06 February 2024 , 15:02
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Samsung boss Lee Jae-yong has been cleared of financial crimes linked to a 2015 merger.
The Seoul Central District Court in South Korea ruled that the prosecution failed to prove that the merger between Samsung C&T and Cheil Industries was unlawfully conducted to strengthen Lee's control over Samsung Electronics. The decision could ease the legal woes surrounding the Samsung heir, less than two years after he was pardoned for a separate bribery conviction in a corruption scandal that led to the downfall of a previous South Korean government.
However, the ruling has sparked criticism from activists, progressive politicians and commentators. They question how Lee could be innocent of all charges when he had previously been convicted in a separate case of bribing a former president while seeking government support for the merger.
South Korea's biggest civic group, The People's Solidarity for Participatory Democracy, said the court failed to show "even a minimal level of social justice" by prioritising Lee's interests over those of shareholders and pensioners, whose retirement funds may have been reduced by the deal, which was endorsed by the National Pension Service.
The decision has been labelled a step back for many years of effort to change the management culture of South Korea's family-owned businesses and their close connection with the government. Court officials in South Korea are often seen giving soft punishments to business leaders for misdeeds such as corruption or company mishaps, usually due to worries over the nation's finances.
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The courts had asked for Lee to be jailed for five years on charges of manipulating stock prices and fiddling with the accounts. It wasn't immediately known if they would challenge this. Lee disputed any wrongdoing in the present case, calling the 2015 merger "normal business activity."
As the 55 year old Lee left the courtroom, he chose not to answer questions from journalists. You Jin Kim, Lee's lawyer, applauded the verdict saying it proven that the merger was legal. Lee, who officially became the chairman of Samsung Electronics in October 2022, became the leader of the Samsung group of companies back in 2014.
This happened when his late father, former chairman Lee Kun-hee, suffered a heart attack. Lee Jae-yong, who served 18 months in prison after being convicted in 2017 over separate bribery charges related to a 2015 deal, was originally sentenced to five years.
He was found guilty of offering bribes worth 8.6 billion won (£5m) to then-President Park Geun-hye and her close confidante to win government support for the 2015 merger. This merger was key to strengthening his control over the Samsung business empire and solidifying the father-to-son leadership succession.
Both Park and her confidante were also convicted in the scandal, which led to massive protests by South Koreans demanding an end to shady ties between business and politics. These demonstrations eventually led to Park's removal from office.
In 2021, Lee was released on parole and pardoned by South Korean President Yoon Suk Yeol in August 2022. This move extended a history of leniency toward major white-collar crime in South Korea and preferential treatment for convicted tycoons.
The 2015 merger faced opposition from some shareholders, who claimed it unfairly benefited the Lee family while hurting minority shareholders. There was also public anger over how the national pension fund's stake in Samsung C&T, the merged entity, fell by an estimated hundreds of millions of pounds after Park pressured the National Pension Service to support the deal.
Prosecutors claimed that Lee and other Samsung officials damaged shareholders of Samsung C&T, a major construction company. They allegedly manipulated corporate assets to engineer a merger favourable to Cheil, an amusement park and clothing company where Lee was the biggest shareholder.
Prosecutors also accused Samsung executives of inflating the value of Samsung Biologics, a Cheil subsidiary, by more than 4 trillion won (£2.3 bn) through accounting fraud to make the deal look fair. However, the court ruled that the prosecution's evidence wasn't enough to prove that the 2015 merger was conducted illegally or solely to strengthen Lee's control over Samsung Electronics.
The court suggested broader business considerations were likely involved. The court also stated it was unclear that the deal's conditions unfairly hurt the interests of shareholders.
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It added that prosecutors failed to prove that Samsung officials committed accounting fraud. Samsung Electronics showed no obvious sign of business trouble when Lee was running the company from behind bars, communicating his decisions through visiting company executives. South Korean business lobbies, including the Korea Chamber of Commerce and Industry, praised Lee's acquittal.
They said that an extension of Lee's legal troubles would have hampered Samsung's speed and decisiveness as it faces heightened competition in semiconductors and other markets. Oh Se Hyung, an official at the Citizens' Coalition for Economic Justice, said the ruling was a "collapse in economic and judicial justice."
"It's tragic that a wrongful merger and clear accounting irregularities were ruled as not guilty, and you have to question the roles played by the prosecution and the judiciary that led to this," he stated.
Lee is facing tough times as the boss of one of the biggest tech companies in the world. The war in Ukraine and other conflicts are making things hard for the global economy and less money is being spent on tech. The company just said that their profits went down by 34% in the last part of the year because not as many people want their TVs and other gadgets. However, they're starting to make more money from memory chips again.
* An AI tool was used to add an extra layer to the editing process for this story. You can report any errors to [email protected]