bribery of public officials. In the meantime, the counsel is likely to put off summoning Lee Kun-hee and his wife. ``We have not decided when to summon Lee,'' an investigator said, adding that questioning them this week was unlikely. The independent counsel team first planned to question Lee and his wife before its initial investigation ends on 9 Mar, but decided to do so during an extension period. The probe can be extended by up to 45 days. (Source: Joongang Ilbo.) The team has also investigated Yoo Seok-ryul, the president of Samsung Card, for his involvement in the purchase of shares related to e-Samsung. The team also summoned Ok Jeong-do, a former director of Samsung Life, for questioning on how he came to own a bank account suspected of being used by Samsung Group to manage slush funds. Samsung bribe-takers joined Lee government (Mar 2008) A former legal counsel of Samsung Group claimed on 29 Feb that several people associated with President Lee Myung-bak took kickbacks from the business giant. Kim Yong-chul said he plans to reveal the names of the bribe-takers through a press conference, adding pressure to the ongoing special inquiry into corruption allegations against Samsung. The list of bribe-takers includes not just top prosecutors and ministers in the Roh Moo-hyun government, but also people recently nominated or mentioned as possible candidates of the Cabinet or high-ranking officials of Cheong Wa Dae, Kim Yong-chul said in a radio interview on 29 Feb. "Besides some top officials in the prosecution and minister-level officials of the Participatory Government (of former President Roh Moo-hyun), those who have recently been touted or designated as Cabinet ministers or high-level positions at Cheong Wa Dae are also on the bribery list," Kim said on a radio talk show. Cheong Wa Dae is the presidential office. So far, Kim and the group have named three veteran prosecutors, including Lim Chai-jin, the prosecutor-general, as being on Samsung's tab. All of them have denied the accusation. Kim had earlier withdrew his plan to make public a list of "dozens of prosecutors" who he said took bribes from Samsung. But the Catholic Priests' Association for Justice, a progressive organization that has represented Kim against the nation's biggest conglomerate in the dispute, released the names of a couple of prosecutors who it said were bribed, including Prosecutor-General Lim Chai-jin. Lim denied the allegations. The group of Catholic priests which has organized press conferences for Kim met 29 Feb to discuss the details of the disclosure but said they would not make any announcement this week. The priests' association said it will decide whether to release the list of Lee's officials linked to bribery after an internal meeting. Kim Yong-chul, who headed Samsungs legal affairs team from 1997 to 2004, blew the whistle in November, saying the business giant regularly paid off politicians, government officials and prosecutors. He also claimed that Samsung Group amassed 200 billion won ($210 million) in slush funds and facilitated the illegal transfer of managerial rights from the chairman to his son. Kim claimed that the secret funds were created through fraudulent accounting to a scale of about 7 trillion won. The group has thus far denied all allegations. The special inquiry team questioned Samsung Groups top executives Lee Hak-soo and Kim In-joo on 29 Feb over allegations that they were deeply involved in the slush fund operations and the illicit succession of management rights. The team, headed by independent prosecutor Cho Joon-woong, also said yesterday they collected additional data related to the slush funds from Samsung Life Insurance Co. Civic groups have accused Lee Hak-soo, known as Samsungs No. 2 man after chairman Lee Kun-hee, of leading the management of slush funds and bribery of high-profile figures as chief of the groups strategic planning department. Kim In-joo is suspected of masterminding the sale of convertible bonds in Samsung Everland, the groups de facto holding company, at a giveaway price to the chairmans only son Jae-yong. The special counsel interrogated Lee Jae-yong, senior executive at Samsung Electronics Co., for 14 hours on 28 Feb. The younger Lee became the largest shareholder of Samsung Everland, allegedly through illicit securities transactions carried out by the groups headquarters in collaboration with its affiliates. Lee Jae-yong currently holds a 25.1 percent stake in Everland, the nations biggest amusement park operator. The group is also alleged to have passed on losses sustained by Lee Jae-yongs failed internet businesses to subsidiaries in 2001. The younger Lee managed the groups 14 internet venture firms, including eSamsung and eSamsung International in 2000. (Source: Korea Herald.) Spy chief, presidential aide bribed by Samsung: priests (Mar 2008) A group of priests on 5 Mar accused South Korea's new spy chief and a senior aide to President Lee Myung-bak of having regularly taken bribes from Samsung Group. But the presidential office immediately denied the allegation, calling it "groundless." In a nationally televised press conference, the Catholic Priests' Association for Justice alleged Kim Seong-ho, a former justice minister nominated as head of the National Intelligence Service; Lee Jong-chan, former Seoul High Prosecutors' Office chief appointed as senior presidential secretary for civil affairs; and Hwang Young-gi, former chairman of the Board of Woori Finance Holdings, took bribes from the conglomerate. Hwang was initially picked as head of the Financial Services Commission but he did not assume the post. The potentially explosive announcement came as Lee was filling the posts of his inaugural administration, with Kim yet to receive approval from the National Assembly as the spy chief. "I've never been asked to show business favor or taken bribes" from Samsung, Kim Seong-ho said in a statement. "Lee Jong-chan was on Samsung's list of names to take care of and regularly took bribes. As the head of the High Prosecutors' Office, he himself even visited Samsung Group Vice Chairman Lee Hak-soo's office to receive money for his summer vacation," Father Jeon Jong-hun, representative of the progressive priests' organization, said. The presidential office of Cheong Wa Dae rushed to step in. "According to an internal investigation, the allegation that those who were named received bribes was found to be groundless," presidential spokesman Lee Dong-kwan told reporters. The priests seemed to have received the three names from a former lawyer for Samsung Group who raised a slew of corruption allegations against Samsung in November to initiate the ongoing independent probe. Kim Yong-chul, who worked for Samsung from 1997 to 2004, claimed last week that some officials of the Lee administration accepted bribes from Samsung. Even though bribe taking is grave enough in South Korea to deprive government officials of their jobs, it remained to be seen whether the priests' action would influence the Lee administration. The priests earlier claimed then Prosecutor-general nominee Lim Chai-jin had accepted bribes from Samsung, but Lim won approval from the parliament. (Source: Yonhap News.) FSS launches an investigation into Samsung accounts (Mar 2008) The Financial Supervisory Service has recently found evidence of suspicious stock transactions in more than 700 bank accounts under the names of incumbent and former executives of Samsung Group and has launched an investigation into Samsung affiliates, including Samsung Securities. The FSS received a request for investigation into the accounts from the independent counsel investigating allegations against the nation’s largest conglomerate. In a telephone interview with The Hankyoreh on March 4, a high-ranking official at the nation’s financial watchdog said, “Regarding the first 20-30 bank accounts for which an investigation was requested by the independent counsel, FSS agents are examining whether the accounts, held by Samsung Securities, violated the real-name financial transaction law. The FSS has also launched an investigation into approximately 700 additional accounts to confirm if they violated a law on stock transactions.” The law bars companies and individuals from opening bank or stock accounts under names other than their own. Samsung Group was alleged to have opened several of these dummy accounts in the names of its current and former executives to hide a network of slush funds which the conglomerate used, in part, to bribe public officials. “The FSS examined stock transactions made under false-name accounts and found signs that they had been used to trade shares of Samsung subsidiaries,” said the official, indicating that the FSS has already confirmed that the borrowed name bank accounts were used for share price manipulation. It was confirmed that the FSS formed a separate team of nine experienced investigators to examine potentially illegal stock transactions at Samsung. Another FSS official said that its team will have almost full authority to trace the bank accounts and follow the flow of money. With the data, which was handed over by the independent counsel, the FSS will be able to prove whether Samsung was involved in illegal stock transactions, the official added. Some predict, however, that it will take a long time to prove the allegations against Samsung Group. In ordinary share price manipulation cases, the number of accounts involved is about 30 to 40. In the Samsung case, that number is much higher and it is assumed that stock prices have been manipulated for longer than 10 years, going back to 1995 or 1996. In the meantime, the prosecution’s special investigation headquarters confirmed in December that Samsung’s strategic planning office posted considerable financial gains from the stock price increase after the office purchased forfeited shares that became available when shares in Samsung affiliates were put up for public sale. The shares in Samsung Securities, Samsung Electronics and Samsung Heavy Industries were purchased under the names of current and former executives. (Source: Hankyoreh News.) Probe clears Samsung chairman`s son (Mar 2008) The son of Samsung Group chairman Lee Kun-hee was yesterday cleared of charges of passing on business losses to the groups affiliates. The special investigation team has decided not to charge Lee Jae-yong and 27 group executives, citing lack of evidence. The civic groups that filed the suit said they will appeal the case. "After our investigation into key figures engaged in purchasing stakes in eSamsung, we have found no evidence that Lee Jae-yong asked the groups affiliates to purchase the stakes," independent counsel Cho Joon-woong told reporters at his office in southern Seoul. The nine subsidiaries underwent legitimate decision-making processes such as conducting due diligence and holding board meetings before finalizing their purchase of the stocks. The head counsel also said that the affiliates were operating in close tandem with eSamsung, making it difficult to conclude that the purchases were made in order to take on Lee's financial losses or to prevent fallout on Lees reputation from his business failures. However, the investigative team said that in contrast to Samsungs claim, the groups strategic planning office, which is accused of having orchestrated the purported illicit activities, was involved in the establishment and operation of eSamsung and the sale of Lees stakes in the online firms. The group, in collaboration with its subsidiaries, was alleged to have deliberately undertaken losses incurred by Lee Jae-yongs botched internet businesses in 2001. (SITE NOTE: The special counsel concluded Samsung affiliates' purchase of Lee's shares was technically legal, considering that they followed normal procedures, including analyzing the feasibility of their purchase of his shares and getting approval from their board of directors. The special counsel also decided the Samsung affiliates made no mistake given that they outsourced auditing to an outside accounting firm to decide how much they should pay for the shares. The team found that the affiliates suffered no loss from their purchase of Lee's shares. While the e-Samsung-affiliated Internet firms registered heavy losses at first, their business improved later, and Samsung affiliates who bought Lee’s shares were reportedly happy with their decision to buy shares cheap.But the team discovered that Samsung’s strategic planning office, which is at the heart of slush-fund allegations, was involved in the affiliates’ takeover of the shares. The team believes that strategic planning office vice chairman Lee Hak-soo and president Kim In-joo were directly involved both in the founding and operation of e-Samsung and in the purchase of Lee's shares. But although the office gave instruction to the affiliates to buy Lee's shares, no criminal charge can be brought because the process was legal. And although Lee junior was e-Samsung's largest shareholder, no criminal charge can be brought against him either, because there is no evidence that he has been directly involved in the management of the Internet venture since, the special counsel added. (Source: Chosun Ilbo.)) The younger Lee managed 14 online venture firms, including eSamsung and eSamsung International, in 2000 with full support from the group. In 2001, eSamsung sustained losses amounting to 20 billion won ($21 million). In order to prevent further losses, nine of the groups affiliates, including Samsung SDI and Cheil Communications Inc., allegedly bought Lees shares in the moribund online businesses between Feb. 27 and 29 in 2001, adversely impacting the groups shareholders. Among other affiliates, Cheil Communications Inc. bought Lee's 16.7 billion won stake in eSamsung while Samsung SDI bought Lees 3.7 billion won stake in eSamsung International. The Peoples Solidarity for Participatory Democracy, a leading national civic group, filed a complaint against Lee Jae-yong and 27 executives at Samsung affiliates in October 2005 over the case. The investigative team had prioritized the eSamsung case as the seven-year statute of limitations ends March 26. The group welcomed the exoneration. "It is a relief that such misunderstandings have finally been disentangled," an official at the group told The Korea Herald. Civic groups strongly protested the news. "The special team did not make complete efforts to assess the then prices of eSamsung stocks and the financial losses (the affiliates suffered). Plus, although the team discovered that the groups restructuring office (now called the strategic planning office) was involved in the case and the board meeting was held as just a formality, it still delivered such an inadequate conclusion," Kim Sang-jo, executive director of the Solidarity for Economic Reform, told The Korea Herald. Both the Peoples Solidarity for Participatory Democracy and the SER are planning to appeal the case. The special investigation, mandated to last up to 105 days, kicked off on Jan. 10. (Source: Korea Herald.) Samsung chief accused of illegally using borrowed names (Mar 2008) A special prosecutor's team has found that a dozen former and incumbent executives of Samsung Group allowed the group's chairman to use their names to cover up his ownership of a major stake in Samsung Life Insurance, the group's de-facto holding company, an investigator of the team said. The discovery sparked allegations that Lee Kun-hee may have masterminded the illegal use of borrowed names to avoid inheritance taxes when he took over part of his wealth from his late father, the group's founder Lee Byung-chul, and when he transferred it to his son and heir apparent Jae-yong. (Source: Yonhap News.) Samsung Admits False-Name Accounts (Mar 2008) Samsung Group admitted for the first time on 26 Mar that it managed accounts opened under borrowed names containing 2 trillion won ($2 billion). The independent counsel's team probing the conglomerate is focusing its investigation on verifying the exact number of such accounts and the source of the money. Samsung claims the money is not a slush fund. It says the money was bequeathed by the late group founder Lee Byung-chul to his son and current Chairman Lee Kun-hee -- the same claim it made for Samsung Life Insurance shares, which the chairman registered under 11 executives' names. Samsung's strategic planning office vice president Choi Kwang-hae, who was summoned Monday, submitted to the counsel a list of stock accounts which the group opened under its former and incumbent executives' names, according to an investigator. The office is suspected of having led the group's alleged illegalities, including slush fund creation and bribery. The number of Samsung Securities accounts on the list reached 700, with more than 2 trillion won kept in them, the investigator said. The counsel's team said earlier this month that it had found 1,300 accounts suspected of being opened using borrowed-names. The investigator said the team is comparing the list of 700 accounts with its own list of 1,300 -- as the numbers of accounts on the two lists differ, it has demanded Samsung submit additional lists. By submitting the list, Samsung reversed its previous claim that there were no accounts under false or borrowed names. However, the group now admits the existence of such accounts, but claims the money is not used as slush funds. Samsung's claim, if endorsed by the team, will enable the chairman's family to avoid charges of as embezzlement and breach of trust. A tax evasion charge may not be filed against the family as well, as the statute of limitation has expired. The counsel is making efforts to find the origin of the money -- whether it is really from the late founder or it is slush funds the group created through illegal deals among its affiliates as a Samsung whistleblower claimed. ``We are examining money flow in the accounts, but are having difficulty as the money transactions were made a decade ago,'' the investigator said. (Source: Korea Times.) Samsung chairman's wife questioned about artworks (Apr 2008) The independent counsel investigating allegations of a slush fund and other questionable transactions involving Samsung Group Chairman Lee Kun-hee and his family members summoned Lee’s wife, Hong Ra-hee, for questioning as part of the probe. Hong, 63, the director of Leeum Samsung Museum of Art, has been accused of allegedly buying expensive foreign artworks with Samsung slush funds, which a former chief attorney of Samsung claims, were raised via massive accounting fraud committed by the group’s affiliates. Hong appeared at the independent counsel’s office at 3:00 p.m. on April 2. Despite of a barrage of questions by journalists, including whether she used her own money to buy the painting “Happy Tears” by American pop artist Roy Lichtenstein, Hong said, merely, “I will answer (the independent counsel’s questions) sincerely” and went into the office occupied by the investigation team. An official with the special investigative team, led by independent counsel Cho Joon-woong, said, “As far as I’m aware, Hong will not be summoned again.” Questions for Hong focused on learning how she had raised the money to buy the artworks and where the money had come from. It was believed that senior prosecutor Kang Chang-woo, who is one of the members for the independent counsel’s team, tried to clarify whether Hong used the money she had inherited from her father-in-law, Lee Byung-chull, the late founder of Samsung, or illegal corporate funds to buy the art pieces. Previously, Samsung had said that Hong used money inherited from her father-in-law to purchase the artworks. In addition, Hong was believed to have been questioned about why accounts that held funds that came from dividend payments made by Samsung Life Insurance and the bank account of former Samsung attorney Kim Yong-cheol were used to buy the art works. The accounts used to buy the art were in Kim’s name and the names of Samsung LIfe employees. Questioning also focused on whether Hong was involved in transaction with Seomi Gallery Director Hong Song-won and Kukje Gallery Director Lee Hyeong-sook. Also at issue is whether Hong is the real owner of thousands of works of art stored in a warehouse owned by Everland, Samsung’s amusement park affiliate, and whether she bought 30 expensive art works, including “Happy Tears,” from Christie’s auction house in New York. Last year, state prosecutors investigating the allegations against Samsung said they found circumstantial evidence indicating that 100 billion won (US$102.6 million) held by Samsung in dummy accounts was used to buy a number of expensive artworks. The biggest suspicion surrounding Hong is whether she used her own money to make the purchases. Hong is likely to argue that she did use her own money for all of the art purchases, and will deny allegations that she bought “Happy Tears,” with slush funds. This was just one of the allegations brought by Kim, Samsung’s former chief attorney, who said that the family of the chairman had spent billions of won from the conglomerate’s illegally amassed slush fund to purchase artworks, including the famous painting. The painting went missing soon thereafter, only to reappear briefly earlier this year in a showing at the Seomi Gallery. Hong says that she had kept the painting for four to five months and returned it to Hong Song-won, the director of the Seomi Gallery because she claimed not to have liked it, according to the testimony of the Seomi Gallery director in a prior round of questioning. The scope of questioning also included an inquiry about a memo submitted by former Samsung attorney Kim to the investigative team on January 14. The memo was written by Kim after he heard from one of the Seomi Gallery director’s attorneys in 2004. At that time, the Samsung chairman’s wife was under investigation by prosecutors on charges of violating the foreign currency transaction law. The memo said that the wife of the Samsung chairman had purchased artworks by Cy Twombly and Ed Ruscha, two of her favorite artists, and said that Lee Myung-hee, the chairman of Sinsegae and the mother-in-law of Samsung Electronics executive Lee Jae-yong, were on the Seomi Gallery director’s client list. Lee Jae-yong is the only son of the Samsung chairman, and has himself been a subject of the Samsung investigation for allegations that Samsung Group transferred its management rights from father to son illegally. In addition to the allegations about the artworks, Hong was believed to have been questioned about what she knew of the management transfer, in which Everland sold its convertible bonds to Jae-yong at below market prices in 1996. At that time, the Samsung Culture Foundation, which was headed by Hong, gave up its rights to buy the Everland bonds worth 520 million won and allowed her son to buy the bonds. “In 2006, Hong sent a written statement to prosecutors as one of those accused in the Everland case,” said the official with the independent counsel’s team. “Based on this, the inquiry focused on insufficient parts of that statement.” In a telephone interview with The Hankyoreh on the same day, Kim, the former Samsung attorney, said, “When I worked for Samsung, I was told by Vice Chairman Lee Hak-soo that Hong had expressed her deep concern about how the group’s management control was transferred to Jae-yong via the issue of convertible bonds from Everland.” After questioning Hong, the independent counsel’s team said it would complete its probe into the art allegations and does not plan to summon her again. Some critics claimed, however, that the questioning of Hong could just be the investigative team’s attempt at putting on a show after an internal decision made by the team to clear her of allegations related to the artworks. (Source: Hankyoreh News.) Samsung Chief Summoned (Apr 2008) Two days after the independent counsel questioned Samsung Group Chairman's wife, Hong Ra-hee, who is director of Leeum Samsung Museum of Art, the independent counsel summoned Samsung Group Chairman Lee Kun-hee to question him on the conglomerate's alleged creation of slush funds, bribery and other irregularities. It is the second time for the tycoon to be called in by prosecutors, following a case of illegal political donations in 1995. His summons comes two days after the questioning of his wife Hong Ra-hee and about a month after that of his son, Jae-yong. Assistant prosecutor Yoon Jeong-seok of the special investigation team said on 3 Apr that the team requested Lee to present himself at 2 p.m. 4 Apr. ``We have many things to question and confirm. We'll decide whether to summon him again according to the progress of the questioning,'' Yoon said. The summons of Lee, the top decision maker of Samsung and key figure in the group's allegations, indicates the counsel's team has almost finished its probe. Now the issue will be whether the chairman will be charged. Among the allegations, the counsel will focus on the alleged illegal transfer of wealth and the group's managerial control from the chairman to his son. It is alleged that Jae-yong bought convertible bonds of Everland, Samsung's de facto holding company, at below-market prices and took over the group's managerial control. Lee will be asked about whether he orchestrated the illicit deal. The counsel will also question him over the group's management of slush funds in stock accounts opened under false names. The probe team confirmed earlier that Lee is the actual owner of Samsung Life Insurance shares registered under 11 former and incumbent Samsung executives' names, which account for 16.2 percent of the company's total shares, and another 1,300 Samsung Securities accounts opened under false names. Samsung claimed these were inherited from Lee's late father and the group founder Lee Byung-chul. The counsel will question the chairman over whether he managed assets under the false names and whether he has paid due taxes.The investigators will also interrogate him over the group's alleged bribery, as a Samsung whistleblower claimed that the chairman gave executives detailed lobbying directions. Regarding the summons, Samsung gave no comment but that the chairman would faithfully respond to the questions. (Source: Korea Times .) (SITE NOTE: Sacrasm on... The phrase "faithfully respond" was used by Lee's wife as well when she was called in. Does it mean "tell the truth"? Nope -- it only said, "I will give an answer that may or may not be true -- but I will "faithfully respond" to the question.") Samsung exec confesses to holding stock for chairman -- Samsung Chairman Questioned Second Time (Apr 2008) A former high-ranking executive at Samsung Group confessed on April 10 that he has kept some 280,000 shares of Samsung Life Insurance Co. under so-called borrowed name accounts and that the real owner of the shares is Samsung Chairman Lee Kun-hee. The Samsung chairman will be summoned again by the independent counsel, Cho Joong-woong, for questioning at 2:00 p.m. on April 11. Hyun Myung-kwan, 67, who had served as chief secretary of the Samsung chairman’s office and chairman of Samsung Corp. before entering politics, revealed the information at a regional office of the ruling Grand National Party on Jeju Island. At present, Hyun is the head of the GNP’s provincial office in Jeju. “I have said several times, including during the May 31 local elections, that I was the real owner of the stake in Samsung Life, but it’s not true,” Hyun told reporters. “I have held the 280,800 shares of Samsung Life in my accounts since 1988, when I was a senior executive at Hotel Shilla. In fact, I have held the stake in borrowed name accounts, and the real owner is the group’s owner (Chairman Lee Kun-hee),” Hyun said. One of the allegations against Samsung is that the group used the bank and stock accounts of its senior executives to stash slush funds for the group. In South Korea, it is illegal for anyone to open an account in a name other than one’s own. On March 23, the special prosecutorial team investigating into the allegations against Samsung said, “Of the 16.2 percent stake (3,344,800 shares) in Samsung Life owned by 12 current and former Samsung executives, 11 executives, excluding the late Samsung Life Chairman Lee Jong-ki, were confirmed to have shares for Chairman Lee Kun-hee under borrowed name accounts.” When asked why he made the revelation at this late stage, Hyun said, “I had thought of revealing the information before the parliamentary elections, but decided to do so after the elections were over due to concerns about a possible setback for the party. I did not talk with anyone prior to revealing this information,” Hyun said. Hyun is regarded as a veteran executive at Samsung and served the group in various capacities, including as the chief secretary in 1993; vice chairman of Samsung Corp. between 1996 and 2001; chief director of Samsung Medical Foundation in 2000; and chairman of Samsung Corp. between 2001 and 2006. In 2005, Hyun also served as vice chairman of the Federation of Korean Industries, the nation’s largest corporate lobby. Meanwhile, Yun Jung-sok, a senior prosecutor on the special investigative team, said, “At the time of Chairman Lee’s first summons, there were some parts that weren’t investigated because probes into slush funds and borrowed name accounts were being conducted. When Chairman Lee is summoned again on April 11, we will question him intensively about the allegation that Everland convertible bonds were issued at below market prices,” referring to the charge that this was done in an effort to illegally transfer ownership of the group from the chairman to his son. Regarding another, separate allegation that Samsung SDS issued convertible bonds at below market prices for the same purpose, Yun said, “As for Chairman Lee’s role, we will consider the possibility of punishment as we continue to investigate, but no decision has yet been made.” Earlier in the day, the special prosecutorial team raided the headquarters of Samsung Electronics, including the offices of its finance team, computer services center and warehouse. “The raid was carried out to secure classified documents,” Yun said. After the special prosecutorial team tracked some 1,300 dummy accounts that had been opened at Samsung Securities, the team was believed to have confirmed that billions of won were deposited into the accounts of Samsung executives. The money was used to buy shares of Samsung Electronics and the stock dividends were remitted as cash. That is in contrast to explanations from Samsung that the money in the borrowed name accounts was inherited wealth belonging to the Samsung chairman and that no money had come from Samsung affiliates. Asked by a journalist whether the raid on Samsung Electronics was related to the second summons of the Samsung chairman, Yun replied, “It could be so.” On the same day, the special prosecutorial team summoned Samsung executives, who have been suspected of owning the Samsung Life shares under borrowed name accounts, for questioning. (Source: Hankyoreh News.) Prosecutor to Indict Samsung Chairman for Tax Evasion (Apr 2008) The special prosecution team investigating Samsung Group’s corruption allegations summoned Chairman Lee Kun-hee for the second time on 11 Apr. Some 250 reporters, 300 police officers and 60 protesters thronged to the special team’s building in Hannam-dong, Seoul, from early morning. Lee arrived at the building at 2 p.m. and answered with only slight smiles to reporters’ questions. Tax evasion amount to be confirmed The independent counsel said it would make its final conclusion on how much Lee had evaded in taxes by creating some 1,300 borrowed-name stock trading accounts. This means the prosecution will soon decide on what charges it will indict Lee. To that end, the prosecution team has invoked the Supreme Court’s ruling against Kim Hyeon-cheol, son of former President Kim Young-sam. The nation’s highest court found him guilty of tax evasion in April 1999. Kim was criminally punished for tax evasion for the first time in Korea’s legal history. “The logic applied to Lee’s case can be found in detail when you refer to the ruling involving Kim Hyeon-cheol,” an official of the counsel said on condition of anonymity. The ruling was the first one where the Supreme Court elaborated on under what situation a bank account under a borrowed name is subject to criminal penalties. ? Borrowed-name accounts and criminal punishment applicability The use of a bank account under someone else’s name is not punishable, in and of itself. The ruling against Kim said, “The act of using bank accounts under other people’s names itself, without consideration of specific motivations and situations, does not constitute active concealment of incomes.” However, the ruling interpreted the following cases as an active concealment of incomes: when the suspect has several borrowed-name bank accounts to disperse funds; when he or she deposits funds to different borrowed-name accounts repeatedly; and when the effect of hiding incomes is evident by borrowing the name of someone who is in a special relationship with the suspect. If these criteria are to be applied to Lee’s case, he will most likely face criminal charges. The special prosecution team has confirmed during the first investigation that Lee had divided the money to about 1,300 borrowed-name bank and stock trading accounts, that when executives and employees who had lent their names died, quit the company, or transferred, the funds were deposited to other accounts, and that those who had lent their names are the group’s executives. Samsung tries to minimize the tax evasion amount Some may raise question whether it constitutes active concealment if the stock trading of the borrowed-name accounts had taken place only one time. The fact the money were repeatedly deposited to most of the borrowed-name accounts indicates the lack of trading. In case of Lee’s indictment, Samsung is expected to defend him by emphasizing that his act was neither active nor complete, citing the cases of some executives who admitted the possession of borrowed-name accounts. Though the amount of money in an account reaches hundreds of billions of won, if there has been no transaction since the opening of the account, it is not subject to criminal penalties because there have been no capital gains. Samsung has seen Chairman Lee’s indictment as a fait accompli and sought to minimize the amount of evaded taxes. However, the amount that was confirmed as of Friday was said to be over 100 billion won. According to the prosecution team, Jeon Yong-bae, director of the group’s strategy and planning department, who is allegedly known to be Lee’s asset manager, has been trying to reduce the amount of tax evasion whenever he is grilled. (Source: Donga Ilbo.) ‘Samsung Chief Evaded W150 Bln in Taxes’ (Apr 2008) Samsung Group Chairman Lee Kun-hee is confirmed to have evaded taxes of more than 150 billion won through about 1,300 borrowed name accounts, the independent probe into the conglomerate’s slush fund scandal said Sunday. Prosecutors said they calculated the amount after grilling Lee for a second time Friday, but that the figure is likely to increase. They say the sum was determined based on borrowed name accounts subject to tax evasion charges with a statute of limitations of seven years and that have been traded more than once. Accounts whose statute of limitations has expired and accounts with no trade history were excluded from the charges. Chairman Lee told prosecutors during questioning that he held accounts under other people’s names and estimated the taxes he evaded. Prosecutors, however, failed to secure evidence that Lee exploited the accounts to amass slush funds. Samsung Vice Chairman Lee Hak-soo and top strategic planner Kim In-joo were also interrogated separately to conclude the probe into the conglomerate’s alleged tax evasion and the murky sale of Samsung Everland’s convertible bonds at giveaway prices. Lee was reportedly cleared of the suspicion that Samsung bribed former and incumbent high-ranking government officials, including prosecutors, due to lack of evidence. Also summoned Saturday was former Samsung Corp. Chairman Hyun Myung-kwan, who recently confessed to holding Lee’s Samsung Life Insurance stocks under his name, to investigate why he reversed his statement. On how he held Lee’s accounts, Hyun said, “I lent my name at the request of the group’s chief secretary in 1988.” (Source: Donga Ilbo.)  Lee Kun Hee investigated on 4 Apr 2008 (Bloomberg) Samsung Group Chairman Lee Is Charged for Tax Evasion (Apr 2008) Samsung Group Chairman Lee Kun Hee will stand trial for tax evasion and breach of duty, prosecutors said, after a three-month probe into allegations of corruption at South Korea's largest industrial group. Lee, 66, was charged with evading 112.8 billion won ($114 million) of taxes, the special prosecutors said at a press conference in Seoul today. Lee is also charged with breach of duty for incurring losses at Samsung when helping his son gain control of units of the group. Nine other Samsung executives were also charged. Lee, one of South Korea's richest men, has denied the allegations. Samsung Group, which accounted for about 20 percent of South Korea's exports in 2006, said it will reorganize its business and management. President Lee Myung Bak, who took office in February, pledged during election campaigning to increase corporate transparency and governance after scandals involving South Korea's biggest industrial groups. ``Samsung will have to make changes to enhance corporate governance, although how much of a substantial improvement it will make remains to be seen,'' Kim Sang Jo, a professor of international trade at Hansung University in Seoul, said. ``Even if Lee Kun Hee steps down as chairman, there's no doubt he'll continue to have a big influence over the group.'' Paring Gains Shares in units of Samsung Group, which has assets of 261 trillion won, pared gains after the announcement. Samsung C&T Corp., the building and trading arm of the group, closed 0.3 percent higher at 73,400 won after gaining 2.7 percent before the announcement. Shares of Samsung Techwin Co., an optical equipment maker, fell 0.8 percent, becoming the only decliner today among 17 listed group units. Samsung Electronics Co., Asia's biggest maker of computer chips and mobile phones, closed 1.5 percent higher after rising as much as 3.1 percent before the charges were announced. Samsung Heavy Industries Co., the world's second-largest shipbuilder, and Samsung SDI Co. also pared earlier gains. ``Samsung would like to apologize for causing concerns,'' Lee Soon Dong, a president in the group's Strategic Planning Office, said in an e-mailed statement after the indictments. ``Taking this special prosecution investigation as a new starting point, Samsung is preparing reform plans.'' A press conference will be held next week to announce details of the plans, the statement said. Special Investigators Investigators, led by a special counsel appointed by parliament, were looking into allegations by Samsung's former chief lawyer, Kim Yong Chul, that the group diverted at least 200 billion won to bribe government officials and other influential figures. Prosecutors said they didn't find evidence of illegal lobbying of government officials. The probe, which began on Jan. 10, was the second inquiry into the former attorney's allegations. Lee wasn't investigated in the first inquiry. He won't be detained for the trial. Lee evaded taxes on income from trading of Samsung Group unit stocks which was channeled through accounts held by other executives, the prosecutors said. They said he also breached his fiduciary duty because he knew of illegal sales of bonds by Samsung Everland Inc., the group's de facto holding company, and Samsung SDS Co., an information technology company that isn't listed. Lee Hak Soo, 61, vice chairman of Samsung Electronics, was also charged with tax evasion and breach of duty, as was Kim In Joo, 49, a president of Samsung Group's Strategic Planning Office. Neither will be detained pending the trial. Seven other executives were charged with similar offenses, all of which carry a minimum sentence of five years in prison. The Seoul Central District Court will try to deliver a ruling on Samsung within three months, Ma Yong Joo, a court spokesman, said by telephone in Seoul. He said the first hearing hasn't been scheduled yet. Earlier Conviction The indictment of Lee, the head of South Korea's wealthiest family, isn't his first brush with the law. He was convicted in 1996 for bribing ex-Presidents Chun Doo Hwan and Roh Tae Woo. He received a two-year term in prison, suspended for three years, and was pardoned by President Kim Young Sam in 1997. Prosecutors in 2005 also investigated whether Lee and other company executives used corporate funds to pay presidential candidates. Though cleared, Lee apologized and pledged to donate 590 billion won of his and his family's wealth to society. Executives at other South Korean chaebol, the industrial groups that drove the country's economic recovery after the 1950s Korean War, have also been found guilty of corruption. Prison Terms Hyundai Motor Group Chairman Chung Mong Koo last year won a suspension of a three-year prison term for an embezzlement conviction after pledging to donate about $1 billion to charity. The suspension was overturned by the Supreme Court earlier this month, and a new trial is pending. Kim Woo Choong, the founder of now-defunct Daewoo Group, was sentenced to 10 years in prison in 2006 for his role in the country's biggest accounting fraud. His term was cut to 8 1/2 years following an appeal, and he was pardoned this year. The Samsung case ``will lead to Chairman Lee loosening his grip on the group,'' said Yun Chang Hyun, a professor of business administration at the University of Seoul. ``The management style at the country's conglomerates, where they are led by one charismatic owner, should gradually disappear.'' (Source: Bloomberg.com.) Whistle-blower seeks reopening of Samsung probe (Apr 2008) A whistle-blower whose allegations led to the indictment of Samsung Group's chairman said Friday he seeks a reopening of the investigation to correct what he called the "whitewashing of the conglomerate's corruptive behavior". A special prosecutor charged Lee Kun-hee, 66, with evading 112.8 billion won (US$114 million) in taxes and illegally transferring wealth to his son. But Lee was cleared of bribery and allowed to remain free. Kim Yong-chul, a former lawyer for Samsung who raised the corruption allegations in October and prompted the months-long independent probe, said the findings sidestepped key charges. "The special prosecutor did not even summon suspected bribe takers," he said in a statement jointly written with the People's Solidarity for Participatory Democracy, a leading civic group. The special prosecutor, Cho Joon-woong, faced criticism even before his findings were announced on 17 Apr over his reticent approach towards the lobbying allegation. Such influential figures as Prosecutor-General Lim Chai-jin and Kim Sung-ho, chief of the National Intelligence Service, and Lee Jong-chan, a senior aide to President Lee Myung-bak, were accused by the whistle-blower of accepting bribes, but the prosecutor only questioned them by mail, not in person. Also, witnesses like Rep. Choo Mi-ae, who said that she had been offered 10 million won put in a golf case by a Samsung staff member in the 2000 parliamentary election campaign, were not probed, he said. Citing a lack of evidence, the special prosecutor said, "In our extensive raids and tracking of bank accounts, we failed to find any traces of lobbying," and "We found it difficult to continue the investigation by only relying on Kim Yong-chul, who frequently changed his words." (Source: Hankyoreh News.) Lee Kun-hee Quits as Samsung Chairman (Apr 2008) Samsung Group chairman Lee Kun-hee, who has led the country's biggest enterprise for 21 years, stepped down from the group chairmanship on 22 Apr. Lee took over the conglomerate in 1987 after his father and Samsung founder Lee Byung-chull died. His only son Jae-yong, who is at the center of a controversy over an alleged underhanded transfer of group control, will also step down as a chief customer officer of Samsung Electronics. Lee Jae-yong will work at an overseas branch of the conglomerate to "learn about management." Flanked by some 30 Samsung executives, Lee Kun-hee held a press conference at the conglomerate's headquarters building in Taepyeongro, Seoul on 22 Apr, where he announced his resignation and a reform program for the conglomerate. "I feel regret, as I still have a long way to go and have a lot of work to do,” he said. “But I will take all responsibility for all wrongdoings of the past, both legally and morally, for the issues raised by the special counsel inquiry." Lee was indicted last week after a 99-day inquiry after the group's former chief attorney Kim Yong-chul alleged the operation of borrowed-name accounts hiding massive funds. Lee also resigns all other posts in the Samsung Group, including the chairmanship of Samsung Electronics and the Samsung Culture Foundation, and will not take up the customary post of honorary chairman. The group will disband the strategic planning office, which ran the dubious accounts and planned the underhand transfer of group control to Jae-yong. Vice chairman Lee Hak-soo, who masterminded the strategic planning office, and president Kim In-joo will also step down by the end of June after winding up remaining business. The group's council of chief executives will discuss development of new projects or new massive investment. But with Lee out, it will be difficult for the group to make bold investment decisions. Observers expect Samsung's global competitiveness to weaken in the immediate aftermath. Lee said he will pay tax on about W2 trillion (US$1=W997) worth of the borrowed-name accounts, for which the special counsel charged him with tax evasion, and seek ways to spend the residue from the accounts on social welfare. But he will deposit W2.5 trillion of stocks and bonds of Samsung Life Insurance into his own accounts in preparation to defend his management right. His son will also be allowed to maintain his stakes in Samsung subsidiaries. There will thus be no conspicuous change in the Lee family's asset holdings and control of the group. Lee also promised to sell within four to five years Samsung Card's 25.64 percent holdings of stocks in Everland, the conglomerate’s quasi-holding firm, to put an end to the old practice of Byzantine circular equity investments in subsidiaries -- Everland, Samsung Life Insurance, Samsung Electronics, Samsung Card and Everland again. Samsung Group has appointed Lee Soo-bin, chairman of Samsung Life Insurance, as the group's representative after Lee leaves. Samsung's subsidiaries pledged to strengthen their own autonomous management system. Samsung wants to inject fresh air into the group in May in this year's personnel reshuffle for executives and its business and investment plan, which it has delayed due to the inquiry. The group will finish the reform program by the end of June. (Source: Chosun Ilbo.) (SITE NOTE: This simply give Samsung breathing room. The same power structure is still in place with Lee and his son still holding majoring interest in the company. His son will flee overseas to an overseas branch to deflect the heat. It is the Korean ploy to be out of sight, out of mind. NOTHING has been stated about the closure of the illegal accounts on which money has been deposited -- except that if they were no funds drawn out within a specified time, they were OK. Samsung is planning to sue the whistle-blower and he welcomes the threat as he will be able to expose a lot more in court than the special investigators were willing to do. This is hardly over.) Samsung breaks a link in its ownership circle Critics say changes are largely cosmetic (May 2008) The announcement of reform plans by Samsung Group following the indictment of Chairman Lee Kun-hee last month brought the issue of circular ownership back to the forefront in Korea. Many family-controlled conglomerates use such ownership to control a vast web of company affiliates. Since the financial crisis in 1997-1998, the government has encouraged conglomerates to improve transparency and corporate governance and conglomerates like LG and SK have already reorganized under holding companies. But other groups, including Samsung, still maintain old management practices. Circular equity investment creates the appearance of an investment when none actually exists, said a Fair Trade Commission official dealing with conglomerates. It's as if Company A invests $100 in Company B, which in turn invests $100 in Company A. In the case of the Samsung Group, Lee's family, which founded the group, effectively controls all its 34 affiliates including Samsung Electronics, in which the family holds a tiny direct stake. In a giant circle, Samsung Everland Incorporated owns 19.3 percent of Samsung Life Insurance Corporation and the life insurer owns 7.2 percent of Samsung Electronics Corporation, according to Samsung Group, making it the No 2. shareholder after Citibank. Samsung Electronics, which is Samsung's flagship company and the world's leading memory chip producer, controls 46.9 percent of Samsung Card Corporation, and the card company has 25.6 percent of Samsung Everland. Jay Y. Lee, the heir to the group and ex-chairman Lee's only son, holds a 25.1 percent stake in Everland. Ownership is based on holdings of common stock. "The bigger problem is that when one affiliate suffers financial troubles, it is difficult to downsize or sell the company because it could damage the link of circular investment," the FTC official said, "or when an affiliate becomes a hostile takeover target, the entire group becomes vulnerable." In addition to Lee's resignation, the group announced it would break the ownership circle by having Samsung Card sell its stake in Samsung Everland. But some say the plan doesn't go far enough. "Selling Samsung Card's stake in Everland does not eliminate circular investment in the group, and it is a lot more complicated than that," the FTC official said. "It seems that Samsung is going to disband it step-by-step." Even if Samsung Card does follow through on the plan, Jay Y. Lee, other family members and other affiliates still hold more than a 60 percent stake in Everland and there is no threat to the family's control over the group. Regardless of Chairman Lee's resignation, there would be little change in his influence over the group, critics say. "This [Samsung Card's stake in Everland] is just one link to disappear," said Shin Hee-jin, a researcher at the Solidarity for Economic Reform, a civic group aimed at improving corporate governance. "There is no meaning. The biggest problem in Samsung Group's ownership structure is that the family controls the group through financial institutions like Samsung Life Insurance. And this has not been resolved." Critics say Samsung Card's plan to sell its holdings in Everland was expected due to a 2006 amendment that bans financial institutions, like Samsung Life Insurance, from owning more than a 5 percent stake in nonfinancial companies, like Samsung Electronics. However, Samsung denies that dissolving circular investment was planned and says the idea of selling Samsung Card's stake in Samsung Everland is a result of good intention. "It is far-fetched to say the stake sale was intended," said a Samsung official, who wished to remain anonymous. "Samsung Card is going to sell its entire stake in Samsung Everland, not just the portion above 5 percent." Though Lee Kun-hee resigned from his post, many expect him to maintain his hold on power. He is no longer group chairman, but in a survey by the Institute of Global Management of 105 business leaders including chief executive officers at major local companies last month, 69 percent said Lee would exert major influence from behind the scenes as a leading shareholder. Fifty four percent said Jay Y. Lee is more likely to become chairman because of his father's resignation. Twelve percent said Lee's resignation was temporary. In other family controlled conglomerates such as the Doosan Group, chairmen have stepped down briefly following indictments only to resurface later. (Source: Joongang Ilbo.) (SITE NOTE: Lee's son, Lee Jae-yong remains abroad in a makeshift task with a title as Executive VP but no specific position and floating between China, India, Soviet Republics and other "emerging markets". After he resigned his "chief customer officer" position when his father stepped down, he headed overseas. The idea is obvious to keep him out of the line of fire -- and hidden.) Samsung Group's former chief pleads not guilty at corruption trial (Jun 2008) Former Samsung Group chairman Lee Kun-hee apologized on Thursday for causing concerns about Korea's largest conglomerate, but pleaded not guilty to most charges of tax evasion and breach of trust at the opening of his trial. "I deeply apologize," a gray-suited Lee said at a Seoul Central District Courtroom, packed with an audience of about 200. "For the past 20 years, I've lived looking forward, with my only belief that (Samsung) should win in the race with foreign companies. Looking back, I |
