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Tuesday, February 26, 2013

Samsung Controls

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. The new president Park Geun-Hye has now been sworn in to office, and for South Korea’s elite many believe it is business as usual.

Samsung accounts for 13 per cent of the country’s entire exports and a fifth of its GDP, according to the Korea Times. Its subsidiaries build a large share of the country’s infrastructure, from nuclear reactors to bridges and apartment blocks. The company has double Apple’s 17 per cent share of the global market for smartphones. 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.

The company runs the Samsung Everland Theme Park, one of the world’s biggest, the Samsung Museum of Art and many other cultural attractions. the Lee family has been in charge since it began life as a noodle business 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, group founder Lee Byung-chul, a quarter of a century ago.

Eight years ago politician Roh Hoe-chan with the help of two journalists, 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 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. Mr Roh, a politician with the Progressive Justice Party had appeared to uncover a legal smoking gun with the publication in 2005 of the wiretaps.

In 2008 Lee Kun-Hee – Korea’s richest man – was forced to quit 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  pardoned him. Lee Kun-Hee has since returned to Samsung as chairman. Last week the Supreme Court concluded that had Roh Hoe-chan in fact violated the “Protection of Communication Secrets Act” by putting the transcripts on his website.

“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”.

Kim Yong-chui, a former chief lawyer for the group, claimed that the company established a $200m slush fund to buy off politicians and prosecutors. His book, Thinking of Samsung, documents widespread corruption, price-fixing and bribery inside the Samsung empire.

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