ed Law-breaking nation

Fixing chaebol (II): Lotte case to break no pattern

The rule of law is the key to chaebol reform. On its flip side, it means that laws ― statutory laws and market laws ― are often violated, blocking the efforts to change family-oriented conglomerates. Regretfully, the ongoing probe into Lotte Group will not likely break this pattern, meaning the chaebol system will survive with few bruises, so to speak.

History speaks for itself.

Chey Tae-won, chairman of SK Group, the third-largest conglomerate, was sentenced to four years in prison for embezzling 50 billion won, or $40 million, from affiliates to cover his personal trading in 2013. He appealed but the appellate court confirmed the district court’s sentence. He was pardoned, with his rights fully restored as a result of the Aug. 15, 2015, presidential amnesty. He was released after serving less than three years.

Samsung Electronics Chairman Lee Kun-hee, unconscious and bedridden after he suffered a heart attack in May 2014, has had his share of brushes with the law. In 2008, numerous bank accounts opened under borrowed names ― in violation of the real-name transaction law ― were uncovered, forcing him to resign, along with his heir, Lee Jae-yong, chief operating officer of the company. The senior Lee was sentenced to three years’ imprisonment for tax evasion, stock market manipulation and breach of trust, with its execution suspended for five years. In December, then President Lee Myung-bak pardoned Lee, who was the only person up for leniency, likely the first such case in history.

Kim Seung-youn, Hanwha chairman, got a suspended one-year sentence for buying a mansion belonging to Sylvester Stallone and depositing millions of dollars in overseas accounts, in violation of the law on foreign currency management, in 1993. In 2008, his suspended sentence of one year and six months was revoked because he beat up a bar employee who got into a brawl with his son, obliging him to serve his prison sentence. In 2012, he was granted a suspended three-year sentence for a breach of trust.

Although criminal cases involving chaebol abound, a couple of patterns are hard to miss. Often, the aforementioned cases show they get special treatment ― all serving less time than they were sentenced. Chey supporters claimed that Chey should be released so as to devote himself to running his group and contributing to the national economy. For Lee, the hype was as if the nation’s No. 1 group was on the verge of collapse and his backers claimed that his help as a member of the International Olympic Committee was pivotal in the nation being awarded the right to host the Winter Olympics in Pyeongchang.

Interestingly, it was not just the government but the people who contributed to the strong tendency to be generous with white-collar crimes of this magnitude, surely perpetuating this “vicious cycle.”

One case that trumps all others is the merger of two firms, the deal that has helped seal the junior Lee’s control of the Samsung business empire. The state-run National Pension Service threw its support behind the merger to fight off the blocking bid by U.S. hedge fund Elliott Management, obviously knowing that it would benefit Lee at the cost of minority shareholders. Even the media forsook all of its neutrality pretensions to back Samsung.

We hope against hope with a great deal of pessimism that the Lotte case would break this pattern, for instance by never allowing Chairman Shin Dong-bin to control the group, if he should be found guilty of wrongdoing.