economics

Lee Jae-yong Sentenced to Prison

Published August 31, 2017 by Carl De Luna
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A theme currently repeating though-out the world is the struggle between those who benefit from the old ways of doing things against the changes that are sweeping society. We see it in the United States, Middle East, Europe and of course in Asia.

Changing the culture of an institution or industry is hard.  In South Korea, it’s economic growth and development came about with the help of the chaebols. Chaebols are South Korea’s massive family-owned business empires and they are a huge part of their daily lives. The likes of Lotte, LG, Hyundai and Samsung have their respective fields from consumer goods, to food, to electronics and even life insurance that they sell in Korea. The four big brands are also popular worldwide and are players in their own fields and industries. The sales revenue of the top five chaebols in South Korea comprise almost half of  South Korea’s economy. Their hold on the country’s manufacturing industry was in its peak at the end of the 1990s as they held almost two-thirds of the manufacturing industry.

However, their influence and grip on wealth and South Korea’s economy meant that they were close to power, to South Korea’s top officials. One of the clearest indications of the chaebols power was Samsung chairman Lee Kun Hee being pardoned twice after being convicted for white collar crimes such as tax evasion. Other chaebol executives have been convicted but most have received presidential pardons. Seoul National University economics professor Park Sangin noted that chaebol leaders are used to getting the same sentence every time, there was a saying of the 3-5 law, which means three years of sentencing and five years of probation.

Just this year, former President Park Geun-hye was embroiled in a corruption scandal which involved Park’s friend Choi Soon-sil and Samsung Group chairman Lee Jae-yong. Lee Jae-yong or better known as Jay Y Lee was convicted for corruption and was sentenced to five years behind bars. Other charges against Lee include bribery, embezzlement, hiding assets overseas and perjury. It was also alleged that Samsung paid $36.4 million (43 billion won) to two non-profit organizations ran by Park’s close friend Choi Soon-sil. The amount was in exchange for political support such as backing for a controversial Samsung merger which needed the support of the National Pension Service, South Korea’s government pension fund. The resulting merger would result in Lee becoming the head of the conglomerate. He denied the charges but admitted that he donated although Samsung was not asking for anything in return.

The repercussions of Lee’s conviction and arrest will be far and wide reaching. For years, chaebols have been mostly running their business without significant punishment from the government and the courts. They are treated with kid gloves such as the case of Lee’s father Lee Kun Hee, who was pardoned due to his immense contribution to South Korea’s economic growth and development. These corporate scandals have diminished the high regard that South Koreans have for the chaebols. Public support for them has diminished and the number of rallys calling for then President Park Geu-hye’s impeachment or resignation indicates the changing times. New President Moon-Jae-in promised reforms to clean the government and to end the special treatment for the rich elites who run the family-owned businesses or the chaebols. The chaebols are vital to South Korea’s economy.

Reforms are hard to begin and implement if the chaebols are reluctant to follow the changes being implemented. However, it is still a great start. It would hopefully serve as a catalyst for stricter convictions against chaebol bosses. Often, these sentences are rendered useless and powerless as the chaebol executives are pardoned by the president. The South Korean government should also consider ways to prevent corruption from influencing vital decisions. Thus, improving corporate culture is important by emphasizing the right ethics and values. The government and the chaebols need to work hand in hand to do this. Hopefully, this would result to the government helping smaller businesses as well and not just the chaebols.

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