How ties to an 'equestrian princess' landed Samsung at center of a scandal

[December 30, 2016]  By Ju-min Park and Miyoung Kim

SEOUL (Reuters) - Samsung Electronics Co's <005930.KS> sponsorship of the equestrian-athlete daughter of a long-time friend of President Park Geun-hye has helped to land South Korea's top company in the center of the country's influence-peddling scandal.

Samsung agreed last year to pay $18 million to Core Sports International GmbH, a consulting firm controlled by Park's friend Choi Soon-sil, who is in jail and faces charges of abuse of power and fraud in a criminal trial that began this month.

A South Korean court has also issued an arrest warrant for Choi's Germany-based horse-riding daughter, 20-year-old Chung Yoo-ra – who has been the main beneficiary of the sponsorship – for alleged criminal interference related to her academic record, and other unspecified charges.

The sponsorship deal is being examined by prosecutors as they try to ascertain whether Samsung, which was also funding and chairing the Korea Equestrian Federation (KEF), sought favors from Choi and President Park in return for funding initiatives backed by them. In particular, they are looking at whether favors included the National Pension Service' support for Samsung’s founding family in a shareholder vote last year.

"A crucial part of our investigation is to look into why Samsung and the KEF supported Choi Soon-sil and her daughter Chung Yoo-ra and transferred funds to companies set up by Choi or involved with Choi," an official at the special prosecutor's team told Reuters by phone. He declined to be identified because he is not authorized to speak with the media.

Park has been impeached by parliament over her role in a wide-ranging influence-peddling scandal linked to Choi, and now awaits a Constitutional Court review of that decision, which if upheld would make her the first democratically-elected South Korean leader to leave office in disgrace.

A HORSE NAMED VITANA V

Reuters has reviewed a copy of Samsung Electronics’ August 2015 contract with Core Sports to sponsor the team at a German facility in Biblis, a small town south of Frankfurt. Neither party announced the sponsorship.

"Samsung wishes to develop an Equestrian Team, including overseas training of athletes to prepare for 2018 Asian Games and World Equestrian Games," the consulting agreement says.

Samsung Electronics ended up spending about 8 billion won ($6.6 million) on the team, which went to support Chung, according to testimony by Samsung Group's de facto head, Jay Y. Lee, during parliamentary testimony earlier this month.

A more precise accounting, including whether some of that funding supported her coach and fellow rider, Park Jae-hong, was not available.

The team was meant to include six riders with 12 horses, Samsung's contract says, but never grew beyond Chung and her coach, according to lawmakers on a parliamentary committee investigating the presidential scandal.

Reuters was unable to determine why the team did not expand beyond the two riders.

Samsung's outlay included the 1 million euros ($962,000) purchase of a horse to be used by Chung named Vitana V, according to Lee.

He told the hearing there was a reason the group felt compelled to fund the equestrian team, but did not say what that was.

"I was told there were inevitable circumstances ... But I admit that the deal was done in an inappropriate way and regret that I didn't look into it more thoroughly," Lee testified. He didn't elaborate further.

Chung was not available for comment and her lawyer, who also represents her mother, did not return multiple requests for comment. Choi, who has denied legal wrongdoing, told lawmakers on Dec. 26 that she had not sought the sponsorship from Samsung. Reuters could not reach Park Jae-hong for comment.

Samsung Electronics declined to comment for this story.

Sung-Kwan Park, a Frankfurt-based lawyer who was Core's managing director, declined to discuss details of the deal when approached by Reuters, citing attorney-client privilege.

SPORT FOR THE ELITE

Samsung Electronics' support for Choi-backed initiatives also included 1.6 billion won to a foundation run by Choi's niece Jang Si-ho, and another 20.4 billion won, funding shared with the company's affiliates, to two foundations set up by a major business lobby to support Park policies. Prosecutors say in their indictment of Choi that they suspect that she controlled the foundations, including choosing staff.

An outside view of the equestrian sports farm "Reitsportanlage Jaegerhof" in Biblis, Germany, December 19, 2016. REUTERS/Ralph Orlowski

Jang has said the foundation she ran was established to support young athletes and that Choi had asked her to set it up. Her lawyer told a court hearing on Thursday that Jang put pressure on Samsung to sponsor the foundation, but said it was not clear that was the reason for Samsung's backing.

Lee told lawmakers Samsung's contributions to the two foundations backing Park's initiatives were not made with any quid pro quo expected.

Samsung's offices have been raided twice by prosecutors but none of its officials have been charged with any wrongdoing.

The Samsung Group, which has been a major sponsor of the Olympic Games, has also funded a range of sports in South Korea in the past 20 years, including soccer, baseball, basketball, and volleyball. While those sports have mass appeal, equestrian, as in many countries, is seen as a sport for the wealthy elite – there were just 251 registered equestrian riders in the country in 2014, according to the KEF.

The conglomerate and its founding family have a long-term relationship with the sport. The 48-year-old Lee, grandson of the group's founder, is an accomplished horseman and represented South Korea at international events, winning medals in various competitions in the late 1980s and early 1990s.

FAKE DOCUMENTS

In 2010, Samsung pulled out of sponsoring the KEF only to return to the sport in March 2015 when Samsung Electronics President Park Sang-jin took over the chairmanship of the KEF.

That was at a time when the KEF was being accused by lawmakers and local equestrian federations of granting Chung undue favors, including selection to the national team, because of her mother's perceived influence with Park.

In 2014, Chung was labeled the "Equestrian Princess" by South Korean media, though she partially answered her critics by winning a group dressage gold medal at the 2014 Asian Games.

The KEF declined to comment, citing the ongoing investigation by prosecutors.

Park Jong-so, a veteran rider and former national team head coach, said many in the country's equestrian community were puzzled when Samsung resumed its leadership of the federation.

Samsung gave 2.6 billion won to the KEF between resuming the sponsorship and August this year, according to a document it filed to parliament and shown to Reuters by a lawmaker.

The country's culture ministry, which oversees sports, said in a December audit report that the KEF signed fake documents provided by Chung to excuse her absences from high school and gain credit for volunteer activities she never did.

The saga has left equestrian sports in South Korea in a state of flux. Some local media have reported that Samsung has canceled the contract with Core, which has been renamed Widec Sports GmbH. Samsung declined to comment.

Hwang Young-shik, who won two 2014 Asian Games gold medals, including one with Chung in the group dressage, and now trains young riders at his own farm, said the whole saga has been embarrassing for the sport in South Korea.

"Young riders are frustrated over this," he told Reuters, adding that everyone in the equestrian world now "knows who Chung Yoora is."

(Editing by Tony Munroe and Martin Howell)

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