Special prosecutors said yesterday they had charged Samsung chairman Lee Kun-hee with tax evasion and breach of trust following a three-month probe into South Korea’s biggest business group.
They cleared Lee of bribery, the main allegation made by a former Samsung lawyer turned whistleblower who prompted parliament to appoint the unusual independent probe.
The prosecutors said in a report that Lee, 66, would remain free pending trial, as would nine other executives, including vice chairman Lee Hak-soo, who were also charged.
PHOTO: AP
This was because they had admitted most of the key charges and “in consideration of a negative impact on our economy.”
The hugely influential group accounted for more than 20 percent of South Korea’s total exports last year.
“We hope that the probe will help local companies meet global standards and be born again as the world’s top-class businesses,” the report said.
The team was probing claims by former chief lawyer Kim Yong-chul that the group had created a slush fund totaling 200 billion won (US$197 million) to bribe government officials and politicians.
It also investigated whether control of the group had been illegally transferred from Lee to his son Lee Jae-yong, who is a senior executive of Samsung Electronics.
Lee senior was charged with breach of trust over the illegal transfer. The process, led by senior executives, “was reported to chairman Lee Kun-hee at that time,” the report said.
Lee was also charged with evading a capital gains tax bill of 112.8 billion won.
“The special prosecutors found that 1,199 borrowed-name accounts were used to make profits from the sale of shares in Samsung Electronics and other affiliates ... and 112.8 billion won worth of taxes was evaded,” it said.
But it added that despite extensive raids and tracking of bank accounts, no evidence of bribery emerged.
The report, read on national TV by chief prosecutor Cho Joon-woong, supported past claims that the son acquired control of Everland, Samsung’s de-facto holding company, at a below-market price in the mid-1990s through the issue of low-priced bonds.
“We have confirmed that convertible bonds were issued at remarkably low prices and illegally allotted,” it said.
The prosecutors said Lee’s offences were not driven by greed. They noted that standards have changed in South Korea’s business environment.
“This case is like using today’s stern regulations to crack down on old wrongdoings that accompanied attempts to maintain and manage the governing structure of the company,” the report said.
“Therefore, the case is different from typical breach of trust and tax evasion crimes that stemmed from individual greed,” it said.
The report said Samsung has led the country’s dramatic economic achievements.
“However, it is true that it harbors many structural problems such as suspected illicit transfer of managerial rights, lack of transparency of book-keeping and direct control over subsidiaries through a strategy and planning agency whose existence has little legal basis,” it said.
Samsung said it plans reforms.
“Taking this special prosecutors’ investigation as a new starting point, Samsung is preparing reform plans based on advice from various sectors of our society,” it said, adding details would be announced next week.
The complex management structure of South Korea’s family-run conglomerates known as chaebol often allows founding families to control a group through cross-shareholdings, despite holding a relatively small stake.
The system has long been under fire from reform advocates.
Lee was convicted in 1995 of contributing to a slush fund for former president Roh Tae-woo and received a suspended jail sentence.
He was pardoned in 1997.
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