How Samsung Got Wrapped Up in an Elaborate South Korean Political Scandal

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How Samsung Got Wrapped Up in an Elaborate South Korean Political Scandal

In late 2016, South Korean politics was thrown into disarray by a corruption scandal that has led to the impeachment of President Park Geun-hye. The complex ongoing controversy has several moving parts and a cast of characters and organizations from global conglomerates to religious cults.

In the latest twist, the South Korean special prosecutor is seeking the arrest of Samsung Vice Chairman Lee Jae-yong (aka Jay Y. Lee). He was originally named by prosecutors on January 11 as a suspect in the case, which centers on payments for political influence.

Samsung was allegedly involved in the payment or donation of 30 billion won (about $25 million) to businesses and foundations run by Choi Soon-sil, a friend and confidante of President Park Geun-hye. According to allegations, Choi Soon-sil acted as a proxy for what were essentially bribes with her using this unique standing as a means to influence Park and the government.

It has been claimed that the payments were made in return for political support for a business merger. The deal in question pertained to a consolidation of Samsung C&T and textile company Cheil Industries. Both firms were already affiliates of Samsung Group and the $7.7 billion deal was completed in September 2015.

Now the inner workings of how this merger was approved are bubbling to the surface. South Korea’s National Pension Service, a public agency, owned a 9.9% stake—the largest stake—in Samsung C&T at the time.

Former Korean health minister Moon Hyung-pyo, who is now CEO of the National Pension Service, was charged last month for using his influence to move the merger along and get it approved by the National Pension Service. If Moon is convicted, it will cast an even deeper shadow over the merger and raise more questions over Lee Jae-yong and Samsung’s credibility.

Lee is not alone. His questioning came just a couple of days after prosecutors questioned two other Samsung executives for their part in the payments to Choi Soon-sil’s organizations. Choi Gee-sung, Samsung corporate strategy office vice chairman, and President Chang Choong-ki were questioned by authorities but only as witnesses not suspects, unlike Lee.

Samsung is just the latest ripple in this political wave that grows more multifarious each week.

Who is Choi Soon-sil?

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Photo by Pool / Getty Images

Choi Soon-sil is the main person of interest in this ever meandering controversy that has now ensnared Samsung. She is the daughter of Choi Tae-min, the leader of a Shamanistic cult called The Church of Eternal Life, who was assassinated in 1979. Soon-sil is also the ex-wife of Chung Yoon-hoi, President Park’s former chief of staff.

The scandal that broke late last year alleges that Choi Soon-sil, through her friendship with Park, exerted great influence over her policies and decision making as president of South Korea. In late 2016, details began to leak about extent of their friendship from these clandestine payments to Choi Soon-sil’s foundations to her even editing the President’s speeches.

She had been overseas when she became a person of interest but agreed to return to face questioning at the end of October. The return of the “mysterious” woman, as she was dubbed by the press, came with its own problems. Opposition party members claimed the government allowed too much time between her return and the actual questioning. They accused them of stalling so both Choi Soon-sil and the government could get their stories straight. Eventually she was formally charged in November with interfering in state affairs.

Through their relationship, the chief prosecutor of the Seoul Central District Prosecutors’ Office, has said that President Park was “collusively involved in a considerable part of the criminal activities” by Choi Soon-sil. Two of the president’s aides are allegedly involved and have also been charged.

Park was not charged at this time due to her presidential immunity but hundreds of thousands took to the streets to Seoul to protest and call for her resignation.

However she was eventually impeached in December and is awaiting a court’s decision on her future, which could take another five months. Until then, she remains president but only in name. Her powers have been revoked and handed to the prime minister in the interim.

What does this mean for Samsung?

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Photo by Chung Sung-Jun / Getty Images

Samsung has admitted that it gave about 20 billion won ($17 million) to two foundations associated with Choi Soon-Sil but refuted claims that these payments were made to curry favor with the government. The electronics giant has also confirmed that it gave Choi Soon-sil’s daughter a horse and money to advance her equestrian career. This daughter has also been arrested.

Lee Jae-yong, who typically eschews the limelight and rarely makes public appearances, is seen as the heir apparent to the Samsung empire. While he serves as vice chairman of Samsung, he has become the de facto head of the conglomerate. His father and the chairman of Samsung is Lee Kun-hee. He suffered a heart attack in 2014 and stepped away from day-to-day duties, leaving his son effectively with the reigns. Lee Kun-hee’s health is a constant source of speculation over the future of Samsung.

This latest controversy only creates more doubt and speculation over how Samsung will be handled by his son.

Perhaps surprisingly, once Lee was brought in for questioning as a suspect, shares in Samsung did not falter. In fact, investors had anticipated such an incident would occur after Samsung’s name first started to pop in the scandal last month. It’s an entirely different thing if Lee is actually charged and thrown into years’ worth of legal battles.

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