Samsung leader named a suspect in South Korea political probe

[January 11, 2017]  By Se Young Lee and Ju-min Park

SEOUL (Reuters) - A South Korean special prosecutor's office will question Samsung Group [SAGR.UL] leader Jay Y. Lee as a suspect in a widening influence-peddling scandal that may force President Park Geun-hye from office.

Prosecutors have been looking into whether Samsung payments of about 30 billion won ($25 million) for a business and foundations backed by Park's friend, Choi Soon-sil, were connected to a 2015 decision by the national pension fund to back a controversial merger of two group affiliates.

Park could become South Korea's first democratically elected leader to leave office early after parliament voted in December to impeach her over the corruption scandal, which has triggered big weekly rallies calling for her to step down. The impeachment must be upheld or overturned by the Constitutional Court.

A spokesman for prosecutors, Lee Kyu-chul, told a briefing the Samsung leader had been summoned for questioning at 9:30 a.m. on Thursday (7 p.m. ET on Wednesday) over suspicions including bribery.

He declined to comment on whether Jay Y. Lee or other Samsung executives will be indicted but would not rule out the possibility of the prosecution seeking an arrest warrant against Lee. A Samsung Group spokeswoman declined to comment.

Proving quid-pro-quo dealings between the Choi-linked organizations and Samsung are critical to prosecution efforts to bolster its case against President Park and show that she, or a surrogate such as Choi, collected bribes in exchange for favors, analysts said.

For Samsung and its founding Lee family, an indictment or conviction of Jay Y. Lee would deal a blow to efforts to secure a stable transfer of control to heirs from ailing patriarch Lee Kun-hee.

The conglomerate has undergone major restructuring since 2014 to streamline its ownership structure and consolidate power under Jay Y. Lee and his two sisters.

Park Ju-gun, head of corporate analysis firm CEO Score, said while professional managers at affiliates such as Samsung Electronics would be able to keep the companies operating smoothly in the absence of Jay Y. Lee, key initiatives such as acquisitions and investments into new businesses would inevitably be slowed should the 48-year-old be imprisoned.

"I think Samsung Group is facing a bigger crisis than even the death of Chairman Lee Kun-hee," he said, referring to billions of dollars in inheritance taxes the Lee family heirs will be forced to pay when their father dies.

SEEKING A LINK

Samsung has acknowledged making contributions to two foundations as well as a consulting firm controlled by Choi but has repeatedly denied accusations of lobbying to push through a controversial 2015 merger of its Samsung C&T and Cheil Industries Inc units.

The prosecution this week summoned two senior Samsung Group officials for questioning, though they were listed as witnesses.

National Pension Service chief Moon Hyung-pyo was arrested in December after acknowledging he pressured the fund to approve the merger while he was health minister.

Park, 64, has described support of the merger as a policy decision made by the world's third-largest pension fund in the national interest.

Lee denied bribery accusations during a December parliamentary hearing, rejecting assertions from lawmakers that Samsung lobbied to get the fund to back the merger.

Samsung Electronics vice chairman Jay Y. Lee arrives to attend a hearing at the National Assembly in Seoul, South Korea, December 6, 2016. REUTERS/Kim Hong-Ji

The special prosecutors' office said on Wednesday it was looking into whether Lee gave false testimony during the parliamentary hearing.

"The special prosecutor needs Samsung to establish a potential bribery charge against President Park Geun-hye," said Shin Yul, a political science professor at Myongji University.

"Samsung is the one that has made the biggest contributions among conglomerates and it had an exclusive relationship with Choi Soon-sil, buying a horse," Shin said, referring to the firm's sponsorship of Choi's daughter's equestrian career.

The daughter, Chung Yoo-ra, was arrested in Denmark this month after being sought by South Korean authorities.

DE FACTO LEADER

Lee, the vice chairman of flagship affiliate Samsung Electronics Co Ltd <005930.KS>, has been leading South Korea's top conglomerate since his father was incapacitated by a May 2014 heart attack.

Shares in Samsung units did not move sharply following the news that Jay Y. Lee was named a suspect, as some investors had anticipated the possibility that he could be formally indicted. Shares of Samsung Electronics ended up 2.8 percent, though off its high for the day, after trading at a record 1.928 million won.

The shares could see a correction because of heightened uncertainties, but the stock will see support from strong earnings prospects, said HDC Asset Management fund manager Park Jung-hoon.

Shares of firms such as Samsung C&T Corp <028260.KS> that are more closely linked with potential succession-related restructuring may weaken further, Park said, as formal prosecution of Lee could delay the process.

"I think some investors are still uncertain on whether the special prosecutors will go as far as arresting and detaining Jay Y. Lee, given the uncertainties such an action might trigger on Samsung companies," he said.

In 2008, Lee Kun-hee stepped down as Samsung Group chairman after group executives were indicted on suspicion of brokering a sweetheart deal for his children to have a greater ownership stake in Samsung's de facto holding company.

He was handed a suspended 3-year sentence for tax evasion, but was eventually pardoned.

(Reporting by Se Young Lee and Ju-min Park; Editing by Clarence Fernandez and Tony Munroe)

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