On Tuesday, South Korean prosecutors announced they were charging the company’s chief, Jay Y. Lee, with embezzlement, bribery and hiding assets overseas.
The alleged actions are believed to have helped him obtain and keep his role as vice chairman and de facto head of Samsung, though Lee has denied any wrongdoing.
The charges against Lee included pledging bribes to a company and organizations tied to Park's confidant, Choi Soon-sil, the woman at the center of the scandal, to cement his control of the smartphones-to-biopharmaceuticals business empire.
“The Samsung Electronics Co. vice chairman allegedly directed tens of millions of dollars to entities controlled by a confidante of President Park Geun-hye, in return for government support of a 2015 merger that cemented his control of the group,” Bloomberg reported.
The 105-member special prosecutor team has indicted 30 individuals so far as part of a probe into far-reaching allegations of corruption in the highest echelons of business and government in Korea.
“Samsung was directly linked to the influence-peddling scandal and was essential to the special prosecutor’s investigation,” said Lee Kyu-chul, a spokesman for the special prosecutor. “The indictment describes in detail the private conversation between Jay Y. Lee and President Park Geun-hye,” he said, without providing copies of the indictment.
Though Lee will probably retain his position through his trial, other company leaders have resigned.
Reuters reported:
The prosecutors also charged four others at Samsung with offences including bribery and hiding assets overseas — group Vice Chairman Choi Gee-sung, President Chang Choong-ki, Samsung Electronics President Park Sang-jin and Executive Vice President Hwang Sung-soo.
Samsung Group said in its subsequent announcement that Choi, Chang and Park had resigned.
The resignations are part of a move by Samsung to disband its corporate strategy office, which handled business decisions such as acquisitions.
However, the office was cloaked in secrecy, and politicians have claimed it “was a key organ for illicit lobbying efforts,” Reuters reported.
Reuters explained:
Composed of around 200 employees hand-picked from various affiliates, the office did not exist as a legal entity but wielded enormous power as the instrument of control for the founding Lee family.
Samsung said the chief executives and boards of the various affiliates such as Samsung Electronics and Samsung C&T Corp would set their own course going forward.
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Samsung previously promised to disband the office, but it wasn’t until the recent accusations were levied against the company’s vice chairman that the decision was put into action.
Shortly after prosecutors announced that five Samsung executives would stand trial, Samsung issued a statement laying out a list of measures in an apparent gesture to reform the problems that have emerged as the scandal unfolded, including disbanding a shadowy office.
Known as the Corporate Strategy Office, the office consists of the Lee family’s right-hand aides who exert influence behind closed doors on big business decisions, including promotions and personnel reshuffling, at dozens of Samsung affiliates. The office has been criticized for orchestrating the elaborate, decades-long father-to-son leadership transition since Lee was in his 20s that allegedly involved tax evasion and breach of trust on investors. Aware of the public criticism on the shadowy office, Lee’s father promised to disband it after he was indicted in 2008. But that promise was not carried out.
Reuters reported:
"We apologize for the social controversy and distress we have caused," Samsung Group Executive Vice President Lee June told reporters.
Lee “has been in detention since Feb. 18, when a South Korean court approved an arrest warrant requested by the prosecutor,” Bloomberg reported.
A trial could take nearly 18 months, but Lee will probably learn the verdict more quickly. Even so, the crisis is damaging Samsung’s brand.
Bloomberg reported:
A trial for Lee could impact the company’s brand and also its ability to make major decisions, which he would normally be involved in, said Park Ju-gun, president of Seoul-based corporate watchdog CEOSCORE.
“Samsung’s brand image certainly took a severe hit from the latest scandal and this will of course prevent the company from keeping close track of new cutting-edge industry trends,” Park said.
The charges are especially cutting, considering Samsung’s dominance and reputation in South Korea.
The Washington Post reported:
Samsung also takes a special place in South Korea, where citizens sometimes call the nation the “Republic of Samsung” due to its widespread influence in everything from exports and jobs to health care, academics and more. Samsung’s nearly 60 affiliated companies account for a third of South Korean stock market capitalization.
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