Samsung

Samsung's woes

Samsung’s chairman is charged with tax evasion

POLICE in riot gear took up station in front of South Korea’s prosecutors’ offices on the evening of Thursday April 17th to quell demonstrations. Normally an angry public calling for accountability would welcome corruption charges against a corporate chieftain—but not in the case of the long-running scandal at Samsung Group.

The charges against Lee Kun-hee, the 66-year-old chairman of Samsung, seem small beer compared with the accusations. Mr Lee was publicly accused last year by Kim Yong-chul, a former chief legal counsel at the company, of orchestrating a $200m slush fund to bribe public officials. Mr Lee denied it. A special prosecutor was appointed by South Korea's National Assembly to look into the claims.

On Thursday, after a three-month investigation, Mr Lee was charged with tax evasion and breach of trust. The prosecutor, Cho Joon-woong, said that Samsung controlled hidden funds of around $4.5 billion. But allegations of bribery could not be confirmed, he said, and anyway the statute of limitations had expired. Mr Lee was charged with evading taxes of 113 billion won (around $114m) and with illegally fiddling with the books by selling corporate assets at a discount as a way to pass corporate control to his son.

Moreover, he and nine other company executives also facing charges were not detained. Shares in the group’s publicly traded companies—which range from construction and shipbuilding to optical equipment and electronics—barely shifted, a telling sign that few expect the charges to have any bite.

The mild charges and meek actions by the prosecutors clearly show South Korea’s ambivalence towards wrongdoing at the country’s chaebol. The industrial giants, often family-run, are responsible for the country’s rise to prosperity and prominence over the past two decades. Yet today their enormous power is questioned and occasional infractions criticised, as the country strives to adhere to global norms of accountability, transparency and corporate governance. At the same time, however, South Korea resists holding the groups fully to account, lest it jeopardise economic growth.

In recent corruption cases miscreant bosses have been spared prison on the basis of their importance to the economy, provided they donate some of their ill-gotten gains to charity. Last year Chung Mong-koo, the chairman of Hyundai Motor, saw his three-year prison sentence for embezzlement suspended after he agreed to donate almost $1 billion (though the Supreme Court overturned the deal and ordered a new trial). Kim Woo-choong, the founder of Daewoo, was this year pardoned for an accounting-fraud conviction in 2006.

Indeed in 1996 Mr Lee was convicted of bribing politicians, but his two-year prison sentence was suspended and in 1997 he was pardoned. Often in white-collar criminal cases shuffling into the courtroom in hospital pyjamas or snug in a wheelchair is enough to win the sympathy of the judges.

To a sceptical public, it makes the new charges against Mr Lee seem less an example of rare prosecutorial vigour and more another case of flaccid judicial activity. It is unlikely that Mr Lee will serve time in prison. It helps that Samsung is such a power in the country—its many companies boast a workforce of 220,000 worldwide. Its sales are equivalent to some 20% of the country's GDP.

Samsung apologised for “causing concerns” to South Koreans and said that next week it would unveil a reform plan to put the company right. Now the focus of attention will shift to South Korea’s recently elected president, Lee Myung-bak. Although he campaigned on improving corporate transparency, the former chairman of Hyundai also pledged to push forward business-friendly reforms. In the past, the country tolerated white-collar crime fearing the harm to the economy if the bosses were behind bars. At some point it will have to consider the damage wrought by allowing them free reign.