Samsung is the largest company in South Korea with annual revenues of over $200 billion. It is part of the chaebol system in South Korea, where large family-owned conglomerates dominate the economy. Chaebols like Samsung, Hyundai, and LG were crucial to rebuilding the South Korean economy following the Korean War. However, the chaebol system has also led to concerns about monopolistic tendencies and corruption given the outsized economic and political influence these conglomerates wield.
Bribery Scandal
In 2017, Samsung Group’s de facto leader Lee Jae-yong was charged with bribing government officials in order to gain support for a merger between two Samsung affiliates. Prosecutors alleged that Lee gave or promised over $35 million in bribes to then-President Park Geun-hye and her confidante Choi Soon-sil in exchange for backing the 2015 merger between Samsung C&T and Cheil Industries (1).
The merger was seen as a critical step to ensure Lee’s control over the larger Samsung empire. By simplifying the complex ownership structure, Lee would be able to exert greater control over the conglomerate founded by his grandfather (2). Prosecutors argued that without government support, the merger would not have gone through as minority shareholders such as the National Pension Service opposed it.
In August 2017, Lee Jae-yong was convicted of bribery, embezzlement, concealment of criminal proceeds, illicit transfer of funds overseas, and perjury. He was initially sentenced to 5 years in prison but after an appeal, the sentence was reduced and suspended in 2018. However, in January 2021, the Supreme Court overturned the suspension, reinstating Lee’s prison sentence of 2.5 years (3).
The scandal highlighted the deep ties between the Samsung business empire and the highest levels of government. It raised concerns about crony capitalism and corruption in South Korea’s relationship with the chaebols or family-owned conglomerates.
(2) https://www.idownloadblog.com/2021/01/18/samsung-lee-jae-yong-bribery-charges-prison/
Government Ties
Samsung has a long history of questionable ties between the company and the South Korean government. The chaebol, or family-controlled conglomerate, has faced various bribery and corruption scandals over the years related to influencing political leaders.
In 2017, Samsung heir Lee Jae-yong was accused of bribing former President Park Geun-hye in exchange for political favors. Prosecutors alleged that Samsung paid $37 million to entities controlled by a close friend of Park in order to gain government support for a merger between two Samsung affiliates. Lee was convicted and sentenced to 5 years in prison for bribery, embezzlement and other charges related to the scandal.
Critics argue that Samsung uses its economic clout to gain unfair political advantages and shape policies in its favor. The cozy ties between the government and the chaebols have long been seen as both a cause and consequence of the corruption in South Korean politics.
Park Geun-hye
Former President Park Geun-hye was impeached and removed from office in 2017 due to revelations about her corruption scandal involving Samsung. Prosecutors alleged that Samsung provided bribes of around $37 million to foundations controlled by Choi Soon-sil, a close friend and advisor to Park Geun-hye, in exchange for support for a merger between two Samsung affiliates in 2015 (1). This merger was seen as a key step in transferring power to Lee Jae-yong from his ailing father Lee Kun-hee.
Additionally, prosecutors claimed that Samsung paid $6.4 million in bribes to a winter sports center run by Choi Soon-sil’s niece, in exchange for Park’s support in Lee Jae-yong’s succession. Lee Jae-yong denied bribing Park, but admitted providing financial assistance to the foundations (2). Park Geun-hye was sentenced to 24 years in prison for bribery, abuse of power and other charges stemming from the scandal.
Lee Myung-bak
Former South Korean president Lee Myung-bak was jailed for 15 years in 2018 after being found guilty of corruption over his ties with Samsung and the country’s intelligence service. Prosecutors alleged that Samsung paid $5.85 million in legal fees for an auto parts company DAS owned by Lee’s brother, and Samsung subsidiaries purchased DAS auto parts for inflated prices. In exchange, President Lee granted a presidential pardon in 2009 to Samsung chairman Lee Kun-hee who had been convicted of tax evasion and breach of trust. Lee denied the allegations but was convicted of receiving bribes from Samsung totaling over $5 million.
According to a Reuters report, the court ruled that Samsung’s payments to DAS constituted bribes to win Lee’s favor as president. The court stated that Samsung’s actions “showed Lee Ken-hee’s intention to illegally lobby the president…and was aimed at seeking business favors.” The scandal demonstrated the extensive ties between the Korean government and the chaebols or family-owned conglomerates. Lee was South Korea’s first former leader to be jailed in decades, underscoring the country’s low tolerance for corruption in government.
Chaebol Reform
There have been growing calls within South Korea for reforming the chaebol system in the wake of the scandal. The chaebol refers to the large, family-controlled business conglomerates in South Korea that dominate the economy. Critics argue the scandal demonstrates how the close ties between the chaebol and the government have led to preferential treatment, lenient oversight, and rampant corruption.
President Moon Jae-in was elected on a platform of chaebol reform. However, some argue his policies have fallen short of meaningful change so far [1]. Proposed reforms include increased transparency in corporate governance, restricting cross-shareholding structures, and empowering minority shareholders [2]. How or whether the chaebol system will be reformed remains uncertain. But the scandal has ignited demands within Korea for substantial reforms.
Economic Impact
As South Korea’s largest company, Samsung plays an enormous role in the country’s economy. Some estimates state that Samsung accounts for around 20% of South Korea’s total GDP. This means 1 out of every 5 dollars generated in the South Korean economy comes from Samsung’s business activities [1]. With over $200 billion in annual revenue, Samsung is responsible for a significant portion of exports, investments, jobs, and overall economic growth in the country. The Korean economy is heavily dependent on exports by large conglomerates like Samsung, known as chaebols, which some estimate make up 60% of the country’s growth [2]. This high degree of reliance on Samsung for driving GDP growth gives the company an outsized influence in Korean society.
Cultural Influence
As one of the largest and most successful companies in South Korea, Samsung holds tremendous cultural significance and sway over public perception in the country. Over 69% of adult smartphone users in South Korea use a Samsung device, compared to only 23% who use iPhones, according to a Gallup survey of 1,001 adults (Korea Herald). This dominance in the mobile phone market contributes greatly to Samsung’s cultural influence.
When former Samsung chairman Lee Jae-yong was imprisoned for bribery and corruption charges related to the Chaebol scandal, polls showed 70% public support for his pardon (Nikkei Asia). This demonstrated Samsung’s esteemed status and perceived importance to the South Korean economy and society. Ultimately, President Yoon Suk-yeol pardoned Lee in 2022 due to his perceived value to the nation.
While some criticize Samsung’s oversized influence, the company remains deeply ingrained in Korean culture. From its beginnings as a small trading company to a sprawling conglomerate, Samsung’s evolution mirrors South Korea’s rise on the global stage.
Legal Issues
Samsung has faced a number of lawsuits and charges in recent years related to the scandal. In 2023, a U.S. federal jury in Texas awarded computer memory company Netlist Inc over $303 million in a patent lawsuit against Samsung Electronics over semiconductor technology (Reuters, 2023). Netlist claimed that Samsung infringed on its patents related to server memory modules. This was one of the largest patent verdicts in U.S. history against a foreign company.
Additionally, in 2023 an Illinois federal court ruled that Samsung must pay over $4 million in filing fees related to a mass arbitration case alleging violations of the state’s biometric privacy law (Chicago Tribune, 2023). The case involves allegations that Samsung Galaxy smartphones illegally collected and stored users’ biometric data without consent. This mass arbitration involves over 130,000 claimants seeking damages from Samsung.
These ongoing legal issues demonstrate some of the lawsuits and charges Samsung continues to face even years after the initial scandal emerged. The company is still dealing with the legal ramifications involving a range of allegations from patent infringement to privacy violations.
Looking Ahead
The Samsung Chaebol scandal raises questions about the future of Samsung and chaebol reform in South Korea. While Samsung remains a dominant company, there are calls for stricter regulations and oversight of chaebols. According to Samsung’s own predictions, the company believes it will continue to grow and innovate in areas like AI, robotics, and biotechnology. However, whether Samsung can shake off the scandal and regain public trust remains to be seen.
In terms of chaebol reform, the scandal has led to renewed scrutiny of these powerful family-run conglomerates. The South Korean government implemented some reforms in the past, but many argue more needs to be done to increase transparency and prevent corruption. There are proposals to strengthen anti-trust regulations, limit cross-shareholdings between subsidiaries, and improve corporate governance. However, the political influence of the chaebols makes reforms difficult. The outcome of the next South Korean election in 2022 may shape the future path of chaebol reform.