Court Sentences Vice Chairman Lee Jae-yong to Prison... Business Community Says "Samsung's Efforts Undermined"

Economic Groups Express Concern Over Negative Impact on South Korea's Economy Due to Leadership Void at Samsung, the Nation's Top Conglomerate

[Image source=Yonhap News]

[Asia Economy Reporter Ki-min Lee] Despite the achievements of the Samsung Compliance Committee and appeals from the business community, the court sentenced Samsung Electronics Vice Chairman Lee Jae-yong to 2 years and 6 months in prison in the retrial of the National Pension Service scandal, resulting in his re-imprisonment. Consequently, the business sector is criticizing the court, saying that "Vice Chairman Lee's efforts have been rendered meaningless."

The Seoul High Court Criminal Division 1 (Presiding Judges Jeong Jun-young, Song Young-seung, Kang Sang-wook) held the sentencing hearing for Vice Chairman Lee's bribery and other charges in the retrial at 2:05 p.m. on the 18th and sentenced him to 2 years and 6 months in prison.

On this day, the court recognized Vice Chairman Lee's embezzlement amount as 8.68 billion KRW and stated, "While Vice Chairman Lee's sincerity can be positively evaluated, it is inappropriate to consider it as a mitigating factor in this case as long as the new Samsung Compliance Monitoring System does not meet the effectiveness criteria." The court added, "I hope this will be regarded as a significant milestone in the history of Korean corporations as a starting point for compliance and ethical management for a great leap forward over time."

Earlier, the retrial court, during the first hearing in October 2019, ordered Vice Chairman Lee to establish a monitoring organization for Samsung's compliance management, referencing Chapter 8 of the U.S. Federal Sentencing Guidelines and the effective monitoring systems implemented by major U.S. corporations. Chapter 8 of the U.S. Federal Sentencing Guidelines reduces sentences for companies with substantial compliance monitoring systems.

The Compliance Committee, chaired by former Supreme Court Justice Kim Ji-hyung, was launched in February last year and operates autonomously. Since early last year, the committee has recommended that Vice Chairman Lee express his views on management succession, labor, and communication with civil society. Vice Chairman Lee publicly apologized in May last year and stated his position. Notably, Samsung Display's labor union signed a collective agreement, and Samsung Electronics is conducting wage and collective bargaining negotiations, marking the emergence of labor unions within Samsung. Potential legal controversies regarding internal transactions and external sponsorships are also being preemptively discussed and blocked.

Moreover, the Compliance Committee not only conducts training for employees but also operates a channel where executives can report illegal activities. During the committee's expert review process, both the prosecution and Vice Chairman Lee's side had differing opinions on the effectiveness and sustainability of the system, but former Constitutional Court Justice Kang Il-won, recommended by the court, generally gave a positive evaluation.

The business community views that their appeals for leniency, considering the impact of Vice Chairman Lee's re-imprisonment on the Korean economy, were ignored. Park Yong-man, Chairman of the Korea Chamber of Commerce and Industry, Kim Moon-gi, Chairman of the Korea Federation of SMEs, and Ahn Geon-jun, Chairman of the Korea Venture Business Association, submitted a petition on the 7th stating, "(The business community) needs Vice Chairman Lee's role." A business official said, "Although the court acknowledged sincerity, it did not recognize effectiveness," adding, "Samsung's frantic efforts to establish the foundation for the Compliance Committee, as ordered by the court, have been rendered meaningless."

Following the court's ruling, economic organizations and related figures expressed concern. The Federation of Korean Industries issued a statement to reporters, saying, "Vice Chairman Lee has played a role in sustaining the Korean economy by leading bold investments and job creation amid the COVID-19 economic crisis, so we deeply regret the imprisonment ruling," and pointed out, "Considering Samsung's share in the Korean economy and its status as a global company, the contraction of Samsung's business activities due to this ruling may adversely affect not only individual companies but the entire Korean economy."

The Korea Employers Federation stated, "The management vacuum of a leading global company in Korea is expected to cause delays in critical business decisions and investments, inevitably impacting the economy and industry overall," and added, "The business community is very concerned about the realization of Samsung Group's management vacuum due to this imprisonment ruling."

Lee Kyung-sang, Head of the Economic Research Department at the Korea Chamber of Commerce and Industry, also said, "With Vice Chairman Lee's detention, there are concerns that Samsung Electronics, a representative Korean company, will face setbacks in playing a crucial role in new business growth during the industrial paradigm shift of the Korean economy."