Samsung's rise fraught with bribery, nepotism charges

Posted: Friday, February 15, 2002

SEOUL, South Korea (AP) -- Long before the Enron scandal broke in the United States, the people of South Korea were grappling with questionable corporate business dealings.

For decades, South Korean conglomerates, known as chaebol, have been accused of dubious dealings between subsidiaries to help controlling families evade taxes and transfer wealth from father to son.

Although authorities have occasionally probed allegations and slapped families with fines, many Koreans believe the practice persists.

Samsung Electronics Co., the country's largest-ever exporter -- shipping more than $20 billion in goods last year -- has been in the spotlight with problems of transparency and nepotism.

In December, a local court ordered nine Samsung Electronics executives to pay $68 million in compensation to the company, finding they had illegally traded shares among Samsung affiliates at prices far below market value.

Financial experts say the practice is a common, yet underhanded way for chaebol to subsidize weaker units.

Samsung's 14 subsidiaries are major shareholders in each other in an arrangement that enables one family to control the vast conglomerate.

In the same December case, Samsung's billionaire chairman, Lee Kun-hee, was fined $5.7 million for bribes paid to Korea's then-President Roh Tae-woo, aimed at winning government contracts and other favors.

The December ruling was the first time business executives were held legally responsible for what they insisted were not crimes but ''failed management decisions'' that caused serious financial losses.

For three months last year, activists from a coalition of anti-chaebol civic groups picketed the National Tax Service building to demand tax audits of Lee and his 33-year-old son, Jae-yong.

Activists accused Samsung subsidiaries of selling shares, or bonds convertible to shares, at artificially low prices to illegally bequeath assets to the son to help perpetuate family control of the conglomerate.

Samsung denies such charges and the disputes continue in court, said spokesman Suh Jong-kook.

But authorities eventually collected an unspecified amount of taxes from Lee Jae-yong, who, fresh from Harvard Business School, was appointed last year as an executive in Samsung Electronics in 2001. Critics said the move was possible because the Lee family controlled its board of directors.

With nearly 60 percent of Samsung Electronics in the hands of foreign investors, Lee and Samsung affiliates still constitute the single largest voting bloc by owning 18 percent of the company.

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