South Korea prosecutor seeks arrest of Samsung chief for bribery

[January 16, 2017]  By Ju-min Park and Se Young Lee

SEOUL (Reuters) - South Korea's special prosecutor on Monday sought a warrant to arrest the head of Samsung Group [SAGR.UL], the country's largest conglomerate, accusing him of paying multi-million dollar bribes to a friend of President Park Geun-hye.

Investigators had grilled Samsung Group chief Jay Y. Lee for 22 straight hours last week as a suspect in a corruption scandal, which last month led to parliament impeaching Park.

The special prosecutor's office accused Lee of paying bribes total 43 billion won ($36.42 million) to organizations linked to Choi Soon-sil, a friend of the president who is at the center of the scandal, in order to secure the 2015 merger of two affiliates and cement his control of the family business.

The 48-year-old Lee, who became the de facto head of the Samsung Group after his father, Lee Kun-hee, was incapacitated by a heart attack in 2014, was also accused of embezzlement and perjury, according to the prosecution's application for an arrest warrant.

"The special prosecutors' office, in making this decision to seek an arrest warrant, determined that while the country's economic conditions are important, upholding justice takes precedence," special prosecution spokesman Lee Kyu-chul told a media briefing.

Prosecutors have evidence showing that Park and Choi shared profits made through bribery payments, he said, without elaborating.

Lee is due to appear on Wednesday morning at the Seoul central district court, which will decide whether to grant the arrest warrant.

Samsung, whose companies generate $230 billion in revenue, equivalent to about 17 percent of South Korea's economy, rejected the accusation that Lee paid bribes.

"It is difficult to understand the special prosecutors' decision," it said in an emailed statement.

Prosecutors have been looking into whether Samsung's support for foundations and a company backed by Choi was linked to the National Pension Service's 2015 decision to support a controversial $8 billion merger of Samsung C&T Corp and Cheil Industries Inc.

Samsung has acknowledged providing funds to the institutions but has repeatedly denied accusations of lobbying to push through the merger.

"It is especially hard to accept the special prosecutor's assertion that there was improper request for a favor related to the merger or succession of control," it said on Monday.

NPS chairman Moon Hyung-pyo was indicted on Monday on charges of abuse of power and giving false testimony. Last month he acknowledged ordering the world's third-largest pension fund to support the merger of Samsung C&T Corp and Cheil Industries in 2015 while heading the health ministry, which oversees the NPS.

The special prosecutor's office said in its indictment of Moon that Park, through her aides, ordered Moon to ensure the merger of the two Samsung companies succeeded.

Park, 64, remains in office but has been stripped of her powers while the Constitutional Court decides whether to make her the country's first democratically elected leader to be forced from office.

Park has denied wrongdoing but admitted to carelessness in her relationship with Choi, a friend for four decades. Choi, in jail as she undergoes criminal trial and also denies wrongdoing.

SHARES HIT

Prosecutors opted not to seek the arrest of three other Samsung executives they had questioned, including Vice Chairman Choi Gee-sung, a group veteran who is seen as Jay Y. Lee's mentor and a likely caretaker head of the conglomerate in the event Lee is arrested.

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

Shares in flagship Samsung Electronics, the world's biggest maker of smartphones, flat-screen TVs and memory chips, ended 2.14 percent lower, underperforming the 0.61 percent drop in the broader market.

Investors say that while key Samsung businesses are run by professional CEOs and would not be hurt on an operational basis if Lee is arrested, his absence would slow bigger-picture decision-making.

The Korea Employers Federation, a business lobby, said arresting Lee would undermine confidence both in Samsung and the country's economy, Asia's fourth-largest, and called the special prosecutor's probe "very regrettable."

South Korea has seen numerous corporate scandals over the years. Jay Y. Lee's father Lee Kun-hee was himself handed a three-year suspended jail sentence in 2009 for tax evasion. He was later pardoned.

Public opinion has in recent years grown less tolerant of leniency extended to the heads of conglomerates, or chaebols, for the sake of the economy.

POLITICAL CRISIS

South Korea has been gripped by political crisis for months, with Park impeached in December.

If the impeachment is upheld by the Constitutional Court, an election would be held in two months, with former U.N. Secretary General Ban Ki-moon expected to be a candidate.

Choi, in detention and on trial on charges of abuse of power and attempted fraud, again denied wrongdoing on Monday in an appearance at the Constitutional Court's impeachment trial.

She also denied having any prior knowledge of the Samsung Group's controversial 2015 merger of two affiliates.

"Even if I knew, I could not have passed on any information because I have no knowledge about mergers or hedge funds, anything like that, in the first place," Choi told the court.

(This story was refiled to insert dropped letter "s" in headline)

(Additional reporting by Christine Kim, Joyce Lee and Hyunjoo Jin; Writing by Nick Macfie and Tony Munroe; Editing by Simon Cameron-Moore)

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