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January 14, 2008

Samsung Group Accused of Slush Fund Creation and Bribery in the Millions

By Susan J. Campbell, TMCnet Contributing Editor

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All South Korean legal eyes are on Samsung (News - Alert) as the company has been accused of bribery and fraud. A former prosecutor has been named independent counsel by President Roh Moo-hyun to probe allegations of slush funds and bribery.


Samsung Group is easily South Korea’s leading conglomerate. The company has 58 subsidiaries and accounts for over 20 percent of the country’s exports. Samsung Group’s assets are valued at more than $280.8 billion and its exports were worth $66.3 billion last year.

The probe is the result of claims by Samsung’s former chief lawyer that the company created a multi-million dollar slush fund to bribe prosecutors, government officials and journalists. The company vehemently denies these claims and has voiced concern that the probe is hurting its reputation in South Korea, as well as globally.

Samsung’s in-house legal team was led by Kim Yong-Chul for seven years until 2004. Yong-Chul has accused the firm of opening bank accounts in the names of senior staff, including himself, to manage the slush fund. 

Yong-Chul, a former prosecutor himself, said Samsung used Samsung Corp., the company’s trading arm, to create the pool of money through intricate contracts with other group affiliates. He also stated that family members of Samsung Group Chairman Lee Kun-hee used $65 million of the money to buy expensive art work.

Independent counsel Cho Joon-Woong told reports that there were too many allegations involved. “So, I’m not sure I can get all of them clarified within the given time.” The probe can last as long as 105 days, although separate investigations by state prosecutors are ongoing.

Joon-Wong did tell the Yonhap news agency that a thorough investigation will be conducted to ensure that there is no suspicion left. The independent counsel has up to 125 days to complete his investigations.

South Korea’s president Roh recently criticized the National Assembly for passing the bill calling for an independent probe, but accepted it amid the rash of allegations against the Samsung Group, which includes global technology giant, Samsung Electronics Co.
Samsung, which has denied the claims, indicated on Thursday that it had no comments on the appointment of the independent counsel.

Scandals are not considered new to such huge South Korean industrial groups as Samsung. These conglomerates have regularly been accused of wielding their economic power to influence government decisions, as well as using shading dealings between subsidiaries to help controlling families to evade taxes and transfer wealth to heirs.

Such accusations and even the actual practices have been around for generations and are not likely to cease. The results of this probe could have a significant impact on Samsung and its position in South Korea, although it is unlikely to hurt the company’s long-term goals for success.
Susan J. Campbell is a contributing editor for TMC (News - Alert) and has also written for eastbiz.com. To see more of her articles, please visit Susan J. Campbell’s columnist page.
 
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