Ponying up?
Samsung is sucked into South Korea’s political crisis

South Korean prosecutors probe presidential bribery claims
Nov 26th 2016 | SEOUL


IT WAS the third raid on the Samsung group in as many weeks. On November 23rd state prosecutors combed more offices of the South Korean consumer-electronics firm, part of a probe into an influence-peddling case that could be the undoing of President Park Geun-hye’s administration. The deepening inquest compounds a miserable few months for Samsung, which recently recalled 3m faulty washing machines and killed a new line of Galaxy Note phones after dozens exploded due to flawed batteries.

Last week prosecutors accused Ms Park of conspiring to coerce 50-odd companies to funnel 80bn won (70m dollars) to two foundations, Mir and K-Sports, controlled by Choi Soon-sil, a confidante indicted for abuse of power. The biggest grant, 20.4bn won, came from Samsung. Prosecutors suspect that it funnelled a further 2.8m euros (3m dollars) to Ms Choi through Widec Sports, a German company she used to buy horses and equestrian lessons for her daughter, a dressage athlete.

Investigators had said that the firms, including many in the pantheon of South Korean business, such as Lotte, a retail giant, and SK Group, a conglomerate, both of whose offices were raided this week, paid up to avoid blowback like tax audits. Now prosecutors appear to be probing allegations of kickbacks. This week they also raided the offices of the state-run National Pension Service (NPS). According to Yonhap, a news agency, they suspect Ms Park’s office of pressuring the NPS to vote for a merger in July 2015 between Cheil Industries, a Samsung business, and Samsung C&T, its construction arm. As C&T’s biggest shareholder, the NPS’s vote was decisive.

The merger was contentious because of a huge disparity in the two firms’ valuations. Through cross-shareholdings, it allowed Lee Jae-yong, son of Lee Kun-hee, Samsung’s chairman, to gain stakes in key affiliates at no extra cost. Advisory firms such as ISS pressed C&T shareholders to reject it; Elliott Management, an American hedge fund, fought it.

The NPS this week defended its vote for the merger. Samsung only confirmed the raid had happened. The group has not been under such scrutiny since it was last raided, in 2008. That year the elder Mr Lee was indicted for tax evasion and breach of trust. He stepped down, spent no time in prison and returned to the helm within two years after a pardon from then-president Lee Myung-bak.