Asia

28 Feb 2017
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Samsung Embarrassment Continues

Seems the clouds over the technology giant Samsung are getting darker. Just 10 days after Lee Jae-yong, vice-chairman of Samsung Electronics, was arrested in suspicion of involvement in the corruption scandal around the impeached country’s president Park Geun-hye, the prosecutors announced that the heir of the technology giant will be charged with bribery and embezzlement.

The 48-year old, who de-facto is running the company, after his father Lee Kun-hee had a heart attack and was hospitalized 3 years ago, is accused of paying about $36 million in bribes. The money, the prosecutors revealed was paid to Choi Soon-sil a close friend of the former president. The 60-year old was arrested last October in charges of abusing power.

She is on trial for accepting corporate money for funding two suspicious foundations which were under her control and later apparently plundered by her. Her connection with Samsung is revealed to be linked with aided government support over an important merger with two company affiliates in 2015. The $8 billion deal between Cheil Industries (a textile company with interests in fashion and chemicals) and Samsung C&T (focused on global engineering and construction projects) was considered as controversial and it was opposed by one of the major Samsung shareholders, the U.S Hedge fund Elliott Associate.

The Samsung vice-chairman, a third-generation leader of the industrial giant, will face the charges together with 3 other company’s executives. Shortly after the arrest of Lee Jae-yong, Samsung announced a series of measures in order to improve their transparency by forcing resignations of top executives and closing the secretive office. This is the second time the Lee-family catches the attention of justice – in 2008 Lee-senior was prosecuted with tax evasion and breach of trust but avoided jail by being pardoned by the former president, Lee Myung-bak.

The erupting scandal follows a particularly hard year for the Korean giant. The failure of Galaxy 7 Note which turned out to be literally exploding due to malfunction in the batteries and was banned from the aircraft of some airline companies. This cost the company loses estimated of $5.3 billion of operating profit. The devise was pulled out from the market and the company smartphone market shares fall with 17.7% in the last quarter last year.

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Samsung is the largest family controlled chaebol (Korean word for business conglomerate).

It was established in 1938 by Lee Byung-chul as trading company and after 30 years of expansion in textile industry, insurances, food proceeding moved into electronic business and construction.

Currently with 325,000 employees, in 2015 Samsung announced its biggest profit to date- £18.5 billion.