Samsung's Insane Bribery Scandal Explained

Summary

In 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

00:00

🏛️ 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.

05:02

📊 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.

10:04

🤝 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.

Keywords

💡Corruption

Corruption refers to dishonest or fraudulent conduct by those in power, typically involving bribery or embezzlement. In the video, it is a central theme as it discusses the arrest and conviction of South Korea's President Park Geun-hye on corruption charges, as well as the involvement of Lee Jae-yong, the Samsung heir, in a bribery case to consolidate his control over the Samsung conglomerate.

💡Lee Jae-yong

Lee Jae-yong is a prominent businessman and the heir to the Samsung Group, one of the largest family-controlled conglomerates in South Korea. His role in the video is pivotal as he is implicated in a bribery scheme to secure the merger of two Samsung subsidiaries, which would increase his control over the company. His arrest and subsequent early release highlight the influence of conglomerates in South Korea's economy and politics.

💡Samsung

Samsung is a South Korean multinational conglomerate known globally for its electronics division but also involved in various other industries such as construction and fashion. The video discusses Samsung's history, its complex ownership structure, and the legal issues faced by its leadership due to corruption scandals, emphasizing the company's significant role in South Korea's economy.

💡Cross-ownership

Cross-ownership is a business strategy where companies within a conglomerate own stakes in each other, allowing the controlling family to maintain voting power despite having a minority economic stake. The video explains how the Lee family uses this structure to keep control over Samsung, even though they directly own only a small percentage of the shares.

💡Conglomerate

A conglomerate is a large company comprising multiple businesses often operating in unrelated industries. The video describes how South Korea's economy is dominated by family-controlled industrial conglomerates, with Samsung being the largest, and how these conglomerates maintain control through complex ownership structures.

💡Merger

A merger refers to the combining of two or more companies into a single entity. In the script, the merger between Samsung C&T and Cheil Industries is a key event, driven by Lee Jae-yong to consolidate his power over Samsung Electronics, which is central to the corruption scandal discussed in the video.

💡Shareholders

Shareholders are the owners of a company, holding shares that represent a portion of ownership and voting rights. The video mentions how shareholders' votes are crucial for approving the merger between Samsung C&T and Cheil Industries, and how external pressure influenced the vote in favor of the merger.

💡Public Pension Authority (NPS)

The National Pension Service (NPS) is South Korea's public pension authority and a significant shareholder in many companies. The video describes how the NPS, under alleged pressure from President Park, voted in favor of the Samsung merger, leading to substantial losses for Korean pensioners.

💡Bribery

Bribery is the act of offering, giving, receiving, or soliciting something of value for an improper purpose, such as influencing the vote of shareholders. The video details how Lee Jae-yong allegedly bribed President Park to ensure the approval of the Samsung merger, which is a central part of the corruption case discussed.

💡Family-controlled Business

A family-controlled business is a company where decision-making power is concentrated in the hands of a single family. The video highlights the prevalence of such businesses in South Korea, their influence on the economy, and the potential issues arising from their unchecked power, as exemplified by the Samsung scandal.

💡Economic Control

Economic control refers to the ability to influence or determine economic policies or outcomes. The video discusses how the Lee family maintains economic control over Samsung through a complex web of cross-ownership, despite owning a small percentage of the company's shares.

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