Korea’s Samsung Scandal Moves to New Phase

With prosecutors having quietly concluded an initial investigation with little fanfare, South Korea’s Samsung scandal was handed over to a special prosecutor last week just a day after a pro-business conservative won a landslide victory for president.

While much of the Korean media has been suspiciously quiet on what is potentially the biggest scandal in Korean history, presumably because of Samsung’s inordinate clout as the country’s largest corporation, the information released by prosecutors seems to confirm many of the allegations made by the whistleblower in the case.

It will be up to the special prosecutor, however, to follow up on the charges, amid suspicions that the National Assembly-mandated “independent” probe could itself be compromised in its scope of inquiry into a company that is responsible for about 20 percent of the country’s gross domestic product.

Cho Jun-woong, a former prosecutor, was named by President Roh Moo-hyun to the special prosecutor’s post last week out of a list of three candidates provided by the Korean Bar Association. A former chief prosecutor in Incheon and other large district offices, Cho has been in private practice since 2001.

Several civic groups pushing for corporate reform, including the Lawyers for a Democratic Society and the Catholic Priests' Association for Justice, however, criticized the appointment because of Cho’s background, working for a prosecution service that itself has been linked to receiving bribes from Samsung. “Appointing a former prosecutor as the special prosecutor will result in an ineffective probe. Plus Cho used to take public security-related cases, not ones involving bribery and conglomerates' irregularities,” a member of the lawyers' group said.

``No one in the law firm to which I currently belong has taken Samsung-related cases. And I'm not related to the company either personally or occupationally. I'll investigate the case thoroughly so that all suspicions will be dispelled,” Cho promised when he was appointed.

That may be nearly impossible, given Samsung’s reach into Korean society.

Korean journalists, speaking on condition of anonymity, have described an intense news management campaign that reaches into almost every media organization. With Samsung controlling an estimated 30 percent of advertising revenue in the country, its influence is pervasive. At some newspapers and other outlets, guidelines have been handed down to editors to restrict or minimize coverage of the scandal. There has been almost no independent reporting on the case, with most stories limited to leaks from prosecutors or official announcements.

One major newspaper, the JoongAng Ilbo, has been accused by the chief whistleblower in the case of being secretly owned by Samsung, but other media companies equally depend on the giant company, which sells everything from apartments and life insurance to computers and clothing, for advertising revenue.

The scandal was barely mentioned in the recent presidential campaign, with neither the liberals, who lost their 10-year hold on power, nor President-elect Lee Myung-bak’s conservative Grand National Party raising the issue before voters.

In Korea, Samsung is like the elephant in the room, its influence in politics, media and nearly everything else is so pervasive it cannot be ignored, but its dark side is rarely discussed. It is a symbol of pride for its enormous commercial accomplishments while efforts to reform the company’s heavy-handed ways usually stop short of real change.

Kim Yong-cheol, Samsung’s former chief lawyer, opened up the current mess in late October when he claimed to have been involved in helping Samsung maintain a vast network of slush funds worth more than $200 million used to bribe politicians, prosecutors and journalists. The accounts, he said, were maintained in his name and the names of other top executives. He later added charges that Samsung assisted Chairman Lee Kun-hee in illegally transferring money to his son in the process of trying to maintain family control over the vast firm.

In 2002 Samsung was charged with making illegal campaign contributions, mostly to the losing conservative side. In the current scandal, a former official of President Roh Moo-hyun’s liberal government came forward in November to say that Samsung also gave cash gifts to officials of the liberal Roh government after it took office. With Roh stepping down, that accusation is likely to be aggressively probed by the special prosecutor.

Kim’s allegations are largely true, investigators have said, although they have lowered his estimate of the number of accounts from about 1,000. "The list of accounts has become a lot shorter," a prosecution official told Reuters last week. "It's roughly about 300 or 400."

Prosecutors say they have found evidence of Samsung holding accounts in Kim’s name. They have also said they have traced bank and stock accounts in the names of 200 former and current Samsung executives suspected of having been opened by the company.

On November 26, Kim also alleged that Chairman Lee’s family, including his wife Hong Ra-hee, a major art collector in Seoul who runs a museum owned by the company, bought expensive paintings with Samsung slush funds from 2002 to 2003.

On Friday prosecutors said that the allegations of art purchases were true. They said that US$106.5 million had been spent by Chairman Lee’s family to buy top-drawer art work abroad. “Art works purchased in foreign countries can be confirmed based on customs-clearance records, but those produced by domestic artists (and purchased in South Korea) are different because they can be traded illegally,” said an official of the prosecution according to the Hankyoreh newspaper. “We suspect that slush funds have been used to purchase domestic art pieces as well, but we haven’t confirmed that yet,” added the official.

The paintings include Roy Lichtenstein's ``Happy Tears,'' which sold for a record $7.1 million at a Christie's auction in New York in 2002, through the Seomi Gallery in Seoul. The owner of the gallery has denied that it was bought with Samsung money or that she acted as an intermediary for Chairman Lee’s wife. The gallery claimed last month that the famous painting was in its possession, but refused to show it to anyone.

According to the whistleblower, Happy Tears has been hanging in Chairman Lee’s residence. He also listed several other major modern artworks by overseas artists that he said the gallery director bought for Lee’s wife. In response to the accusations, Samsung first claimed that the chairman’s wife bought the pieces herself. The company later said she acquired the work, but returned it to the gallery.

The role of state prosecutors in probing the scandal is now finished. They are to hand over their investigation records to a new team headed by the special prosecutor, which is expected to begin work in January.