Sliding their way through slush
A Korean lawyer, acting through a Catholic Priests’ organization, has accused Korea’s Samsung Group of maintaining an illegal bijageum, or slush fund, using accounts in his name worth 5 billion won (US$5.512 million).
The lawyer, who once worked as an executive at the company, claimed there are hundreds of such accounts in the names of company executives.
The Catholic Priests Association for Justice, which said it has vowed to stamp out corruption at Korea’s largest industrial group, held a press conference to say that Samsung used the identify of Kim Yong-cheol, formerly the head of the group chairman’s legal team, to create the secret bank accounts in which to store billions of won. Kim himself did not appear at the press conference.
Samsung has denied any wrongdoing to local reporters and said the accounts are a “personal matter for Kim,” who claimed that Samsung actually maintains as many as 1,000 such accounts, which allegedly allowed the industrial group to manage billions of won in cash off the books. Kim left Samsung in 2004 for a Seoul law firm. The Catholic association said he had approached it with evidence of what he said was criminal activity.
Bijaegeum funds are maintained by many Korean companies in an effort to hide money from shareholders and legal authorities without recording it on company books. They have been used for purposes ranging from illicit stock transactions to bribery and illegal campaign contributions.
Samsung is not only South Korea’s largest industrial group but is also the fifth largest company in the world, with interests including the world’s largest electronics company, one of the world’s biggest shipbuilders and one of the world’s biggest construction companies. It has been in repeated troubles with the law, pleading guilty in 2005 to participating in price-fixing over DRAM chips from 1999 to 2002 in a stratagem that prosecutors said drove up personal computer prices and throttled competition. The company and its US subsidiary, Samsung Semiconductor, agreed to a settlement in which it paid US$300 million in fines. Five executives, including the president of Samsung Semiconductor, went to jail.
In the past, the company was accused of providing illegal campaign funds to presidential candidates in the 1997 election as well as the below-market purchase of corporate bonds by children of the company’s group chairman, Lee Kun-hee.
The priests’ organization said Kim Yong-cheol has provided concrete evidence of the borrowed-name accounts, which appears likely to kick off an investigation by authorities. In the recent past, however, South Korea has displayed a notoriously lenient attitude towards its top industrialists. In 2002, prosecutors alleged that Samsung had maintained a massive slush fund containing tens of billions of won in bearer bonds, but dropped the investigation because the money was actually a part of the chairman’s personal funds. In 2006, there were also allegations of secret funds but the investigation was dropped on the basis that the evidence consisted of an illegal tape recording.
There are other notorious recent cases as well. In September, a court suspended the 18-month prison term of Kim Seung-youn, the chairman of chemical and insurance giant Hanwha Group, the country’s ninth largest conglomerate, after he appeared in court wearing a hospital gown and saying he was the victim of deteriorating health. Earlier that week, the three-year prison sentence of Chung Mong-koo, the chairman of Hyundai Motor Group, for embezzlement and fraud was suspended on appeal after the company offered to donate nearly US$1 billion to charity. The court took Chung up on the offer, saying his value to the Korean economy was such that he should not serve any time in jail.
In the current Samsung case, according to the priests, Kim was said to have discovered that an account had been opened at a brokerage in his name in 2004. In 2006, he was told that 181.8 million won (US$200,430) in interest income had been generated from the accounts. He paid no tax, and received no tax bill, making him assume that Samsung had paid the tax.
After that, the story gets somewhat muddy. A senior Samsung public relations official, who refused to be identified, told the Seoul-based JoongAng Daily that after an internal investigation the company determined that Kim himself had opened the accounts in cooperation with another executive and that the money in the accounts came from the executive’s relative.
“After our internal investigation, we have come to know that there was 5 billion won in Kim’s accounts,” the public relations official told the newspaper. “But the money is neither Samsung Group’s nor those of the group chairman’s family.” He added that the conglomerate has no plans to make a formal statement.
The next step in the case, if there is one will be up to prosecutors, who would have to initiate a formal investigation. It seems safe to assume that Samsung is hoping that its power and importance to the Korean economy will keep the government’s prying eyes away.