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Electronics Vice Chairman Lee Jae-yong arrives at Seoul Central District Court on Jan. 18

There were stark differences between the three places where the investigative team led by Special Prosecutor Park Young-soo conducted search and seizures on Feb. 3. While the search and seizure of the Blue House was not unexpected, no one had expected the blitzkrieg-like search and seizures on the Korea Fair Trade Commission (KFTC) and the Financial Services Commission (FSC). By openly stating that the search and seizures on these two agencies were connected with allegations that Samsung Electronics Vice Chairman Lee Jae-yong, 49, gave a bribe, the Special Prosecutor’s team announced the launch of the second round of its Samsung bribery investigation.

The Special Prosecutor’s team suspects that Choi Sun-sil had President Park Geun-hye arrange various forms of preferential treatment from the government that was necessary for Lee’s to take over of management rights at the Samsung Group in exchange for Choi’s daughter Jung Yu-ra, 21, receiving financial support from Lee for her equestrian training. The team believes that there are three major issues related to the transfer of management rights that Lee wanted Park and Choi (who are regarded as conspirators) to help him with . The first is the National Pension Fund’s decision to vote in favor of the merger of Samsung C&T and Cheil Industries, the second is disentangling the cross-shareholding structure between the group’s affiliates, and the third is the introduction of the intermediate financial holding company system.

The search and seizures of the KFTC and FSC on Feb. 3 appear to be measures designed at proving the other two favors remaining after the court rejected the Special Prosecutor’s request for an arrest warrant against Lee, which only mentioned the National Pension Fund’s decision to support the Samsung merger on Park’s command.

First of all, the Special Prosecutor’s team has acquired evidence that the Samsung Group saved tens of billions of won because of the KFTC’s help with untying the group’s cross-shareholding structure. The cross-shareholding structure became even stronger after the Samsung merger, leading the KFTC to order the Samsung Group to deal with the problem by the end of Feb. 2016. The group was expected to face a fine of 74 billion won (US$64.96 million) if it failed to carry out the order. But the group desperately needed an extension of the deadline, and the KFTC gave it another month without levying the fine. The Special Prosecutor’s team is looking into whether Park and former Blue House Senior Secretary for Policy Coordination Ahn Jong-beom were involved in this.

The Special Prosecutor’s team is also investigating whether there is evidence that the KFTC and the FSC were involved in the introduction of the intermediate financial holding company system. While Lee’s acquisition of management rights entered its final stage after the Samsung merger in July 2015, the issue of corporate governance at group financial affiliates such as Samsung Life Insurance and Samsung Fire and Marine Insurance had not been completely resolved because of rules requiring the separation of financial and industrial capital. Amid these circumstances, the KFTC attempted to use government legislation in Feb. 2016 to introduce the intermediate financial holding company system, which would allow financial affiliates to be controlled through a holding company. Since the legislation would have resolved the Samsung Group’s issues with owning financial affiliates, industry critics sarcastically referred to the legislation as the “Special Samsung Act.”

On Feb. 3, the Special Prosecutor’s team search and seizure of KFTC offices involved in agency decision-making – including the office of its vice chairperson, the Business Group Division, and the office of the director of the Competition Policy Bureau – as well as the office of the FSC vice chairperson, the Capital Market Division in the Capital Market Bureau, the Asset Management Division and the Fair Market Division. The search and seizure appears to have been largely designed to explore these allegations. The search and seizure on the FSC was reportedly also connected with allegations that Choi was involved in expropriating official development aid in Myanmar and that she arranged a promotion for Lee Sang-hwa, director of the headquarters of KEB Hana Bank, who secured a preferential loan for her in Germany.

Since the Special Prosecutor’s team has basically announced that it is reopening its investigation into allegations that Lee provided bribes, it seems quite probable that the team could resubmit its request for an arrest warrant against Lee. The team is reportedly planning to decide how to handle Lee after it questions Park, who is accused of having received a bribe.

Along with questioning Park, the Special Prosecutor’s team maintains that it must execute the search warrant for the Blue House, which the Blue House refused to allow on Feb. 3. Since the Blue House is likely to cooperate with a search and seizure only to a limited degree and since it has had sufficient time to destroy related evidence, the team does not expect that the search and seizure would be very effective.

But since all the issues that the Special Prosecutor’s Act ordered it to investigate are linked to the Blue House premises (including Park’s actions during the first seven hours after the Sewol sinking and accusations that Park accepted bribes, that Choi Sun-sil manipulated the government, that former Blue House Chief of Staff Kim Ki-choon was involved in the cultural blacklist and that former Blue House Senior Secretary for Civil Affairs Woo Byung-woo, 50, abused his power), the team believes that it must execute a warrant inside the Blue House, if only for appearances. In addition, presidential records cannot be arbitrarily deleted, which leaves open the possibility that a search and seizure could turn up unexpected material evidence that could support the investigation. And if digital forensics of the material seized shows signs of evidence being destroyed, this could be used against Park.

By Kim Jeong-pil, staff reporter

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