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Samsung Vows Reform After Indictment of Chief

Scandal-plagued Samsung Group vowed to reform the way it does business after its powerful chairman was indicted on criminal charges.

That's a familiar refrain from South Korea's biggest conglomerate, which for decades has helped drive the country's economic growth while drawing flak for claims of shady practices.

Lee Kun Hee.jpg

Special prosecutors Thursday indicted Chairman Lee Kun-hee on charges of evading 112.8 billion won (US$114 million) in taxes and breach of trust, ending a three-month probe prompted by allegations by a former Samsung lawyer.

But the prosecutors dismissed the most explosive claim -- that Samsung used subsidiary companies to raise a slush fund to bribe influential South Koreans -- saying there was no evidence.

In carrying out their probe, however, prosecutors discovered what they said were serious irregularities, long alleged by civic groups, that Samsung engaged in dubious financial deals to ensure corporate control passes from Lee to his son.

Besides the top boss, nine other Samsung executives were indicted, including the group's vice chairman, considered the right-hand man to the 66-year-old Lee.

Samsung issued a statement after the indictments, apologizing "for causing concerns" and adding it was "preparing reform plans" that it would announce next week.

"The central question is whether they are going to turn this case into an opportunity to reform their corporate governance," said Kim Joongi, a professor of law at Seoul's Yonsei University.

Kim, who noted Samsung has made similar promises in the past, has been active in pushing for better management practices at Samsung and other conglomerates.

Those industrial groups, known as "chaebol," have long been accused of influence-peddling as well as dubious transactions between subsidiaries to help controlling families evade taxes and transfer wealth to heirs.

Samsung
Samsung

Civic groups critical of Samsung complained that independent counsel Cho Joon-woong failed to indict Lee for the alleged bribery and levied the other charges without arresting him.

Cho told reporters in releasing the probe's findings that taking Lee into custody was too big a risk for South Korea, citing "the extremely competitive global economic situation."

Founded 70 years ago by Lee's father, Samsung Group has interests in shipbuilding, insurance, leisure, apparel and dozens of other businesses.

Samsung Electronics, its flagship, is a world leader in computer chips, flat-screen TVs and mobile phones. The conglomerate's construction arm is erecting in Dubai what it touts as the world's tallest skyscraper.

Cho's sentiments were echoed by ordinary citizens in South Korea, where Samsung companies account for up to 20 percent of the country's exports, by some estimates.

"Of course proper legal process should be followed, but I do not want the foundation of Samsung to be shaken," said Min Tae-sik, a 57-year-old engineer. "I am a little bit nervous, actually."

Lee, widely seen as the driving force behind the rise of Samsung Electronics into a global force, hinted last week that he might resign over the scandal.

Kim, the Yonsei professor, said such a move was unlikely to occur anytime soon, even with the indictments.

"Unless he's sentenced in court, I don't think that's going to happen," said Kim, who estimated it could take up to two years for a verdict.

Still, some said the charges that were filed -- which potentially carry prison terms -- sent a strong signal to Samsung and the rest of the country's business elite.

"This will have an effect," said Michael Breen, longtime British resident of Seoul and author of a book on South Korea. "I think anything of this scale that happens with Samsung becomes a lesson for everyone else."

Investors, have generally taken a low-key approach to the scandal, pushing up shares in Samsung Electronics, for example, by some 25 percent since it broke in early November.

"I think they expect things will be handled much better in the future," said Lee Jae-hyok, a technology industry analyst at Daiwa Securities SMBC in Seoul.