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Samsung frets over another legal battle over heir's controversial succession scheme

Consumer Electronics 16:58 June 04, 2020

SEOUL, June 4 (Yonhap) -- Samsung Group, South Korea's top conglomerate, remained anxious Thursday over the possibility of its heir's return to jail, as prosecutors here sought an arrest warrant for Lee Jae-yong over his alleged involvement in a controversial merger between two affiliates a few years ago and fraudulent accounting, seen as aimed at smoothing out his succession.

The Seoul Central District Prosecutors Office said it requested arrest warrants for Samsung Electronics Vice Chairman Lee and two former executives as part of its investigation into the combination of the two Samsung affiliates -- Samsung C&T Corp. and Cheil Industries Inc. -- in 2015.

Prosecutors suspect Lee and the group's top management were involved in a calibrated scheme to intentionally lower the value of Samsung C&T prior to its merger with Cheil Industries so as to facilitate Lee's managerial succession from his ailing father, Lee Kun-hee.

If the warrant is approved, it will be the first time in 29 months that Lee will be arrested for criminal charges.

This photo, taken on May 6, 2020, shows Samsung Electronics Vice Chairman Lee Jae-yong, de facto leader of Samsung Group, preparing for his press conference at the company's office building in Seoul. (Yonhap)

In February 2017, Lee was arrested for allegedly offering bribes to a confidante of former President Park Geun-hye. He was initially sentenced to five years in prison, but he was freed a year later after the Seoul High Court reduced the sentence to 2 1/2 years, suspended for four years.

Industry insiders said the prosecutors' latest move may deal a big blow to Samsung's push to overcome uncertainties caused by the novel coronavirus pandemic and renewed trade tensions between the United States and China.

The group's crown jewel, Samsung Electronics Co., saw its sales rise 5.61 percent on-year to 55.3 trillion won (US$45.3 billion) in the first quarter of the year, while its operating income increased 3.43 percent on-year to 6.4 trillion won in the January-March period.

However, compared to the company's heyday in 2018, when it racked up an operating income of at least 10 trillion won in a quarter, its performance was mediocre. Samsung expected tepid performance under the current quarter as the pandemic will significantly impact its mobile business.

Heir apparent Lee has been active in spearheading the tech giant's businesses strategy in recent years, focusing on its chip manufacturing business.

In April 2019, the company announced a plan to become the world's No. 1 logic chip maker by 2030 by investing 133 trillion won.

This photo, taken on June 4, 2020, shows the corporate logo of Samsung Group at the company's office building in Seoul. (Yonhap)

Last month, he inspected Samsung's chip plant in Xian, China, to check its expansion plan. The tech giant also announced the establishment of new foundry and NAND flash productions lines in South Korea.

If Lee is arrested, it will also tarnish Samsung's efforts to improve its compliance culture and public image.

Following Lee's bribery case, Samsung launched an independent compliance committee to better pursue law-abiding management in February.

Taking the committee's advice, Lee made a rare apology last month, saying that he is sorry for controversies related to his succession issues. He also vowed to scrap the group's "no labor union" policy and promised to gain trust by improving communication with the public.

kdon@yna.co.kr
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