Exploding Batteries

An independent counsel asked a local court on Monday to issue a warrant to detain Lee Jae-yong, the third-generation leader of Samsung Group, on charges of offering bribes to a longtime friend of President Park Geun-hye in return for the president’s influence to support a controversial merger at the country’s largest conglomerate.

Lee, vice chairman of Samsung Electronics, is a suspect in an alleged bribery scheme involving Park and her friend Choi Soon-sil. He was questioned by the team working for independent counsel Park Young-soo for 22 hours over allegations that Park put pressure on the state-run National Pension Service to support a merger of two Samsung units in 2015 in return for the conglomerate’s generous support of Choi and her family and donations to two foundations controlled by Choi. The $8 billion merger between Samsung C&T and Cheil Industries in July 2015 played a key role in the third-generation transfer of control of Samsung by solidifying Lee’s grip on Samsung Electronics. The scandal involving Park, Choi and some of Korea’s top conglomerates, which led to the impeachment of the president, was first investigated by the prosecution last year. An independent counsel launched a new probe. Park, impeached on Dec. 9, 2016, has immunity from criminal charges as long as she remains in office. The independent counsel sought a detention warrant to hold Lee on charges of giving bribes, embezzlement and perjury at a National Assembly hearing investigating the same scandal. “Although the impact on the national economy will be significant, we believed that upholding justice is more important when we decided to seek the detention warrant,” assistant independent counsel Lee Kyu-chul said. The independent counsel team will now go after President Park on charges of receiving bribes, he said.

“Profit-sharing between the president and Choi was proven through various records,” said assistant independent counsel Lee. “We obtained objective physical evidence to prove their conspiracy.” He also said his team will conduct further investigations and then question the president. The 48-year-old de facto CEO of Samsung was accused of having paid and promised to pay a total of 43 billion won ($36.4 million) in bribes using Samsung’s money. Because the money given to Choi and her family were corporate funds of Samsung Electronics and Cheil Worldwide, the investigation team accused Lee of embezzlement. The independent counsel said Lee perjured during a National Assembly hearing in December over the Choi-Park scandal. Lee testified that he did not know who Choi was and that Samsung never made any donations in return for favors. The independent counsel, however, said Samsung and Lee knew about Choi’s influence over the president when the conglomerate decided to chair the Korean Equestrian Association in March 2015. Choi’s daughter, Chung Yoo-ra, is an equestrian athlete, and Samsung was her financial patron. Park and Lee had at least three one-on-one meetings. The first meeting took place on Sept. 15, 2014, the second on July 25, 2015 and the third on Feb. 15, 2016.

The Seoul Central District Court will hold a warrant hearing for Lee. Samsung Group issued a statement to object to the independent counsel’s plan to take its leader into custody. “The independent counsel’s decision is hard to understand,” it said. “We never made donations in return for anything. We particularly disagree with the independent counsel’s argument that we sought illicit favors related to the merger and ownership transfer. We believe the court will make a proper judgment.”

A Samsung official said the company will be stigmatized among global investors, and the damage it will suffer in the international market will be unimaginably high. The independent counsel also made its first indictment of Moon Hyung-pyo, former health and welfare minister, over the controversial Samsung merger. Moon was accused of abusing his power as minister to pressure the National Pension Service to support the merger. According to the independent counsel team, Moon received President Park’s orders at the end of June 2015 to “take good care of the Samsung merger” through Blue House aides. After receiving the orders, Moon commanded public servants in his ministry to influence the state fund to support the deal. Although advisory firms in Korea and abroad recommended that the National Pension Service vote against the merger, it supported the deal, fueling suspicions of undue influence over the decision. The pension fund, Korea’s largest institutional investor, was the largest shareholder of Samsung C&T at the time. Meanwhile, the independent counsel said Monday it will summon Culture Minister Cho Yoon-sun and former presidential chief of staff Kim Ki-choon today to investigate the government’s systemic campaign to blacklist artists critical of the Park administration.

South Korea’s special prosecutor said it will take into account the economic impact of whether to arrest Samsung Group leader Jay Y. Lee in connection with an influence-peddling investigation involving the president. The office also delayed by one day, its decision on whether to seek the arrest of Lee, the third-generation leader of South Korea’s largest conglomerate, or chaebol, citing the gravity of the case. The special prosecution had said it would make a decision on Lee by Sunday. But spokesman Lee Kyu-chul told reporters on Sunday investigators were deliberating all factors including the potential economic impact of the arrest of Jay Y. Lee. Prosecutors have been investigating whether Samsung provided 30 billion won ($25.46 million) to a business and foundations backed by President Park Geun-hye’s friend, Choi Soon-sil, in exchange for the national pension fund’s support for a 2015 merger of two Samsung affiliates. The Samsung chief denied bribery accusations during a parliamentary hearing. Taking into account the economic impact could prove beneficial to the 48-year-old Lee. The imposition of less severe punishment on erring business leaders to avoid negative economic consequences has precedent in South Korea. “Law and principle are the most important metric, and after also considering various factors mentioned previously, we will decide by law and principle,” the prosecution spokesman Lee said, referring to economic impact, without elaborating.

Establishing a money-for-favour exchange between Samsung and Park or her surrogate is critical for the special prosecutor’s investigation, analysts say. Park, the daughter of a military ruler, has denied wrongdoing, although she has apologised for exercising poor judgment. Her friend, Choi, who is in detention and facing her own trial, has also denied wrongdoing. The Constitutional Court is deciding whether to uphold or overturn the impeachment vote. If Park is forced to leave office, a presidential election would be held in 60 days. Among the expected contenders is former U.N. Secretary-General Ban Ki-moon.

The chiefs of South Korean chaebol have over the years had prison sentences shortened or forgiven, or received pardons, with the economic impact of imprisonment cited as a factor. Jay Y. Lee’s father Lee Kun-hee, who has been incapacitated since a 2014 heart attack, was handed a three-year suspended jail sentence in 2009 for tax evasion. He was later pardoned. Samsung has acknowledged making contributions to the two foundations as well as a consulting firm controlled by Choi but has repeatedly denied accusations of lobbying to push through the merger of Samsung C&T and Cheil Industries Inc. The world’s biggest maker of smartphones, memory chips and flat-screen televisions has delayed its annual executive promotions, which typically take place in early December, amid the scandal.

The special prosecution also said it plans to indict National Pension Service chief Moon Hyung-pyo, who was arrested after acknowledging he pressured the fund to approve the merger while he was health minister.