Tax evasion, bribery and price-fixing: How Samsung became the giant that ate Korea

A new president has been sworn in – but as she takes office, the humiliation of an MP who took on the might of Samsung appears to show where the real power lies in South Korea

It was seen by many as a showdown between politics and power, a bid to bring one of the world’s largest conglomerates to heel. Eight years ago politician Roh Hoe-chan lobbed a grenade into South Korea’s business world when, with the help of two journalists, he published secret recordings of an aide to Samsung chairman Lee Kun-Hee discussing what appeared to be payments to prosecutors and a corporate slush fund to channel illegal funds to presidential candidates. The case triggered a toxic legal battle that ended this month with a Supreme Court conviction for Mr Roh and the humiliating forfeiture of his parliamentary seat. While parliamentary privilege protects what South Korean politicians say in the National Assembly, the court ruled that the same does not apply in cyberspace.

The power of South Korea’s chaebols – huge, family-owned conglomerates that have helped transform one of the world’s poorest countries into Asia’s fourth-largest economy in just a couple of generations – became an issue in the recent national elections. The left-wing candidate Moon Jae-in threatened to curtail the ability of South Korea’s business dynasties to control empires such as Samsung, LG and Hyundai via complex shareholdings that accelerate the transfer of corporate wealth to their own pockets. The eventual winner, Park Geun-Hye, began her campaign in similar vein but as polling day drew near appeared to step back from concrete proposals to tackle the chaebol. Yesterday she was sworn in to office, and for South Korea’s elite many now believe it is business as usual.

The big daddy of the chaebols is the Samsung Group which, riding high on the success of its iPhone and iPad rivals the Galaxy and the Galaxy Note, has a turnover almost twice that of its closest rival, LG. The company’s clout is apparent in the drive from the airport west of Seoul into the capital, where a dense grey lattice of concrete and glass stretches across the Han river. Samsung’s apartments and buildings dot the landscape; Samsung Town dominates the business district.  The company runs the Samsung Everland Theme Park, one of the world’s biggest, the Samsung Museum of Art and many other cultural attractions. Millions of  citizens own Samsung’s smartphones and electronic products.

So important is Samsung to South Korea’s economy that it has literally become too big to fail. Its subsidiaries build a large share of the country’s infrastructure, from bridges to apartment blocks. The company accounts for 13 per cent of the country’s entire exports and a fifth of its GDP, according to analysts.

For years critics have looked nervously on this growing empire, saying its money and vast influence was helping to corrode the nation’s hard-won democratic institutions.  A series of scandals in the last decade led to the conviction of several Samsung executives for bribing politicians. In 2008 Lee Kun-Hee – Korea’s richest man – was forced to quit as group chairman and fined $100m after being convicted of tax evasion and breach of trust following an investigation sparked by the wiretaps.  But a year later the country’s pro-business president Lee Myung-bak controversially pardoned him. Samsung’s leader took full responsibility for the shame caused by the investigation, but denied wrongdoing. “I didn’t do it. I never thought it [Samsung Group] was a criminal organisation, and I think it is [the media’s] fault to define it that way,” said Mr Lee, who has since returned to Samsung Electronics as chairman.

For many, the scandals and their denouement seemed to confirm their worst suspicions: that influence peddling and bribery had helped make the empire founded by Mr Lee’s father, the late Lee Byung-chul, almost untouchable since its early days as a textile firm in the 1930s.  The family’s business clout is vast:  Lee’s daughter runs a luxury hotel chain; his son is chief operating officer of Samsung Electronics; his brother runs a food and entertainment empire; his nephew runs a franchise that includes Starbucks; his sister married into the LG Group. Mr Lee himself transformed the empire he took over from his father a quarter of a century ago, taking it global and multiplying revenues by a factor of 40. Famously telling his employees to “change everything but your wife and kids”, Lee Kun-Hee returned from disgrace to become chairman of Samsung Electronics, the biggest money-maker in the group whose activities range from construction to shipbuilding and finance. From his post he engineered its spectacular digital strategy which left its Japanese rivals in the dust.

According to The Economist, The “Samsung group”, has no legal identity: its 83 firms shelter under an umbrella company in which the Lee family has a controlling 46 per cent stake.  Whistleblower Kim Yong-chul, a former chief lawyer for the group, claimed that the company established a $200m slush fund to buy off politicians and prosecutors. He claims his tell-all book, Thinking of Samsung, documenting widespread corruption, price-fixing and bribery inside the Samsung empire, has been effectively blacklisted by the Korean media.

Mr Roh, a politician with the Progressive Justice Party and long-time foe of Samsung, appeared to uncover a legal smoking gun with the publication in 2005 of the wiretaps.  But the Supreme Court last week concluded that he had in fact violated the “Protection of Communication Secrets Act” by putting the transcripts on his website. Mr Roh claimed the court ignored the profound wider implications of the tape and the left-leaning Hankyoreh newspaper called the ruling “comical”. 

“Samsung definitely controls the careers of prosecutors in Korea, destroying the careers of those that take any action against the company,” says Michael Kim, a former senior manager with Samsung.  “Most prosecutors simply opt for the cash (golf bags full of it) and leave Samsung alone.”  Mr Kim says officials with a government anti-corruption agency once flatly told him “that they have no jurisdiction over Samsung”.

The gilded power of the 10 largest chaebols was the key issue in the December presidential election, topping even concerns about Seoul’s troublesome neighbour.  President Lee was accused of being soft on big business, fuelling corruption and a widening apartheid between the country’s mega-corporations and its struggling smaller businesses. Park Geun-hye promised to pursue what she called “economic democratisation”, which in practice, she said, meant tackling cross-shareholdings in the chaebols; increasing anti-competition fines and forcing prosecutors to get tough.  “We haven’t paid enough attention to fairness,” she said during her campaign.  “[Big companies] concentrate their business among their own groups, they snatch technology from small companies, and they enforce prices.”

But many observers are sceptical about these pledges. “Chaebol-bashing” has become part of electoral language in South Korea, but rarely are politicians willing to follow up with hard policies.  Recent court battles over copyright infringements with Apple and its battles to shake the corruption allegations have dented its reputation at home, but its success abroad has been stunning and helps to insulate it from political attacks. The company holds double Apple’s 17 per cent share of the global market for smartphones, for example. 

The wiretaps resulted in no one from Samsung being indicted, although they did spark the investigation that eventually saw Mr Lee fined and jailed. The recordings were from 1997 but were not published until eight years later, falling foul of South Korea’s statute of limitations. Hwang Kyo-ahn, the senior prosecutor, said that there was no evidence the money belonged to Samsung rather than Mr Lee himself, who claimed the money was a donation and not a bribe. Mr Hwang said in 2005: “The prosecution has conducted a thorough investigation of the spy agency’s illegal wiretapping operations… However, with the statute of limitations … expiring and the spy agency already having destroyed a significant part of the related evidence, there had been difficulties in pushing ahead with the investigation.” By contrast Mr Roh has lost his seat, and the two journalists who helped break the story were themselves indicted. But Mr Roh’s zeal remains undimmed. “If I go back to eight years ago, I would still do the same thing,” he said.

Start your day with The Independent, sign up for daily news emails
Have you tried new the Independent Digital Edition apps?
ebooks
ebooksA special investigation by Andy McSmith
News
Kim Wilde began gardening in the 1990s when she moved to the countryside
peopleThe singer is leading an appeal for the charity Thrive, which uses the therapy of horticulture
Sport
Alexis Sanchez celebrates scoring a second for Arsenal against Reading
football
Life and Style
health
Voices
An easy-peel potato; Dave Hax has come up with an ingenious method in food preparation
voicesDave Hax's domestic tips are reminiscent of George Orwell's tea routine. The world might need revolution, but we like to sweat the small stuff, says DJ Taylor
News
i100
News
Japan's population is projected to fall dramatically in the next 50 years (Wikimedia)
news
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs General

Recruitment Genius: Project Implementation Executive

£18000 - £23000 per annum: Recruitment Genius: They work with major vehicle ma...

Recruitment Genius: Chiropractic Assistant

£16500 per annum: Recruitment Genius: A Chiropractic Assistant is needed in a ...

Recruitment Genius: Digital Account Executive - Midlands

£18000 - £26000 per annum: Recruitment Genius: They work with major vehicle ma...

Recruitment Genius: Web Developer

£28000 - £30000 per annum: Recruitment Genius: This company provides coaching ...

Day In a Page

NHS struggling to monitor the safety and efficacy of its services outsourced to private providers

Who's monitoring the outsourced NHS services?

A report finds that private firms are not being properly assessed for their quality of care
Zac Goldsmith: 'I'll trigger a by-election over Heathrow'

Zac Goldsmith: 'I'll trigger a by-election over Heathrow'

The Tory MP said he did not want to stand again unless his party's manifesto ruled out a third runway. But he's doing so. Watch this space
How do Greek voters feel about Syriza's backtracking on its anti-austerity pledge?

How do Greeks feel about Syriza?

Five voters from different backgrounds tell us what they expect from Syriza's charismatic leader Alexis Tsipras
From Iraq to Libya and Syria: The wars that come back to haunt us

The wars that come back to haunt us

David Cameron should not escape blame for his role in conflicts that are still raging, argues Patrick Cockburn
Sam Baker and Lauren Laverne: Too busy to surf? Head to The Pool

Too busy to surf? Head to The Pool

A new website is trying to declutter the internet to help busy women. Holly Williams meets the founders
Heston Blumenthal to cook up a spice odyssey for British astronaut manning the International Space Station

UK's Major Tum to blast off on a spice odyssey

Nothing but the best for British astronaut as chef Heston Blumenthal cooks up his rations
John Harrison's 'longitude' clock sets new record - 300 years on

‘Longitude’ clock sets new record - 300 years on

Greenwich horologists celebrate as it keeps to within a second of real time over a 100-day test
Fears in the US of being outgunned in the vital propaganda wars by Russia, China - and even Isis - have prompted a rethink on overseas broadcasters

Let the propaganda wars begin - again

'Accurate, objective, comprehensive': that was Voice of America's creed, but now its masters want it to promote US policy, reports Rupert Cornwell
Why Japan's incredible long-distance runners will never win the London Marathon

Japan's incredible long-distance runners

Every year, Japanese long-distance runners post some of the world's fastest times – yet, come next weekend, not a single elite competitor from the country will be at the London Marathon
Why does Tom Drury remain the greatest writer you've never heard of?

Tom Drury: The quiet American

His debut was considered one of the finest novels of the past 50 years, and he is every bit the equal of his contemporaries, Jonathan Franzen, Dave Eggers and David Foster Wallace
You should judge a person by how they peel a potato

You should judge a person by how they peel a potato

Dave Hax's domestic tips are reminiscent of George Orwell's tea routine. The world might need revolution, but we like to sweat the small stuff, says DJ Taylor
Beige is back: The drab car colours of the 1970s are proving popular again

Beige to the future

Flares and flounce are back on catwalks but a revival in ’70s car paintjobs was a stack-heeled step too far – until now
Bill Granger recipes: Our chef's dishes highlight the delicate essence of fresh cheeses

Bill Granger cooks with fresh cheeses

More delicate on the palate, milder, fresh cheeses can also be kinder to the waistline
Aston Villa vs Liverpool: 'This FA Cup run has been wonderful,' says veteran Shay Given

Shay Given: 'This FA Cup run has been wonderful'

The Villa keeper has been overlooked for a long time and has unhappy memories of the national stadium – but he is savouring his chance to play at Wembley
Timeless drama of Championship race in league of its own - Michael Calvin

Michael Calvin's Last Word

Timeless drama of Championship race in league of its own