Samsung raid turns spotlight on chaebols in South Korea scam

The influence-peddling scandal shadowing South Korean President Park Geun-hye is raising fresh questions about decades of cozy ties between the nation’s big conglomerates and those in power.Successive governments - including Park’s administration - have pledged to curb the influence of the companies, often family-run, known as chaebols. That’s amid public disquiet about how much they affect policy making and, in turn, how strongly and openly they are regulated.Now, one of the biggest chaebols is caught up in the turmoil that is casting doubt on Park’s political future. Investigators yesterday raided the headquarters of Samsung Electronics, seeking evidence on whether the smartphone maker illegally provided gifts to a confidante of Park who is accused of having undue influence on the president. The company confirmed the probe and declined to comment further.While the public outrage has mostly been directed at Park and her friend Choi Soon-sil, the search of Samsung’s premises, which follows raids on eight banks last week seeking financial details related to Choi, could spur a backlash against major Corps.Hours after the Samsung raid, prosecutors said a Hyundai Motor Co executive was summoned to provide details related to donations the company made to two foundations. Other chaebols mentioned in the latest allegations include Lotte Group, which gave 7bn won ($6.2mn) to a foundation in May but said it wasn’t aware of Choi’s alleged role. Local media said the foundation took advantage of the group’s family feud and allegations of improper business transactions, but returned the money the next month after getting wind of a potential investigation.Still, there is little appetite in the corporate world or government to change the system, according to Chang Sea-jin, author of “Sony vs Samsung,” a book on the Korean company’s rise against its Japanese competitor.“The conglomerates have too many weaknesses that can be used against them, such as management succession issues,” said Chang, a professor at the National University of Singapore. “Government officials have too much power over the economy and chaebols. Many of the funds set up to help various industries are driven by the government. It’s very difficult for someone that holds that kind of power to give that up.”A spokesman at the Seoul Central District Prosecutors’ Office confirmed prosecutors entered Samsung’s headquarters in Suwon, south of Seoul, at 6:40 am, declining to give further details.“Right now, the Corporate Strategy Office is in a state of panic,” said Kim Sang-Jo, executive director of the community group Solidarity for Economic Reform and a professor of economics at Hansung University, referring to Samsung executives. “Demands for Samsung to improve its management structure will intensify among institutional investors and personal investors.”Yonhap News reported last week, without citing anyone, that Samsung is suspected of providing 3.5bn won to a company owned by Choi to fund equestrian training in Germany for herdaughter.Park’s approval rating has sunk to 5% with mass protests to demand she resign. Yesterday, she said she’d name a new prime minister if parliament recommends a candidate - a conciliatory move after she selected a new premier just last week without consulting oppositionparties.Choi was formally arrested on Nov. 3 on charges of attempted fraud and abuse of authority. Park apologized the next day, saying she felt “great responsibility” and would cooperate with investigators.It’s not the first time prosecutors have raided Samsung headquarters. It was searched in 2008 by prosecutors investigating allegations the company created slush funds to bribe officials. Prosecutors probed if ailing chairman Lee Kun-hee illegally helped his son, vice chairman Jay Y Lee, gain control of Samsung units. The elder Lee was convicted and gave up his chairman post, but received a presidential pardon in 2009 and resumed running the company in 2010.Jay Y Lee is already dealing with the fallout from the exploding Note 7 debacle, a US recall of washing machines and a push by activist investor Paul Elliott Singer for a restructure. Other conglomerates including Hyundai Motor Co, SK Hynix Inc and Korean Air Lines Co donated a combined 77.4bn won to two foundations, according to a chaebol watchdog that said the non-profits were led by a close aide to Park, linkingthem to Choi.This isn’t the first time Park has been criticized over the behaviour of companies. The sinking of the Sewol ferry in 2014 - which killed 304 people - hit her approval rating amid an outcry over whether the government turned a blind eye to safety in the name of economic development. Prosecutors found the ferry had been dangerously redesigned, though the overhaul was approved by four different government and mandated non-government agencies, and was overloaded on its journey.The drama over Choi’s relationship with Park will bring home the concerns about ties between the government and chaebols, said Park Ju-gun, president of corporate watchdog CEO Score in Seoul. “The latest scandal shows the companies still can’t stay free from the government’s needs as they want to protect their interests in government policy making or regulations.”