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Samsung chief Jay Y. Lee arrested in corruption investigation

The Financial Express logo The Financial Express 17-02-2017 Reuters
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Samsung Group chief Jay Y. Lee was arrested early on Friday over his alleged role in a corruption scandal that led parliament to impeach President Park Geun-hye, in a blow to the world's biggest maker of smartphones. The 48-year-old Lee, vice chairman of Samsung Electronics Co Ltd, was taken into custody at the Seoul Detention Centre, where he had awaited the court's decision following a day-long closed-door hearing that ended on Thursday evening.

The judge's decision was announced at about 5:30 a.m. (2030 GMT) on Friday, more than 10 hours after Lee, the conglomerate's third-generation leader, had left the court.

The same court rejected a request from prosecutors last month to arrest Lee. On Tuesday, the special prosecutor's office had requested a warrant to arrest him and another executive, Samsung Electronics president Park Sang-jin, on bribery and other charges.

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However, the court rejected the request to arrest Park, who also heads the Korea Equestrian Federation, saying it was not needed given his "position, the boundary of his authority and his actual role."

The prosecution said it had secured additional evidence and brought more charges against Lee in the latest warrant request.

"We acknowledge the cause and necessity of the arrest," a judge said in his ruling, citing the extra charges and evidence.

A spokeswoman for Samsung, which is also the world's biggest maker of memory chips and flat-screen TVs, did not have immediate comment on the arrest.

The group and Lee have denied wrongdoing in the case.



While Lee's detention is not expected to hamper day-to-day operation of Samsung Group companies, which are run by professional managers, experts have said it could affect strategic decision-making by the country's biggest conglomerate.

The Samsung Group, a key driver of Asia's fourth-largest economy, has been engaged in a restructuring process as it clears a succession path for Lee to assume control after his father, Lee Kun-hee, was incapacitated by a 2014 heart attack.

"It is not like Samsung's business will be grinding to a halt. There are many smart people at the company," former Samsung Electronics executive Kim Yong-serk said recently.

However, Lee's arrest would have an impact on longer-term investment decisions, said Kim, now a professor at Sungkyunkwan University.

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"Samsung presidents are evaluated on an annual basis, so they cannot make bold bets about the future. They need a chairman when making long-term investment decisions," he said.

ZEROING-IN

The arrest gives a boost to prosecutors who have zeroed-in on Samsung Group to build their case against President Park and her close friend Choi Soon-sil, who is in detention and faces charges of abuse of power and attempted fraud.

Both Park and Choi have denied wrongdoing.

The office has focused its investigations on Samsung's relationship with Park, 65, who was impeached by parliament in December and has been stripped of her powers while the Constitutional Court decides whether to uphold her impeachment.

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Prosecutors accused Samsung of paying bribes totaling 43 billion won ($37.74 million) to organizations linked to Choi to secure the government's backing for a merger of two Samsung units.

That funding includes Samsung's sponsorship of the equestrian career of Choi's daughter, who is in detention in Denmark, having been on a South Korean wanted list.

If the decision is upheld by the Constitutional Court, she will become South Korea's first democratically elected leader to be forced from office early.

Park remains in office but stripped of her powers while the Constitutional Court decides whether to uphold her impeachment by parliament. Shares of Samsung Electronics closed up 0.8 percent on Thursday prior to the court decision.

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