Samsung at a Crossroads After the 'Lost Decade'... Today's Investigation Review Committee a Major Turning Point

[Asia Economy Reporter Kim Hyewon] Around December 8, 2016, a letter of invitation arrived addressed to Lee Jae-yong, Vice Chairman of Samsung Electronics. The sender was then President-elect Donald Trump of the United States. It was a kind of "love call" inviting him to attend a 'Tech Summit' with 14 IT moguls including Tim Cook (Apple), Jeff Bezos (Amazon), Larry Page (Google), Sheryl Sandberg (Facebook), and Elon Musk (Tesla). Among overseas businesspeople, Vice Chairman Lee was the only one invited by President Trump. Ultimately, Lee could not attend the Tech Summit. Since Lee was under investigation by Special Prosecutor Park Young-soo, his side informed the special prosecution in advance of his intention to leave the country to avoid unnecessary misunderstandings, but the special prosecution immediately imposed a travel ban.

Now, four years and seven months later, Samsung Group stands at a crossroads of a "lost decade." On the 26th, as the Prosecutorial Investigation Deliberation Committee convened amid worldwide attention to determine the validity of indicting Vice Chairman Lee and others, voices inside and outside Samsung say that if the prosecution files additional charges, the judicial risk could last up to 10 years. If additional indictments are made and trials are held for allegations such as the Samsung Biologics accounting fraud suspicion following the ongoing bribery trial related to the Park Geun-hye and Choi Soon-sil state affairs manipulation case, it would be nearly impossible to conduct normal management for about 10 years.

Although the recommendations of the Investigation Deliberation Committee are not binding, attention is focused on the conclusion since the prosecution has never defied it in previous cases. However, the scenario Samsung fears most is that the prosecution forcibly indicts regardless of the committee's recommendation, causing another management gap of about five years amid uncertainty. Numerically, since Lee was investigated as a witness by the special prosecution in November 2016, he has set a record with 10 summonses by the prosecution, three detention warrant hearings, and 80 trials following the special prosecution's indictment. Among these, Lee personally attended about 70 trials, including 53 in the first trial alone. It was not uncommon for trials starting at 10 a.m. to continue until dawn the next day.

The prosecution's investigation into the Samsung Biologics accounting fraud suspicion has been ongoing for one year and eight months. During this period, there have been about 50 raids and approximately 430 summonses of executives and employees. A business community official said, "The prosecution, which has prolonged the investigation for a long time, is irresponsibly trying to get a verdict just to avoid responsibility by indicting. Even if acquittal is later declared, the damage to the company is irreparable."

Some in the legal community criticize the prosecution's excessive investigation. A lawyer who is a former chief prosecutor said, "I consider it an unreasonable investigation," adding, "I think this problem (law omnipotence-style investigation) arose based on our society's anti-corporate sentiment." The lawyer further pointed out, "We must adhere to the principle of criminal procedure law that 'ambiguous or suspicious parts should benefit the accused.'" However, there is also an opinion that Samsung should prepare for a long-term battle regardless of the Investigation Deliberation Committee's judgment. Lawyer Lee Heon of Hongik Law Firm said, "The prosecution's argument logic regarding Samsung Biologics' accounting fraud or succession is weak," but added, "Since the committee rarely issues conclusions favorable to the accused, Samsung should prepare for the next step rather than expect the desired outcome, which is the appropriate way to respond to judicial risks and management difficulties."

Meanwhile, intense legal battles between current and former special investigation prosecutors continued at the committee. The prosecution focused on persuading the committee members that illegal acts were committed during the Samsung C&T-Cheil Industries merger process and that Vice Chairman Lee either directly ordered or at least knowingly tolerated them. On the other hand, Samsung argued that there was no illegality in the merger process and that Lee was not involved at all. They especially emphasized that financial authorities and civil courts had previously concluded there were no problems in the merger process.

Since the Samsung-related investigation has been coordinated with Prosecutor General Yoon Seok-youl and Prosecutor Han Dong-hoon since the Park Young-soo special prosecution team investigating the state affairs manipulation case, it is uncertain whether the prosecution will actually give up indicting even if the Investigation Deliberation Committee issues a 'non-prosecution opinion.' Of course, if the prosecution makes a decision contrary to the committee's conclusion, it would face criticism for rendering the system it introduced itself?intended to secure objectivity and fairness by referencing external experts' opinions?meaningless, which is also a burden.

Foreign media are also closely watching. Bloomberg News reported on the day, "Unlike most countries, in South Korea, one can request an independent Investigation Deliberation Committee to review the prosecution's investigation process, and the most important deliberation since the system's introduction in 2018 is held today," adding, "Vice Chairman Lee's legal team is gambling, hoping for a positive conclusion." It further stated, "Even if the committee's recommendation is favorable to Samsung, the prosecution can forcibly indict, but this would be a move against public opinion." The American business magazine Forbes expressed concern about the side effects of Samsung's management gap, saying, "Vice Chairman Lee inevitably faces an offensive that shakes his position and Samsung's leadership."