Prosecutor: Samsung scam reveals ‘chronic corruption’

South Korea’s special prosecutor accused Jay Y Lee and other Samsung Group executives of conspiring to create fake documents to mask millions of dollars in bribes funnelled to a confidante of the nation’s president.Lee, the de facto head of Samsung, is alleged to have committed perjury when he said he didn’t know his company had paid money to entities controlled by Choi Soon-sil, and that he wasn’t asked by President Park Geun-hye to provide financial support. The accusations were released yesterday by Park Young-soo, the prosecutor spearheading an investigation that’s reached the highest levels of business and government.The prosecutor has indicted 30 people in an investigation into corruption surrounding the president, in a probe that’s led to her impeachment and the detention of Lee, the country’s most prominent business leader. It’s spurred millions to take to the streets in protest over cozy ties between the government and the family-run chaebol that control much of the country’s corporate landscape. The president, Lee and Samsung have denied wrongdoing, a position the company reiterated yesterday.“The target of the investigation has been the collusion between government and economy, and how state power was abused for a private person’s profits,” special prosecutor Park Young-soo told reporters, calling business-political collusion South Korea’s “chronic corruption.”Putting the heir to a $238bn empire behind bars would be the biggest accomplishment yet for the prosecutor, whose career includes arresting two other chaebol bosses. In its report yesterday, the special prosecutor’s team accused Lee and four other executives of conspiring to pay Choi a bribe of 7.8bn won ($6.7mn) for purchasing and taking care of a horse for her daughter’s training in Germany, between September 2015 and February 2016.“We disagree with the Special Prosecutor’s findings,” Samsung said in an e-mailed statement. “Samsung has not paid bribes nor made improper requests seeking favours. Future court proceedings will reveal the truth.”They allegedly worked together to make it seem the money was used to support the overseas training of a Samsung-run equestrian squad that didn’t exist, the prosecutor said. And the executives created a fake contract to pretend that money promised to Choi would be paid to a paper company that Samsung Electronics Co and Choi together created to receive the bribe, the prosecuting team said. The smartphone maker was a victim of the embezzlement, the prosecutor said.Employees responsible for accounting at Samsung affiliates worked with Lee and two other indicted executives and took part in embezzling 22bn won from the companies and paying it to Choi’s entities, the prosecutor said.“What the special prosecutor is saying is, the reality in Korea is that the authority creates the scenario and then the chaebol, which at first is a victim, later ends up a conspirator,” said Chung Sun-sup, who runs corporate researcher Chaebul.com. “If we can’t change the political authority, I think there’s a need to change the entire system, and by that I think the results of the investigation were a step forward.”Jay Y Lee has been in detention since his arrest last month, with his predicament casting uncertainty over his succession. The conglomerate’s transition to a younger leader after patriarch Lee Kun-hee’s hospitalisation in 2014 was already marred by last year’s botched debut of the Note 7, a smartphone pulled from shelves because of a tendency to burst into flame. It also hampers the group’s ability to make major decisions, from acquisitions to management changes. The next test for Samsung Electronics without Lee will be the debut of the S8, its flagship smartphone model, due later this month.Shares of Samsung rose 1.2% in Seoul to a record close of 2,004,000 won.The younger Lee has been indicted on five charges, including bribery, embezzlement, hiding assets overseas, perjury and hiding criminal profits. He is accused of directing money to entities controlled by Choi in return for the government-backed National Pension Service supporting the 2015 merger of Cheil Industries Inc and Samsung C&T Corp that cemented his control of the group.The controversial deal was narrowly approved over the opposition of activist investor Paul Elliott Singer.