hankyoreh

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Editor’s note: The ruling Grand National Party says it is going to pass controversial legislation on its own, with the backing of President Lee Myung-bak, and the largest opposition party, the Democratic Party, says it will boycott the extraordinary National Assembly session. On the occasion of a Cold War shaping up among legislators, The Hankyoreh decided to take a close look at the bills up for consideration.

The Lee Myung-bak administration and the ruling Grand National Party are pushing two pieces of legislation, the Financial Holding Company Act and a revision to the law on banking, despite resistance from the opposition parties. But it was confirmed Sunday that the key parts to these legislative proposals are carbon copies of a secret Samsung Group document from May 2005 titled “Road Map for Samsung Financial Subsidiaries Becoming Financial Holding Companies.” This “Samsung road map” created a storm in October 2007 when former Democratic Labor Party lawmaker Shim Sang-jeong exposed it during the 2007 annual National Assembly audit of executive branch affairs.

The Financial Holding Company Act, as proposed by the GNP, is exactly the same as Samsung’s road map for itself in that seeks to permit financial subsidiaries that are not commercial banks, such as insurance and securities companies, to own non-financial subsidiaries. On page 21, the Samsung road map says that it “would be possible to maintain control and transform subsidiaries into holding companies if the subsidiaries of financial holding companies are permitted to own stakes in non-financial affiliates.” Indeed, if passed, Samsung would be able to maintain the current structure of ownership and control that currently extends from former Chairman Lee Kun-hee’s only son, Lee Jae-yong, to Samsung Electronics via stakes in Everland and, in turn, via stakes in Samsung Life. This would allow for conversion to a holding company setup based around Everland.

The GNP’s proposal to relax the current law’s rules on the subsidiaries of financial holding companies that are simultaneously subsidiaries and majority shareholders to pertain instead to subsidiaries of financial holding companies that are subsidiaries and shareholders with stakes greater than 10 percent is the same as the Samsung road map, too. On page 22 the document’s authors said that when the financial holding company’s subsidiary (Samsung Life) owns shares in another company (subsidiaries like Samsung Electronics) with the purpose of controlling it, allowing only less than 5 percent stakes would create a problem for companies that Samsung Life has more than 5 percent ownership of, like Samsung Electronics, Samsung Engineering, and the private security company S1, but that the problem could be eliminated if the law is relaxed to the point where up to 10 percent stakes are permitted. Also consistent with the road map is the part of the bill that would give as much as a seven-year deferment for non-bank financial holding firms that do not meet conditions such as their obligatory minimum stake (30 percent in listed companies), since on page 22 of the Samsung road map it says “it is expected the deferment will be increased to between 5 and 10 years.”

The road map’s item-by-item timetable for making it all happen is identical to what has actually come to pass. The document calls for the promotion of criticism of the separation of financial and industrial capital in 2005, the formation of a public consensus on the need for regulations for non-bank financial companies that differ from those that regulate the banking industry, to promote non-bank financial industry growth, in 2006, and for the pursuit of the revision of the Financial Holding Company Act in 2007.

The GNP and the Lee administration also want to amend banking and insurance industry laws to allow insurance companies to operate in the banking industry, yet another aspect of their plan that resembles the Samsung road map, which on page 24 lists “exploring ways for non-bank financial institutions to enter the banking industry” as one of its five main objectives. This provides evidence of how the Samsung Group began exploring ways to enter the banking industry, circumventing the hurdles by having Samsung Life and Samsung Securities get into the banking business as soon as it was apparent the Samsung Group as a whole would have a hard time owning its own bank.

The fact that the Lee administration and the ruling GNP’s plans for relaxing the rules on the separation of financial and industrial capital and Samsung’s road map for achieving that are so in sync is leading some to accuse the ruling camp of “looking after Samsung” (samseong bwajugi) and to ask whether the conglomerate might have lobbied illegally for the realization of the road map’s agenda.

“When all is said and done, the Lee administration’s proposal to relax the rules on the separation of financial and industrial capital is a faithful reflection of the Samsung road map,” said Kim Sang-jo of the Solidarity for Economic Reform. “If the revision bill gets passed, Samsung will have its current ownership and control structure legalized, and that way it will be able to control Korean finance and industry.”

A high-ranking Samsung executive said he “doesn’t know a thing about” the drafting or discussion of the document.

Please direct questions or comments to [englishhani@hani.co.kr]