SEOUL (REUTERS, AFP, BLOOMBERG) - Lee Jae Yong, the heir apparent of Samsung Electronics Co., was convicted on Friday (Aug 25) of bribery and sentenced to five years in prison, in a blow to the world’s biggest maker of smartphones and memory chips.
“The essence of the case is the close links between political power and economic power,” said the presiding judge of Seoul Central District Court, Lee Jin Dong.
“This case stemmed from Lee Jae Yong, who was preparing for a leadership transfer, and Samsung executives offered bribes to the president, expecting a favour in the group’s leadership transition,” he said.
The prison term for Lee, the 49-year-old vice-chairman of Samsung Electronics, could leave the giant firm rudderless for years and hamper its ability to make key investment decisions. The five year-sentence is one of the longest prison terms given to a South Korean business leader.
His lawyer said his defence team will appeal the decision.
“The entire verdict is unacceptable,” one of Lee's lawyers, Song Wu Cheoul said, adding that he was confident his client’s innocence would be affirmed by a higher court.
Under South Korean law, sentences of more than three years cannot be suspended. An appeal could go all the way to the Supreme Court, with a final ruling probably next year.
The Seoul Central District Court said Samsung’s financial support of entities backed by then-President Park Geun Hye’s close friend, Choi Soon Sil, constituted bribery, including 7.2 billion won (S$8.7 million) in sponsoring the equestrian career of Choi’s daughter.
In return for the contributions, prosecutors say, Samsung sought government support for a controversial 2015 merger of two of its affiliates, which helped Lee tighten his control of the conglomerate. Lee's lawyers had argued that the merger was done on business merits but the court did not accept that.
Along with Lee’s sentencing, former Samsung executives were also convicted Friday. Former Samsung Corporate Strategy Office chief Choi Gee Sung and former President Chang Choong Ki were each sentenced to four years in prison, while two other executives get suspended prison terms.
Lee arrived at Seoul Central District Court on a justice ministry bus handcuffed, bound with white rope around his dark jacket, and carrying an envelope of documents.
Park was also at the Seoul Central District Court on Friday for a hearing in her corruption trial.
Lee's “trial of the century” has gripped the nation, and Friday's closed courtroom verdict was witnessed mainly by lawyers and Samsung officials, as well as some 30 members of the public who won seats through a lottery.
Friday’s verdict was read out at Courtroom 417, which is also where Lee’s father, Samsung Chairman Lee Kun Hee, stood trial in 2008 on charges of evading taxes and illegally transferring company assets to his son and heir.
Lee senior was sentenced to a suspended prison term at the time.
Ever since the senior Lee suffered a near-fatal heart attack in 2014, his only son Lee Jae Yong 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.
Outside the Seoul Central District Court on Friday, hundreds of supporters of Lee and Park, mostly elderly, waved South Korean flags and shouted "Innocent! Release!" as they were watched on by teams of police, who parked police buses to shield the entrance of the court complex.
Around 800 riot police were deployed around the Seoul Central District Court to prevent possible clashes between rival sets of demonstrators, the Yonhap news agency reported
‘VIOLATION OF RIGHTS’
Park, who was forced from office in disgrace, is facing her own corruption trial, with a ruling expected later this year.
Prosecutors have argued that Park and Lee two took part in the same act of bribery so Lee’s conviction would appear ominous for Park.
“The trials of former President Park Geun Hye and Samsung's Lee go hand in hand,” said Son Tong Sok, 63, who heads a conservative group, holding a Korean flag. Son said prosecutors had built their cases on circumstantial evidence and unsubstantiated claims reported in the media.
“Arresting these two innocent people are violations of human rights,” he said.
Samsung, founded in 1938 by Lee’s grandfather, is a household name in South Korea and a symbol of the country’s dramatic rise from poverty following the 1950-53 Korean War. But over the years, it has also come to epitomise the cosy ties between politicians and powerful family-controlled business groups – or chaebols – which have been implicated in a series of corruption scandals.
South Koreans, who once applauded the chaebols for catapulting the country into a global economic power, now criticize them for holding back the economy and squeezing smaller businesses.
South Korea’s new president, Moon Jae In, who replaced 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.
The verdict could add impetus to new Moon’s campaign pledges to reform the chaebols.
The firms have long had murky connections with political authorities in South Korea, and past trials of their leaders have often ended with light or suspended sentences, with courts citing their contributions to the economy.
The Lee clan directly owns about 5 per cent of Samsung Electronics shares, but maintains its grip on the wider group through a byzantine web of cross-ownership stakes involving dozens of companies.
The court said Park was aware that Lee wanted state approval for a controversial merger of two Samsung units in 2015, seen as a key step to ensuring his accession. The deal was opposed by shareholders who said it wilfully undervalued shares of one of the firms. But it eventually went through after the national pension fund – a major Samsung shareholder – approved it.
Analysts differ on the potential impact of the verdict and sentence on Samsung. Lee has been Samsung’s de facto leader since his father fell ill, but his lawyers and ex-members of the former elite Future Strategy Office (FSO), which dictated the vast group’s overall direction and major business decisions, sought to portray him as naive and inexperienced.
“Samsung will not be doomed without Jay Lee,” said Geoffrey Cain, the author of a forthcoming book on the group, using another name for Lee Jae Yong. “It’s up to the specialists to make their own decisions.”
Credit rating agency Fitch said it did not expect the conviction “to significantly disrupt the day-to-day operations of Samsung Electronics” or “negatively affect” its A+/stable credit profile.
But Fitch warned: “It could increase longer-term business risks by delaying necessary strategic decisions and major investment plans.”
Samsung appears to have been unaffected by Lee’s absence so far – he was detained in custody in February – with flagship subsidiary Samsung Electronics making record profits on the back of strong demand for its memory chips.
But Chung Sun Sup, the head of corporate analysis firm chaebul.com, said major chaebol decisions on large-scale acquisitions or investments “are often endorsed by the patriarch of a ruling family”, and with Lee in prison the firm “may move more slowly than before”.
Its shares have soared in recent months, but were down 1.05 per cent on Friday afternoon after the verdict.
The ruling is seen as a strong indicator of the likely outcome in Park’s trial, as some of the charges against the ousted head of state her are inextricably linked to the accusations Lee faced.