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Samsung's Image Plagued By Corruption, Scandal

Fri, 11/16/2007 - 5:05am
Kelly Olsen, AP Business Writer
SEOUL, South Korea (AP) — South Koreans take great pride in Samsung, known worldwide for sleek flat-screen TVs, high-tech mobile phones, hulking container ships and major construction projects.
 
But a spreading bribery scandal has renewed old concerns about the perceived power and influence of the ''Republic of Samsung'' — as the conglomerate has been called — within the Republic of Korea, South Korea's formal name.
 
''Samsung has two faces,'' Kim Byung-su, the editorial page editor at the liberal Hankyoreh newspaper wrote. ''The Samsung brand is a name recognized worldwide and makes you proud. Take a step back, however, and there is another Samsung.''
 
In the latest scandal, Kim Yong-chul, a former top Samsung lawyer, went public this month with allegations that chairman Lee Kun-hee and other officials masterminded a campaign to raise slush funds to pay prosecutors, judges and lawmakers and influence a high-profile court case.
 
Prosecutors launched a probe this week into the allegations, which Samsung has called ''groundless'' and ''false'' in a lengthy rebuttal.
 
Politicians across the political spectrum have called for an independent counsel, saying a probe by prosecutors could not be objective given that they allegedly accepted payoffs.
 
The issue has suddenly emerged as a hot topic in South Korea's presidential election, just a month away, with one party even claiming incumbent President Roh Moo-hyun, who is limited to a single term, received Samsung money.
 
Roh's spokesman has dismissed the claims.
 
Corruption and bribery have been hallmarks of South Korea's business and political worlds for decades and Samsung is far from alone in finding itself at the center of scandal.
 
Their roots can be found in cozy ties developed during years of military-backed authoritarian rule when family run conglomerates, or chaebol, were given the role of leading South Korea's drive toward industrialization.
 
Earlier this year, Chung Mong-koo, the chairman of Hyundai Motor Co., was convicted of embezzlement and breach of trust for raising a slush fund prosecutors said was used for bribery.
 
He was sentenced to three years in prison — although the term was suspended on appeal when the presiding judge ruled that Chung played too important a role in South Korea's economy for him to go to jail.
 
Samsung is a sprawling empire of 59 companies with interests in shipbuilding, insurance, an amusement park, hotels, public relations and of course electronics.
 
For many Koreans, Samsung is more than just a business.
 
''It means South Korea,'' said Jang Ha-sung, dean of the business school at Korea University.
 
''If something goes wrong with Samsung that will have an immediate impact on every corner of Korea,'' he added. ''It's not just because it is big, nor is it just because it is one of the multinational corporations we have. Because Samsung is embedded in the whole society.''
 
South Koreans can virtually go through an entire day with Samsung.
 
They can live in an apartment built by Samsung, eat food out of their Samsung refrigerator, watch a Samsung TV, buy Samsung insurance, take their kids to a Samsung amusement park, stay at a Samsung hotel, pay for it with a Samsung credit card and call home on a Samsung mobile phone.
 
''All Koreans like Samsung,'' said Ko Young-hun, who sells phones at a small shop in Seoul's electronics market. He cited their quality and design as well as thorough post-purchase service.
 
Lee is widely viewed as the driving force at Samsung Electronics Co. and is credited with transforming it into a competitive high-tech powerhouse.
 
It is the world's largest maker of memory chips and expects to bring in consolidated sales of $100 billion for the year through December for the first time, cementing its status as one of the world's top technology companies.
 
Lee, 65, is no stranger to scandals at the conglomerate founded by his father almost 70 years ago.
 
In 1996, he was convicted along with seven other leading South Korean business executives of giving and arranging bribes to ex-South Korean President Roh Tae-woo, a former general.
 
Lee, a member of the International Olympic Committee, was handed a two-year suspended prison term.
 
''Giving money to the government was a long-standing practice,'' Lee said at the time. ''Samsung was no exception.''
 
Earlier this year, the Seoul High Court found the former and current heads of Samsung Everland, an unlisted unit, guilty of selling bonds convertible to shares to Lee's children at less-than-market prices.
 
Critics say the 1996 sales were aimed at enabling Lee to hand over control of the conglomerate to his son Jae-yong, now an executive at Samsung Electronics, as they say unlisted Everland serves as a de-facto holding company for the Samsung Group.
 
Samsung says Everland does not play such a role.
 
The two officials, sentenced to suspended prison terms and fined, have appealed to the Supreme Court.
 
Samsung has tried to regain public trust after previous scandals.
 
In 2006, it donated more than $800 million to society, including setting up a scholarship fund, to express remorse for ''causing concern'' among South Koreans over a campaign finance scandal ahead of 1997 presidential elections and the transfer of wealth to Lee's children.
 
''Chairman Lee acknowledged that while he has devoted himself to the management of Samsung, his efforts to grow together with our society and meet the people's expectations have been insufficient,'' Vice Chairman Lee Hak-soo said at the time.
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