hankyoreh

A court cleared former Samsung Chairman Lee Kun-hee, who was indicted on charges of tax evasion and breach of trust in dubious transactions that helped illegally transfer the conglomerate’s corporate control to his son, of most charges. As a matter of fact, the court’s verdict seems to be giving virtual legal ratification to the Lee family’s illegal practices of management succession. The court could be accused of having distorted the facts and applied questionable reasoning to have delivered such a verdict. With this kind of leniency, the judiciary has no choice but to face criticisms that it threw out both judicial and economic justice. It’s a shocking outcome and is beyond disappointing.

The logic used to justify the verdict is extremely poor. The judge found Lee not guilty of the key charge of breach of trust, which is related to an opaque deal that allowed his son to buy convertible bonds issued by Samsung Everland, the group’s de facto holding company, saying that the deal was conducted by its shareholders, not by a third person. According to the court, existing shareholders were given the right to buy the Everland bonds, a right which they abandoned voluntarily. For this reason, their act of abandonment did not cause losses to Everland, the court said, and it was not enough to convict Lee of breach of trust. This is the same logic used by Samsung. In a sharp contrast, however, the Seoul High Court convicted former and incumbent chief executives of Everland of the same charge, saying the bond deal had been virtually conducted by a third person, though the bonds had been acquired by shareholders.

In fact, it’s difficult to understand how the Everland bond deal could have been a normal transaction because Lee’s only son, Lee Jae-yong, and his daughters bought 97 percent of the bonds immediately after the shareholders had decided to give up their rights to buy them. At the time, Everland’s board approved a plan to allow a third person to buy the bonds when the shareholders give up their rights to acquire them. The court itself admitted that shareholders’ decision to abandon their rights to buy the bonds was coordinated by Lee’s confidantes. Nevertheless, it has stood by the decision that the deal was done by shareholders. The circumstances raise the speculation that the court may have tried to avoid a situation in which it has to convict Lee of breach of trust if it views the Everland deal as having been done by a third person.

It is also difficult to fathom how the breach of duty charge against Lee could be invalid simply because the statue of limitations has expired on murky sales of bonds with warrants by Samsung SDS. The court’s decision to allow the statue of limitations to expire would be understandable if the capital gains by the heirs of the senior Lee from the SDS deal were smaller than a standard of heavy punishment. But in handing down its verdict, the court applied a lower price to the SDS bonds than the 55,000 won (US$54.6) per share acknowledged as the normal market price by the independent counsel, the National Tax Service and the Seoul Administrative Court. When the court calculated the value of the bonds, the Lee heirs’ potential capital gains were not factored in. As a result, the value of the funds was less than that for which Lee had been indicted. It is too much of a coincidence to say that the court did not intend to give preferential treatment to Lee and his heirs.

From the beginning, the Samsung case was a good opportunity for South Korea’s judiciary to correct unlawful business practices unsuitable for a global company, including slush funds, illegal transfers of corporate control and its pre-modern governance system. Lee’s resignation from his position as Samsung chairman and the dismantlement of the strategic planning office, which allowed Lee to exert his authority over the Samsung affiliates, should be viewed as an outcome of the social demand for Samsung to resolve the problems of the past and move toward the future. Amid such expectations, the independent counsel launched a special probe, but he failed to find enough evidence to fully prosecute the key allegations of slush funds and bribery. For now, the court has ignored its historic responsibility by giving a virtual pardon to the dubious deals conducted for illegal transfer of management at Samsung. By doing so, the continued existence of chaebol governance will exact additional costs from our society in the future. We hope that an appellate court will deliver a verdict that is acceptable to the general public.

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