MoneyWatch

Samsung Group Mired In Corruption Probe

January 15, 2008 / 9:53 AM EST / AP

Special prosecutors swept down on Samsung Tuesday, raiding a key office for clues in a corruption probe of the powerful conglomerate and showing for a second straight day they mean business in an investigation supported by South Korea's parliament.

The probe, launched last week, has wasted little time, going right to the top of Samsung's power structure, even raiding an office of Chairman Lee Kun-hee, the driving force behind global technology icon Samsung Electronics Co.

Investigators are examining claims by a former Samsung official that the conglomerate set up a $215 million slush fund to bribe influential figures such as prosecutors, judges and government officials.

Samsung Group — which denies the claims — includes dozens of companies with interests in everything from ships to computer chips. It is South Korea's largest conglomerate, or chaebol, a corporate structure that has led the country's rise from poverty to prosperity over the past five decades.

While Samsung's business successes are undeniable, the conglomerate and others like it, have regularly been accused of wielding economic might to influence government decisions, and of using dubious dealings between subsidiaries to help controlling families evade taxes and transfer wealth to heirs.

But public attitudes toward the chaebol — largely tolerated out of consideration for national economic interest — appear to be hardening.

"Standards and awareness levels in Korean society have changed so that people who do not follow the rules now face far greater consequences," the mass-circulation Chosun Ilbo newspaper said in an editorial Tuesday. "Not only Samsung but all Korean businesses must realize that times have changed."

Tuesday's raid, which occurred in the same building where Samsung Electronics has its Seoul offices, came a day after investigators searched an offsite workplace of Lee and seven other locations.

As the raid came down, Samsung Electronics said that it had achieved a key corporate milestone: annual consolidated sales exceeding $100 billion for the first time ever. The company also said that fourth quarter net profit fell 6.6 percent from a year earlier to 2.212 trillion won ($2.36 billion).

The sales achievement secured the company's status as one of the three biggest global information technology companies as measured by that benchmark, Chu Woo-sik, executive vice president for investor relations, told analysts on a conference call.

Still, Chu said the probe was causing Samsung Electronics to delay completion of its business plans for this year.

"We can't concentrate on business because of the probe," Chu told reporters. "This is upsetting."

Investors, apparently unfazed by news of the raid, sent Samsung Electronics' shares as much as 3 percent higher before paring gains to finish up 1.3 percent at $567.

Yim Jun-seok, a Samsung Group spokesman, said that investigators entered the strategic planning office at the headquarters building. The investigation team refused to comment.

Yonhap news agency, quoting sources involved in the raid, reported that dozens of prosecutors and investigators seized documents and other materials. Yonhap later also reported investigators raided Lee's residence, without citing a source.

The day before, investigators raided an office of Lee, the group's chairman, widely seen as the driving force behind Samsung Electronics' climb into the global limelight.

The probe was triggered by allegations last year by Kim Yong-chul, a former top legal affairs official at Samsung, that the conglomerate had created a slush fund to bribe key officials. He claims Samsung had attempted to cover up the fund through intricate contracts with other group affiliates and that Lee's family members used some of the money to buy expensive art work.

The National Assembly in November passed legislation authorizing an independent probe, reluctantly signed by President Roh Moo-hyun amid opposition claims he received Samsung money, an allegation he denies.

Samsung has been the focus of previous investigations.

Lee, the chairman, was convicted in 1996, along with seven other leading South Korean business executives, of giving and arranging bribes to ex-South Korean President Roh Tae-woo, a former general. Lee was handed a two-year suspended prison term, meaning he did not serve time in jail.

Kil Sun-mi, a bank employee passing in front of Samsung headquarters Tuesday, said that while she has no toleration for alleged corruption, Samsung's influence in South Korea is immense.

"Samsung is the most powerful company in Korea and its impact on the economy is undeniable," she said of the conglomerate. "I'd say Koreans live in tandem with Samsung."