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Samsung Head Formally Charged with Fraud

Samsung Head Formally Charged with Fraud

South Korean special prosecutors have announced that they have charged Samsung chairman Lee Kun-Hee with breach of trust and tax evasion. However, Lee will remain free pending trial, with authorities saying they won’t be arresting him because it the disruptive impact that could have on the electronics giant.

Lee, age 66, was charged with nine other Samsung executives, including vice chairman Lee Hak-Soo. All have admitted to most of the key charges in the case; however, the indictment does not include charges of bribery, which was the most serious allegation from a former Samsung lawyer Kim Yong-Chul, whose accusations launched the investigation. Kim also alledged the Samsung execs had created a slush fund of almost $200 million for the express purpose of bribing government officials and politicians.

Samsung accounts for more than 20 percent of South Korea’s total exports.

In all, chairman Lee stands accused of breach of trust for permitting an illegal transferring of control Everland, Samsung’s holding company, to his son, Lee Jae-Yong, through a subsidized sale of bonds. The younger Lee is also a senior executive at Samsung. Chairman Lee has also been charged with evading capital gains taxes on the sale of more than $110 million in shares of Samsung and affiliated companies, and syphoning the proceeds through nearly 1,200 borrowed accounts.

Industry watchers have noted the charges highlight a conflict of cultures between South Korea’s traditionally family-run business conglomerates—which have historically lacked transparency and engaged in behind-the-scenes managerial moves—and more modern, publicly-held corporations with regulated operations and investor-driven leadership.

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