Seoul - Samsung Group
is getting pulled deeper into the scandal engulfing South Korea’s president
with prosecutors homing in on whether an $830 000 horse and millions in other
payments were made to smooth succession at the top of the country’s largest
company.
Special prosecutors summoned
two top Samsung executives to answer questions Monday about the company’s role
in an alleged influence-peddling scheme that has already led to President Park
Geun-hye’s impeachment. The vice chairman and president of Samsung’s corporate
strategy office have not been accused of wrongdoing, though that status may
change, according to a spokesperson for the prosecutor.
Investigators are trying to
figure out whether Samsung made donations to benefit the president’s friend,
Choi Soon-sil, in exchange for political favours. In particular, prosecutors
want to know whether the president exerted pressure on Korea’s national pension
service, a $452 billion fund with money from 22 million citizens, to support a
merger of two Samsung Group companies. The controversial deal, opposed by some
investors, was approved in 2015 and will make it easier for heir apparent Jay
Y. Lee to gain control over the sprawling conglomerate his grandfather founded.
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“Summoning two top guys at
Samsung Group may mean the special prosecutors are carrying out the final
checks before calling in Jay Y. Lee,” said Kim Sang-Jo, professor at Hansung
University. “Samsung stands at the centre of Choi-gate.”
Denied
Samsung has denied any
wrongdoing and has portrayed itself as a victim in the scandal. The company
declined further comment for this story. Choi has denied colluding with Park to
extract money from businesses.
So far, Samsung Electronics’s
business has weathered the political investigation as well as a crisis over its
fire-prone Note 7 smartphones. On Friday, the company reported its biggest
operating profit in three years. Its shares rose to a record high in Seoul
Monday and have gained more than 55 percent over the past year.
Still, the political scandal
has rocked South Korea and its biggest companies. Prosecutors are investigating
Choi’s relationship with Park and whether Choi solicited payments from
corporations to smooth their dealings with the government. Last month, lawmakers
summoned nine business leaders to testify at an unprecedented public hearing,
including the heads of Hyundai Motor and Lotte groups.
It was Samsung’s Lee who
faced the vast majority of questions however. Over the course of ten hours,
lawmakers grilled the 48-year-old about Samsung’s gifts to Choi’s foundations.
Lee confirmed that Korea’s largest conglomerate provided a 1 billion won horse
used for equestrian lessons by Choi’s daughter. He also acknowledged meeting
the president twice but denied any wrongdoing and said he never felt pressured
by Park to fund Choi’s foundations.
Read also: Samsung is blunt about its bad year
Prosecutors are now stepping
up efforts to clarify how the Korean pension fund came to support the
contentious merger of Cheil Industries and Samsung C&T. in 2015. After the
deal was originally proposed, shareholders including activist Paul Elliott
Singer fought against it, arguing the purchase price Cheil offered was too low
and would cement the founding family’s control at the expense of minority
shareholders.
Samsung responded by saying
it was trying to create long-term value for investors and the merger was
necessary to sustain growth. Korea’s National Pension Service, the largest
investor in Samsung C&T, voted in favor of the merger and played a key role
in helping the deal win approval by a narrow margin.
The combination helps make
it easier for Lee to take control over Samsung Group, a sprawling conglomerate
of nearly 60 companies, and crown jewel Samsung Electronics. After the merger,
Lee ended up with a 17 percent stake in the combined entity, making him the
largest shareholder. The merged company, now just called Samsung C&T, in
turn is one of the largest shareholders in Samsung Electronics.
Lee’s control may grow as
Samsung Group continues its restructuring. Analysts think it is likely that
Samsung Electronics will be split into an operating company and a holding
company, with the latter possibly being combined with C&T. Adding more
Samsung shares to C&T will give Lee further control over Samsung Electronics
and by extension the whole group.
“The C&T merger almost
completed the succession process, but the climax is the splitting of Samsung
Electronics,” said Park Ju-gun, president of corporate watchdog CEOScore in
Seoul.
Lee has been the de-facto
head of Samsung Group since his father suffered a heart attack in 2014 and is
the presumed heir apparent. He has been banned from foreign travel while the
investigation is underway.
The special prosecutors have
previously arrested Moon Hyung-pyo, the former chairman of the pension
service. Moon has been suspected of pressuring the fund to support the merger.
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