Samsung at center of 'Korean Watergate' bribery probe

In South Korea, Samsung Electronics' politically powerful parent company stands accused by a whistleblower of creating a $220 million slush fund for paying off government officials. The investigation keeps intensifying.

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While Samsung Electronics this week launched a new solid state disk (SSD) Web site, and T-Mobile released Samsung's WiFi-enabled Katalyst phone, the South Korean government banned more officals of parent firm the Samsung Group from leaving the country and hunted around for documents to support allegations of bribery and corruption at the conglomerate.


When you hear the name "Samsung," images of snazzy mobile phones and high-def TVs might easily spring to mind. Although most of the world thinks of Samsung mainly as a producer of advanced technology products, the Samsung Group -- which also has interests that extend across the shipbuilding, engineering and construction, retail, financial, and entertainment industries -- is at the center of corruption charges in its home country that rival the intensity of the Watergate scandal of the 1970s in the US.

According to wire service reports, prosecutors are now investigating allegations that the Samsung Group compiled $220 million in slush funds to bribe government officials and other influential persons not to examine its management practices all that thoroughly.

Elsewhere in the international press, accounts emerged this week reputing that South Korean President Roh Moo-hyun accepted a bill in late November for appointing a supposedly "independent counsel" to look into the suspected corruption.

The current corruption probe in South Korea commenced after questions were raised early last month by whistleblower Kim Yong-chul, who had worked as Samsung's chief legal advisor between 1997 and 2004.

Hotly refuting the allegations, Samsung has come out with a rebuttal against Kim Yong-chul. Yet this is not the first time that Samsung officials have been accused of wrongdoing. Critics have charged that the family in charge of Samsung stays in control through a tangled and hidden nest of cross shareholdings among various companies in the group.

On at least one earlier occasion, the accusations have resulted in a guilty verdict. In October of 2005, for example, a Seoul court judged two former top Samsung officials guilty of conspiring to help the children of wealthy Samsung Chairman Lee Kun-hee to purchase a majority stake in Everland -- an amusement park operator which reportedly serves as Samsung's de facto holding company -- at prices below market value.

Generally, however, earlier probes of Samsung's activities have brought about few if any negative consequences for Samsung. Why? Essentially, Samsung is one of a few family-run conglomerates that established close ties with the South Korean government as the country struggled to build itself up in the years after the Korean War.

But the current investigation is widely considered much more serious than other probes because it is based on charges made by a source close to Samsung's ruling family -- which is now entering its third generation at the helm of the company as Lee Jae-yong, son of Lee Kun-hee, understudies his father to eventually take over.

Meanwhile, an official of the Korea Chamber of Commerce told reporters in that country on Sunday that the group is concerned that a "possible prolonged probe could have a negative impact on the local economy as well as Korea's credit ratings."

With 2006 revenues of $159 billion, Samsung reportedly accounts for one-sixth of South Korea's gross domestic product and one-fifth of that nation's exports and stock market values.

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