Samsung's Insane Bribery Scandal Explained
Summary
TLDRIn March 2017, South Korean President Park Geun-hye was arrested and sentenced to 25 years in prison for corruption, marking the fourth consecutive South Korean president to face such charges. In the same case, Samsung heir Lee Jae-yong received a five-year sentence. Despite Samsung's vast public ownership, the Lee family maintained control through a complex ownership structure. Lee orchestrated a controversial merger to consolidate power, leading to a major bribery scandal involving President Park and her advisor Choi Soon-sil. The scandal exposed deep issues within South Korea's economy and corporate governance, highlighting the influence of family-run conglomerates.
Takeaways
- 📅 On March 31, 2017, South Korean President Park Geun-hye was arrested on corruption charges and sentenced to 25 years in prison.
- 🏛️ Park Geun-hye was the fourth consecutive South Korean president to be either arrested or impeached.
- 💼 Prominent businessman Lee Jae-yong, heir to the Samsung conglomerate, was sentenced to five years in prison for his involvement in the bribery case.
- 💸 Lee Jae-yong's family maintained control over Samsung through a complex structure of circular ownership despite owning only a small percentage of the shares.
- 📈 The Lee family used cross-ownership to maintain voting control over Samsung, despite having reduced economic ownership due to raising external capital.
- 💡 In 2015, Lee Jae-yong pushed for a controversial merger between two Samsung companies to consolidate his control over Samsung Electronics.
- 🛡️ The merger was facilitated by bribing President Park Geun-hye, with the National Pension Service being pressured to vote in favor of the deal.
- 📰 The bribery and corruption scandal eventually led to massive protests, the arrest and imprisonment of Park Geun-hye, Choi Soon-sil, and other officials.
- 🏢 Despite the public backlash, the release of Lee Jae-yong in 2021 after serving only 207 days in prison indicates that powerful individuals in Korea's business community remain above the law.
- 🧐 The Samsung bribery case highlights the deep-rooted issues in Korea's economy, where family-controlled conglomerates dominate and governance structures lead to inefficiency and corruption.
Q & A
What led to the arrest and sentencing of South Korean President Park Geun-hye?
-Park Geun-hye was arrested on corruption charges and eventually sentenced to 25 years in prison due to her involvement in a bribery case connected to prominent businessman Lee Jae-young and the Samsung conglomerate.
Who is Lee Jae-young and why was he sentenced to prison?
-Lee Jae-young is the heir to the Samsung conglomerate, and he was sentenced to five years in prison for his role in a corruption scheme involving bribing President Park Geun-hye to secure a merger that would consolidate his control over Samsung Electronics.
What is the significance of the cross-ownership structure used by the Lee family in Samsung?
-The cross-ownership structure allowed the Lee family to maintain voting control over Samsung despite owning only a small percentage of the company's shares. This structure involved a convoluted network of ownership among various Samsung companies, making it difficult to understand and challenge.
Why did the merger between Cheil Industries and Samsung C&T face skepticism from investors?
-Investors were skeptical because the merger appeared to favor Cheil Industries at the expense of Samsung C&T. The merger was seen as a way for Lee Jae-young to consolidate his control over Samsung Electronics rather than for creating business synergies.
How did President Park Geun-hye and Choi Soon-sil manipulate their positions for financial gain?
-Choi Soon-sil, an unofficial advisor to Park, used her influence to solicit bribes from South Korea's large family-run conglomerates. These bribes were funneled into supposedly charitable organizations that were actually Choi's personal slush funds.
What evidence led to the exposure of Choi Soon-sil's control over President Park Geun-hye?
-The exposure came when a Korean media outlet obtained Choi's Samsung tablet, which contained numerous drafts of Park's presidential speeches that Choi had personally edited. This provided clear evidence of Choi's influence over Park.
What were the consequences of the Samsung C&T merger controversy for the involved parties?
-The controversy led to massive protests, the arrest and sentencing of Park Geun-hye and Choi Soon-sil, and significant losses for investors, including a 20% drop in the share price of the combined company and a $500 million loss for the South Korean National Pension Service.
How did the South Korean public and government respond to the Samsung bribery scandal?
-The public response included massive protests and a significant drop in Park Geun-hye's approval rating to 3%. The government prosecuted and sentenced several key figures, including Park, Choi, and Lee Jae-young, although Lee was released early due to his perceived importance to the Korean economy.
What challenges do family-run conglomerates pose to the South Korean economy?
-These conglomerates, or chaebols, often maintain control through complex ownership structures, leading to inefficient business practices and corruption. They dominate the economy, making up a significant portion of the market cap, and their leaders are sometimes above the law, which can stifle competition and innovation.
Why was Lee Jae-young released from prison early, and what does this indicate about the South Korean business environment?
-Lee Jae-young was released early because President Moon Jae-in deemed Samsung too important to the Korean economy. This decision suggests that, despite public backlash and legal consequences, the leaders of major conglomerates can still wield significant influence and avoid full accountability.
Outlines
🏛️ South Korean Political Scandal and Samsung's Involvement
The video begins with the arrest and subsequent 25-year prison sentence of South Korean President Park Geun-hye on corruption charges in 2017, marking a pattern of political scandal in the country. The case also implicates Lee Jae-yong, a prominent businessman and heir to the Samsung conglomerate, who receives a five-year sentence. The narrative delves into the complex ownership structure of Samsung, which despite having a small direct shareholding, maintains control through a convoluted system of circular ownership. The video suggests that Lee Jae-yong's bribery of the president was part of a scheme to consolidate his power within the company, which was under threat due to dilution of family control as a result of external capital raising. The video also introduces the sponsor, moomoo, a commission-free trading app, and its promotional offers.
📊 The Complexities of Samsung's Corporate Structure and the Lee Family's Control
This paragraph explains the intricacies of Samsung's corporate structure, highlighting how the Lee family uses cross-ownership to maintain control despite having a minority economic stake. It recounts the history of Samsung's growth from a small trading company to a global conglomerate with diverse business interests. The narrative also discusses the challenges faced by Lee Jae-yong in solidifying his control over Samsung Electronics through a controversial merger between two Samsung subsidiaries. The merger is portrayed as a move to counteract the dilution of family control due to external capital investment. The paragraph further reveals the political machinations involving President Park Geun-hye and her unofficial advisor Choi Soon-sil, who allegedly used her influence to solicit bribes from large corporations, including Samsung, in exchange for political favors.
🤝 The Merger, the Bribery, and the Fallout
The final paragraph details the bribery scheme that led to the approval of a crucial merger for Samsung, which was essential for Lee Jae-yong to consolidate his control over Samsung Electronics. It describes how the South Korean public pension authority, pressured by President Park Geun-hye, voted in favor of the merger, leading to significant losses for the pension fund and Korean pensioners. The paragraph also outlines the eventual exposure and downfall of the corruption ring involving the president, Choi Soon-sil, and Lee Jae-yong, resulting in lengthy prison sentences. However, it concludes with the controversial early release of Lee Jae-yong, reflecting the perceived impunity of the business elite in South Korea and raising questions about the integrity of the country's economic and political systems.
Mindmap
Keywords
💡Corruption
💡Lee Jae-yong
💡Samsung
💡Cross-ownership
💡Conglomerate
💡Merger
💡Shareholders
💡Public Pension Authority (NPS)
💡Bribery
💡Family-controlled Business
💡Economic Control
Highlights
On March 31, 2017, South Korean President Park Geun-hye was arrested on corruption charges and sentenced to 25 years in prison, marking a pattern of political instability with four consecutive presidents facing legal troubles.
Lee Jae-yong, a prominent businessman and heir to Samsung, received a five-year prison sentence in the same bribery case, highlighting the intersection of business and politics in South Korea.
Despite Samsung's global success, the ownership structure of the conglomerate is complex and difficult to understand, with the Lee family maintaining control through circular ownership.
Lee Jae-yong's need to consolidate power within Samsung led to a controversial merger plan, which was seen as a brazen corporate corruption scheme.
The merger of Samsung C&T and Cheil Industries was driven by Lee Jae-yong to increase his control over Samsung Electronics, despite skepticism from investors.
President Park Geun-hye's corruption was deeply tied to her relationship with Choi Soon-sil, an unofficial advisor who wielded significant influence over the president.
Choi Soon-sil's control over Park Geun-hye was revealed through her editing of presidential speeches, indicating a shadow government presence.
Large South Korean corporations, including Samsung, were implicated in a bribery scheme where they paid millions to Choi's fraudulent charities.
The South Korean public pension authority's (NPS) pivotal vote in favor of the Samsung merger was allegedly influenced by President Park, costing pensioners millions in losses.
The scandal led to massive public protests and a significant drop in Park Geun-hye's approval rating, culminating in her impeachment and imprisonment.
Lee Jae-yong's early release from prison after serving only 207 days raised questions about the influence of conglomerates on South Korea's legal system.
The video discusses the unique structure of South Korea's economy, dominated by family-controlled conglomerates that differ from American corporate models.
Samsung's history as a trading company evolved into a diverse business empire, with over 10 related companies listed on the Korean stock exchange.
Cross-ownership is a strategy used by family conglomerates in South Korea to maintain voting control despite having a minority economic stake.
The Samsung scandal underscores the potential drawbacks of allowing conglomerates to become too powerful and the challenges in holding them accountable.
The video concludes by questioning the public interest in releasing Lee Jae-yong early and the implications for the rule of law in South Korea's business community.
Transcripts
[Music]
on march 31 2017 south korean president
park geun-hye was arrested on corruption
charges and eventually sentenced to 25
years in prison making her the fourth
south korean president in a row to be
either arrested or impeached as part of
the same bribery case a prominent
businessman by the name of lee jae young
was also given a five-year prison
sentence and lee wasn't just any
businessman his grandfather was a
founder of samsung and lee had inherited
almost complete control over the family
conglomerate with an estimated net worth
of 11 billion dollars lee was already
one of the richest man in the world with
more money than you could spend in a
thousand lifetimes so what would you
possibly have to gain by bribing the
president while the lee family had
founded samsung over the decades their
ownership of the conglomerate had
declined substantially as they raised
external capital to fund their growth
because of this the family only directly
owns a tiny percentage of the
outstanding shares with most of them
being held by public market investors
despite this the family has maintained
voting control by setting up an absurdly
convoluted structure of circular
ownership which is intentionally
difficult to understand
by 2015 this ownership structure was
reaching its breaking point and if lee
wanted to remain on top he would need to
consolidate his power
to do this he devised what was perhaps
the most brazen corporate corruption
scheme in modern history this scheme
struck to the core of korea's
institutions ultimately bringing down
its president who had a 3 approval
rating at the time of her arrest
in this video or podcast if you're
listening on spotify we'll look at the
dark secrets that samsung doesn't want
you to know about and how this
highlights fundamental problems in the
korean economy
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and now back to the video with a gdp of
1.6 trillion dollars south korea is one
of the most advanced countries in the
world today they are home to some of the
largest and most innovative global
companies including samsung sk hynix
hyundai and others but you see korean
companies aren't like american companies
in the us large companies go public on a
stock exchange and their shares are
purchased by the general public
the shareholders vote for the board of
directors and ceo
if the company underperforms the
shareholders can force the ceo to resign
even if he's the founder
but in south korea things are very
different the large companies are
publicly traded but that's about where
the similarities end korea's economy and
stock market are dominated by family
controlled industrial conglomerates with
the top five of them making up more than
half of the entire market cap of the
korean stock exchange these include lg
the steel making conglomerate costco
semiconductor giant sk holdings the
automobile company hyundai and samsung
which is the largest by far you likely
know samsung for their smartphones but
is much more than just a consumer
electronics producer samsung found its
humble beginnings in 1938 when it was
founded by the korean businessman libyan
chol they started off as a trading
company buying fish and other goods from
fishermen and selling them to retailers
for a profit
over the decades they gradually expanded
into an ever-increasing number of
unrelated businesses most notably
electronics
currently there are 11 main companies
bearing the samsung name
they do everything from engineering and
construction semiconductor manufacturing
and pharmaceuticals samsung cnt
corporation even owns a fashion retailer
called 8 seconds
of course building such a massive
business empire costs money and a lot of
it
they raised this money from external
investors by listing these companies on
the stock market today there are more
than 10 samsung related companies on the
korean stock exchange the problem with
taking your company public is that you
now have to answer to shareholders if
they don't like the direction that the
company is going they can force you out
as chairman this would be unacceptable
for the lee family they want the
conglomerate to be passed down from
generation to generation getting bigger
and greater each time
to maintain control they turn to the
tried and true strategy of cross
ownership which has been used by family
conglomerates for decades
raising external capital dilutes your
economic ownership of the enterprise but
with cross ownership you can still
maintain voting control
let's hypothetically say you own three
companies in your family business empire
the main company and two sister
companies you own a 51 stake in each of
the sister companies and each of the
sister companies owes a 26 stake in the
main company you have majority voting
control over both sister companies so by
extension you control their stakes in
the main company
even though you only have a minority
economic stake in the main company you
have complete voting control the lee
family took cross ownership to the
extreme with over a dozen companies in
the samsung empire they engineered an
ownership structure so convoluted that
even most investment bankers and
corporate lawyers couldn't understand it
with this the founder b pyeongchon was
able to seamlessly pass control to his
son lee kun-hee in 2008 lee kun hee was
forced to step down as chairman after
being indicted on tax evasion charges
at this point it looked like the lee
family's reign might finally be coming
to an end
but they weren't about to give up so
easily
shortly after khan he's resignation his
son vijay yang took over as chief
operating officer for samsung
electronics the crown jewel of the
samsung empire by this point it was
clear that he was the crown prince of
the dynasty but it wouldn't be that
simple
because samsung had raised so much
external capital the family's ownership
was reduced to a very small percentage
even with the cross ownership they
didn't have complete control
so lee jae-yong needed a way to
consolidate his power
in 2015 two companies within the samsung
family child industries and samsung cnt
announced their intention to merge lee
jae-yong was a major shareholder in
chill industries and was a major driver
behind the merger the official reason
for the merger was that it would create
synergies by putting the two companies
together they could help each other grow
but many investors were skeptical of
this chill owned among other things
various fashion brands including the
fast fashion retailer 8 seconds samsung
cnt was a construction and engineering
company that built skyscrapers you have
to do quite a bit of mental gymnastics
to justify the merger of a fashion
company and a construction company from
a business perspective so why did lee
want to do it samsung cnt owned a stake
in samsung electronics lee's ownership
in chill was greater than his ownership
stake in samsung cng
by merging the two companies together he
would gain control over the samsung
electronic shares that samsung cnt owns
thus increasing his control over samsung
electronics however there was a problem
for the deal to close they needed to get
two-thirds of samsung's cnt shareholders
to approve it
many investors thought the terms of the
deal were unfavorable to samsung cnd the
american hedge fund elliott management
bought a seven percent stake in
samsung's cnt
they said that cmt stock was undervalued
while chill stock was overvalued
thus the all stock merger would unfairly
benefit chill at the expense of cnd
things were looking bad for lee with
investors revolting it looked like the
merger might not be approved this would
prevent him from consolidating his power
and the lee family's 70-year reign over
samsung could come to an end
luckily for lee south korea's recently
elected president park geun-hye was
extremely corrupt in exchange for a big
enough check she could make all of his
problems disappear to understand why
park was so corrupt we first have to
look at this woman choi soon-sil choi
was an unofficial advisor to park and at
the time almost nobody in the public had
ever heard of her but she was perhaps
the most powerful woman in the entire
country
president park geun-hee is a daughter of
park chung-hee a military dictator who
ruled south korea in the 1960s and 70s
when gun he was still young both her
mother and her father were assassinated
by their political opponents with both
of her parents dead gun he was
traumatized and left in a vulnerable
state choi te min who was the leader of
a religious cult at the time contacted
the young gun he
t min told the future president that he
saw her mother and his dreams
apparently she believed him and she grew
very close to the choi family
choi thai men's daughter choi soon-sil
became close friends with park gun heat
in hindsight this may all have been part
of the choi family's plan to gain
control of the country from the shadows
park entered politics and quickly rose
the ranks in 2013 she was elected the
first female president of south korea by
this point park was basically a puppet
with troy pulling the strings
officially choi had no government
position nor security clearance her day
job was running a fancy italian themed
cafe that she operated in a wealthy soul
neighborhood from her coffee shop she
would be in constant contact with park
controlling her from the shadows so what
did choi want what was she trying to
accomplish it was all about money troy
would use president park to solicit
bribes from south korea's large
family-run conglomerates for these
multi-billion dollar enterprises paying
a few million dollars to get on the good
side of the government was a small price
to pay
choi was basically a mob boss shaking
down korea's largest companies for
protection money
during park's presidency large south
korean corporations donated about 70
million dollars to supposedly charitable
organizations set up by troy but there
was nothing charitable about these
organizations they were choi's personal
piggy bank which she used to fund her
lavish lifestyle the single biggest
donor to choice slush fund was samsung
heir lee jae-yong but he wasn't giving
his money for free in exchange he wanted
his merger to be approved
remember that many samsung cnt
shareholders were against the deal and
were planning to vote against it as it
stood it didn't look like he would get
the two-thirds majority required in the
shareholder vote fortunately for lee one
of the biggest shareholders in samsung
cnt was a south korean public pension
authority nps who owned a 12 stake
this 12 percent state could be the
pivotal vote for approving the merger
park allegedly sent her health secretary
to meet with mps's chief investment
officer and pressured him to vote in
favor of the deal
lee jae-yong also met with nps leading
up to the shareholder vote
lee's bribery paid off and nps voted in
favor of the deal with the two companies
merged he had successfully consolidated
his power over samsung electronics
investors bulked at this abuse of power
by the lee family and the share price of
the combined company fell by more than
20 in the first month
this move cost the nps 500 million
dollars in losses losses that were
ultimately borne by korean pensioners
while the samsung cnt merger was highly
controversial it'd be very difficult to
prove any wrongdoing it was structured
as the perfect crime
president park did not directly receive
any money from samsung the money went to
charities controlled by choi
choy had no official position in the
government so it was hard to establish a
direct link
the only reason that she got caught was
her own stupidity in 2014 choi went to
germany and temporarily occupied an
office building after vacating the
office choi accidentally left her tablet
computer there ironically it was a
samsung tablet a korean media outlet got
hold of this tablet and found numerous
drafts of parks presidential speeches
that troy had personally edited
this was smoking gun evidence that choi
was the puppet master behind park park
initially denied the allegations but
soon confessed as there is simply no way
to explain away choice tablet
massive protests erupted across south
korea with thousands of protesters
demanding her resignation
park's approval rating plummeted to
three percent which might just be the
lowest approval rating of any
democratically elected leader ever the
house of cards quickly unraveled and
troy was sentenced to 20 years in prison
as the mastermind of the crime
president park was sentenced to 25 years
and numerous of her cabinet secretaries
were also locked up samsung heir li ji
yong was sentenced to five years this
was a big turning point for the country
as it was the first time the head of
such a powerful corporation like samsung
was arrested
the family-run conglomerates of south
korea have gotten extremely large over
the years employing millions of people
within the country
the government has been hesitant to
prosecute the leaders of these companies
and fear that it would damage their
global competitiveness but as we've seen
with the samsung bribery case there are
also drawbacks to letting these
companies get too powerful
just because lee jae young is a grandson
of the founder does that automatically
mean that he's the most qualified person
to run samsung and these insane
ownership structures lead to inefficient
mergers which make little strategic
sense
but despite the public backlash against
the corruption scandal it looks like
very little has changed in the summer of
2021 lee was released from prison early
after serving only 207 days behind bars
the president mu jae-in said that
samsung was too important for the korean
economy
despite these crimes he was supposedly
in the public interest to release him
early so he could go back to leading the
samsung group
it appears that at the upper echelons of
korea's business community some people
are just above the law
alright guys that wraps it up for this
video what do you think about the
samsung scandal do you think lee jae
yong should have been released early let
us know in the comments section below as
always thank you so much for watching
and we'll see in the next one wall
street millennial signing out
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