Samsung chief's possible arrest could turn up heat on S Korea's chaebols

Samsung chief's possible arrest could turn up heat on S Korea's chaebols
Lee Jae Yong of Samsung group vice chairman arrives during the President political scandal parliament hearing at national assembly in Seoul, South Korea.
PHOTO: Reuters

A possible arrest warrant for Samsung Group's chief, if approved by Seoul's central district court on Wednesday, could turn the heat up on South Korea's large family run conglomerates, known locally as chaebols.

Investigators in South Korea have accused Samsung chief Jay Y. Lee of paying bribes amounting to as much as 43 billion won (S$52.38 million) to Choi Soon-sil, a friend of president Park Geun-hye, who has been at the centre of a corruption and influence-peddling scandal.

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If the arrest warrant is issued, Lee will likely be detained, pending an investigation that could lead to his indictment and imprisonment if convicted on bribery, embezzlement and perjury charges, according to analysts at Eurasia Group in a note.

Read also: Samsung Group says does not accept bribery accusations

Samsung Group shares appeared steady Wednesday morning ahead of the court decision. Samsung Electronics was up 0.8 per cent, Samsung SDI fell 0.4 per cent, Samsung C&T down 1.6 per cent and Samsung Engineering flat.

Reuters reported that Lee was also accused of embezzlement and perjury in the prosecution's application for an arrest warrant and that investigators were looking into whether Samsung provided donations to a business and foundations backed by Choi in exchange for the South Korean national pension fund's support for a 2015 merger between Samsung C&T and Cheil industries.

Read also: Prosecutor says Samsung's Lee paid $52 million of bribes to President Park's friend Choi

Samsung has denied accusations of lobbying to push through the merger, according to Reuters, but acknowledged providing funds to three institutions.

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Some analysts are, however, sceptical that a warrant could lead to an eventual arrest for Lee.

Daniel Yoo, head of global strategy and research at Kiwoom Securities in Seoul, told CNBC's "Street Signs" on Tuesday that it would be difficult for prosecutors to establish a clear connection between the donations given to Choi and the mega mergers between the companies.

"The corporate governance issue for the chaebol companies have been around for the last 50 years," he added.

Indeed, Lee's father, Lee Kun-hee, who has mostly been out of the public eye since a 2014 heart attack, was given a three-year suspended jail sentence in 2008 for tax evasion, but was later pardoned.

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But given the fact that last year South Korea's parliament voted to impeach President Park, including some members of her own conservative Saenuri Party, the precedence set this time could be different.

Read also: S Korea prosecutors seek to arrest Samsung heir in bribery scandal

It could provide further "incentives for politicians, especially those who hope to replace Park in an election this year, to intensify efforts to bring the chaebols to heel," Eurasia Group noted.

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