Samsung heir Lee Jae Yong sentenced to 5 years' jail: 6 key questions about the case answered

Lee Jae Yong, vice-chairman of Samsung Electronics, is escorted by a prison officer as he leaves the Seoul Central District Court in Seoul, South Korea, on Friday (Aug 25). ,
Lee Jae Yong, vice-chairman of Samsung Electronics, is escorted by a prison officer as he leaves the Seoul Central District Court in Seoul, South Korea, on Friday (Aug 25). ,PHOTO: BLOOMBERG

SEOUL -  A South Korean court on Friday (Aug 25) sentenced the heir to the Samsung business empire Lee Jae Yong  to five years in prison,  finding him guilty of bribery, embezzlement and other charges in a massive corruption scandal that led to the ouster of former President Park Geun Hye. 

His defence team said it will appeal the court ruling. Prosecutors had demanded a 12-year sentence for Lee Jae Yong.

The court was deluged with hundreds of applications for the 30 seats in Courtroom 417 available to members of the public, which were allocated by lottery.

Park's own trial began in the same courtroom in May. The courtroom also saw Lee's father Lee Kun Hee convicted of tax and other offences in 2008, receiving a suspended sentence.

The court refused permission for Friday's verdict to be broadcast live, in contrast to the Constitutional Court's ruling on Park's impeachment in March. It was the first time in history a South Korean president has been impeached.

Here are six things to know about the case, which South Korean media have billed as the "trial of the century".

1. What is the case about?

Lee Jae Yong, aka Jay Y. Lee, faced multiple charges including bribery, embezzlement and perjury stemming from the scandal, centred on payments and promises by Samsung totalling 43.3 billion won (S$54.4 million) to Park's secret confidante Choi Soon Sil.

One allegation says Samsung bought an US$800,000 (S$1.09 million) horse for Choi's daughter Chung Yoo Ra.

The alleged scheme was intended to gain presidential support for a 2015 merger between two affiliates that increased Lee's sway over flagship subsidiary Samsung Electronics, while owning just a minority of its shares, prosecutors said.

Former Health Minister Moon Hyung Pyo received 2½ years in prison in June for pressuring the National Pension Service to vote for the merger.

Samsung and Lee Jae Yong have denied the charges and said the deal was to boost business competitiveness.

The defence says the company was pressured by Park to make the donations under duress - and that Lee Jae Yong was not aware of them and did not approve them.

The Seoul Central District Court on Friday (Aug 25)  found him guilty of bribery, embezzlement and other charges. It said Lee is believed to have been involved in Samsung's provision of 7.2 billion won (S$8.7 million)   in bribes for the equestrian training of Chung. 

Four other top Samsung executives were also on trial. Two of them were sentenced to four years in prison while the other two received suspended jail sentences on Friday. 

2. Who is Lee Jae Yong?

He is the crown prince of Samsung, a towering business conglomerate that generates a fifth of South Korea's gross domestic product.

Lee was raised, educated and trained to one day succeed his father - Samsung Group Chairman Lee Kun Hee.

Ever since the senior Lee suffered a near-fatal heart attack in 2014, Lee Jae Yong, 49, has been stepping up as a leader, strategist and key decision maker in Samsung, while making moves to complete the transfer of group control - equity ownership-wise - to him.

He currently holds the title of Samsung Electronics' vice-chairman and also sits on the firm's board of directors.

It seemed everything in his life was served on a silver platter, but since his detention on Feb 17, he has been living in a 6.56 sq m solitary cell, standing trial for bribery and other criminal charges. He gets to watch TV, but he probably will not enjoy it, because his is an LG set.

Some analysts say that his testimonies in court that he was not really involved in making decisions at Samsung could hurt his reputation as the boss of South Korea's biggest conglomerate.

3. How big is Samsung?

Samsung, founded in 1938 by Lee Jae Yong's grandfather Lee Byung Chul,  is a household name in South Korea and a symbol of the country’s dramatic rise from poverty following the 1950-53 Korean War.  

Controlled by the Lee family through a web of cross-holdings, Samsung is the country's biggest conglomerate, comprising about 60 units selling life insurance, cargo ships and clothes.

The empire has a market capitalisation of about US$395 billion. Samsung Electronics makes up most of that, with a value of US$272 billion.

It is the world's biggest maker of smartphones and memory chips, with customers including Apple, Wal-Mart Stores and Microsoft, according to supply chain data compiled by Bloomberg. The new Samsung Galaxy Note8 was launched this week. 

Samsung's listed companies make up around 30 per cent of the market value of South Korea's Kospi index

Samsung employs more than 300,000 employees in 79 countries.

4. What will happen to Samsung if Lee Jae Yong is found guilty?

There are mixed views about the likely impact of a guilty verdict on Samsung.

While some say such an outcome could leave the giant firm rudderless for years and hamper its ability to make key investment decisions, chaebol reformists call it an opportunity to end the long-standing problems of the chaebol model - the opaque corporate governance and transfer of control within the group's founding family, often involving illicit means.

In the second quarter of this year, the electronics giant was set to become the most profitable company in the world, beating Apple for the first time. The share price of Samsung Electronics has surged 32 per cent this year.

Lee Jae Yong has been in detention since February this year.

Rumours that Lee's sister Lee Boo Jin might fill in for her brother still seem unlikely, as she has no allies within Samsung Electronics, the group's flagship and cash cow, and does not have enough power or shares to control the tech giant.

Lee Jae Yong holds 0.58 per cent, while his sisters holds none. There is general consensus the conglomerate will not give up on Lee as its next leader whatever the verdict.

5. Why does the verdict matter?

It is seen as a litmus test of tolerance South Korean courts have towards owners of family-run chaebols.

In many corruption cases in the past, courts often sentenced tycoons to suspended or light terms, citing their contribution to the country's economy.

"Chaebol leaders used to get the same sentencing every time, there was even a saying called the '3-5 law' - three years sentencing, five years probation," said Park Sangin, professor of economics at Seoul National University.

"If Lee receives a heavy sentence, it can be seen as the shattering of the 'too-big-to-jail' trend of the past."

Lee Jae Yong's father was convicted of tax evasion in 2009, and had a three-year sentence suspended, with judges citing his "contribution to the country's economic development" and his "patriotism through business enterprise from job creation".

He was pardoned by then-President Lee Myung Bak four months after the final ruling.

South Korea's new president, Moon Jae In, who replaced the disgraced Park after a May 9 election, has pledged to rein in the chaebols, empower minority shareholders and end the practice of pardoning corporate tycoons convicted of white-collar crime.

“It’s shocking that the disease of political-business collusion between Korea’s most powerful person, the president, and a conglomerate is not a thing of the past but still continuing,” presiding judge Kim Jin Dong told the Seoul Central District Court on Friday.

“It will be hard to recover from this loss of faith. The fact that the defendants were executives who represented Samsung Group makes the influence on the society and economy hugely adverse.”

Assuming the sentence is not overturned, the ruling should scare other bosses into behaving better, said Robyn Mak, a Reuters Breakingviews columnist. 

In a rare statement on a court case, the presidential Blue House said: “We hope that the ruling will serve to encourage the cutting of collusive ties between politicians and businesses, which have hampered social progress.” 

6. How will the ruling affect fate of Park Geun Hye?

The ruling on Lee Jae Yong's case is also expected to serve as a barometer for the fate of ex-President Park and her longtime friend Choi, the two women who plunged South Korea into turmoil last year with a sweeping corruption scandal which ended with the nation's first-ever impeachment of an elected president.

 

Both women are now arrested and standing on trial for a raft of charges, but at the core of their cases is their alleged conspiring to extort donations from local firms including Samsung Group.

Park, who was removed from office in March over the corruption scandal, faces a total of 18 charges including bribery and abuse of authority. She and Choi have denied any wrongdoing.

If Lee is found guilty of giving bribes, the persons who are accused of receiving the money - Park or Choi - are also likely to face conviction.

The ruling on Park, South Korea's first female president, is expected in October.

SOURCES: KOREA HERALD/ASIA NEWS NETWORK, AGENCE FRANCE-PRESSE, REUTERS, BLOOMBERG