Telecoms, Bribes and South Korea’s President: Part 2

There was some juicy corruption covered by my last article about South Korean telecoms, but this time I will really shake readers who have not been closely following the news from the world’s 12th-largest economy. I cannot think of another telecoms story that has included assassination, psychological warfare, toy boys, show jumping and impeachment.  It is a credit to the professional journalists who pulled all the pieces together and stuck with the story until it was impossible to ignore any longer.

Park Geun-hye: The President

Park Geun-hye was born in 1952 as the first child of Park Chung-hee, who was to become President after leading a military coup in 1961. Ms Park achieved a degree in electronic engineering in Korea and was studying in France when her mother was killed in 1974, during an attempt to assassinate the President. She then returned to Korea and effectively became First Lady until her father was assassinated in 1979.

Ms Park eventually entered politics and was a member of the National Assembly on behalf of the Grand National Party (which became the Saenuri Party) for 12 years before taking responsibility for leading the party’s election campaign.  She was appointed as the Chairwoman of the party and helped make significant gains in local elections and a majority in 2006.  During the 2006 campaign, she was attacked by a man with a knife and needed 60 stitches and several hours of surgery.  Ms Park ran for President in 2012, receiving 51.6% percent of the vote to become South Korea’s first female president.

President Park was initially popular, made progress in relations with North Korea, visited the US, China and Iran and hosted Vladimir Putin in Korea.  But by 2015 her approval rating had fallen to 30%, partly due to the MV Sewol ferry disaster and also as a result of disputes with North Korea.  Then things really went wrong.  In late 2016, the press unravelled her part in a political scandal.  President Park was impeached by the National Assembly and removed from office by the Constitutional Court.  She was arrested at the end of March 2017 and held in pre-trial detention. The following month she was charged with abuse of power, bribery, and coercion.  Also in 2017, the National Intelligence Service (NIS) admitted that it had conducted an illicit campaign to influence the 2012 presidential election, using psychological warfare experts to ensure that Ms Park defeated Moon Jae-in, the candidate for the Democratic Party of Korea.

On 6 April 2018, the court sentenced her to 24 years in prison for corruption and abuse of power and a further seven years when she was found guilty of taking off-book funds from the NIS and of illegally interfering in the Saenuri Party primaries in 2016 elections.  On 24 December 2021, it was announced that she would receive a pardon from President Moon Jae-in on compassionate grounds and be released from prison on 31 December.

Lee Jae-yong: The Prince

Lee Jae-yong was born in 1968, and is the grandson of the founder of Samsung. Lee is said to be worth USD11bn and is often referred to in the press as the ‘Samsung Heir’ or ‘Crown Prince of Samsung’.

The Essentials of Samsung

Samsung was established as a transport company in 1938.  The company grew significantly through the Second World War and Korean War, but experienced significant disruption in 1961, when Park Chung-hee seized power.  Samsung had to give up control over the banks it had acquired and follow economic directives from Park’s government.  Samsung Electric Industries was established as part of Samsung Group in January 1969, and subsequently entered a joint venture with Sanyo and Sumitomo Corporation, creating the predecessor of today’s Samsung Electronics.

Lee’s Samsung Career

Lee Jae-yong started working for Samsung in 1991, but his leadership prospects took a dive when his father Lee Kun-hee stepped down as Chairman due to tax evasion.  A 2015 Samsung merger has dogged Lee, who, in recent years, has been arrested and charged multiple times.  Charges including bribery, embezzlement and perjury were all linked to payments allegedly made in exchange for political support.  That support was to include backing for the Samsung merger which paved the way for Lee to become the head of the Samsung conglomerate.  Lee denied the charges but, in August 2017, a court convicted him and sent him to prison for five years.  Six months later that sentence was halved, and the jail term was suspended, meaning he was free to go.

In 2020, Lee faced fresh charges related to the merger and was found guilty of bribery, embezzlement and concealment of criminal proceeds of USD7.8mn. He was sentenced to two-and-a-half years in prison.  The BBC reported his release on parole in August 2021, which included restrictions on his business activities and a requirement to obtain approval for any trips abroad.  Having just been released, he was in court again in October and pleaded guilty to the illegal use of propofol, the same drug that killed Michael Jackson. This resulted in a fine of USD59,000.  Lee is also under investigation for stock-price manipulation and accounting fraud related to the 2015 Samsung merger and, if found guilty, he could be jailed again.

Choi Tae-min: The Korean Rasputin

Choi Tae-min was the leader of a religious cult who reputedly married six times and used at least seven different names. He was an associate of President Park Chung-hee and it was alleged he profited from corrupt activities during his rule.  He befriended Park Geun-hye soon after her mother was killed in 1974, after reportedly telling Park that her mother had appeared in his dreams, asking him to help her daughter.  A diplomatic cable made public through WikiLeaks reported rumours that Choi was a ‘Korean Rasputin’, had complete control of Park during her formative years, and that his children accumulated enormous wealth as a result.

Choi Soon-sil: The Fundraiser

Choi Soon-sil was born in 1956 as the fifth daughter of Choi Tae-min. Her relationship with the future president, Park Geun-hye, dates back to at least 1977 when Ms Choi was the President of the National College Student Union, and held an opening meeting in Hanyang University attended by Park Geun-hye and future president Lee Myung-bak (also imprisoned for embezzlement and bribery).  Ms Park was said to be close friends with Ms Choi by the time her father was assassinated in 1979.

Between the 1980’s and 2000’s, Ms Choi managed a real estate business, developed properties and operated kindergartens.  As noted previously, in 2006, Ms Park was attacked while attending the election campaign of a Seoul mayoral candidate.  Ms Choi was said to have looked after Ms Park while she was hospitalized and afterwards Ms Park continued to receive treatment at the home of Ms Choi’s sister.

Ms Choi, who acted as an unofficial aide and adviser to President Park, established the Mir Foundation and K-Sports Foundation which were notionally intended to promote Korean culture and sports globally.  In a period of only 2 months, members of the Federation of Korean Industries donated USD75mn to these foundations, often in response to robust lobbying from senior staff in the President’s Office. Prosecutors charged Ms Choi with intervening in state affairs and using her influence to force South Korean conglomerates to donate tens of millions of dollars to foundations and businesses she controlled.  In February 2018, the Seoul Central District Court found Ms Choi guilty of abuse of power, bribery, and interfering in government business.  She received 20 years imprisonment and was ordered to pay a fine of USD16.6mn.

Ms Choi’s daughter, Chung Yoo-ra, went into hiding whilst she was living in Germany, after she was said to be a person of interest in the asset tracing investigations.  She was put on the Interpol ‘red list’ and eventually extradited back to Korea after being found in Aalborg, Denmark.  She denied any wrongdoing:

Mom did everything. I don’t know anything.

Even her high school graduation was annulled after it was established that her grades and attendance had been fabricated.

The Samsung Bungs

Lee Jae-yong was already a billionaire when he succeeded his ailing father in 2014.  It was alleged that, together with other top Samsung execs, he engaged in stock price manipulation, unfair trading and violations of audit rules as part of a systematic effort to help gain managerial control of Samsung.

Before the merger, Lee was the largest shareholder of Cheil Industries Inc, with a nearly one-quarter ownership, but he didn’t own any share of Samsung C&T Corp.  As reported by the New York Times, prosecutors say Lee and his associates schemed to lower the value of Samsung C&T and inflate Cheil Industries ahead of the merger of the two companies. The prosecutors said Samsung executives also committed accounting fraud to inflate the value of Samsung Biologics, a subsidiary of Cheil Industries, which, in turn, increased the value of Cheil Industries.

As a result of the alleged stock manipulation, the inflated value of Cheil Industries gave Lee control of the company created by the merger, also named Samsung C&T, and, consequently, control of the entire Samsung conglomerate.  Samsung denied the stock manipulation allegation, as well as Lee’s involvement in the making of decisions at Samsung Biologics.

The approval of the National Pension Service was critical to the merger.  Prosecutors linked Samsung’s USD34mn support for Choi Soon-sil’s foundations with the National Pension Service’s decision to support the USD8bn merger of Samsung C&T and Cheil Industries.  In 2018, the courts found that Samsung Group also paid USD3mn in bribes to Ms Choi, at the request of the former President, to purchase three horses and pay for equestrian training in Germany for her daughter, Chung Yoo-ra.  Ms Chung won a gold medal in the team dressage event at the 2014 Incheon Asian Games.

As noted above, there are ongoing investigations into the 2015 merger.

Ko Young-tae: The Whistleblower

Ko Young-tae is a former national fencer who won a gold medal at the 1998 Asian Games.  He says he met Choi Soon-sil when she bought samples from his fashion business, Villomillo, in 2012.  They became friends but fell out in 2014, when she left her daughter’s puppy with him, but he went out to play golf.  Ms Choi returned and found the puppy unattended and there was a big row.  Ko says she swore at him and treated him like a slave and he decided to get revenge by exposing her relationship with President Park.

Some Korean media reports provide a slightly different version in which Ko worked at well-known host bars, where his job was to bring in rich middle-aged women customers.  This was how he and Ms Choi reportedly met around 2006, said the reports.  Ko reportedly entered the fashion business with help from Ms Choi and his accessory brand, Villomillo, shot to fame after President Park carried one of his bags in 2013.

Regardless of the origins of the relationship, Ko decided to expose Ms Choi’s ties with President Park and made a video of Ms Choi giving orders to two presidential aides in 2014 as if they were servants.  Ko gave the clip to Chosun TV but the channel kept it back whilst its reporters investigated the Mir and K-Sports foundations.  Ko then gave an interview to JTBC in which he claimed that:

Choi’s favourite thing to do is to edit presidential speeches

JTBC would go on to obtain a discarded tablet that apparently belonged to Ms Choi and which contained edited drafts of 44 speeches and statements that President Park had given between 2012 and 2014.

On 24 October 2016, JTBC aired its scoop. Chosun TV broadcast the incriminating video clips the next day.  Ms Choi was swiftly taken into custody and President Park apologised to the nation. He was subsequently impeached, indicted and imprisoned.

Ko got his revenge, but he may not walk away unscathed.  He was obviously trusted by Ms Choi, otherwise he couldn’t have exposed her as he did.  Some reports say that trust extended to Ko managing two of the 15 shell companies Ms Choi set up in Germany, allegedly to siphon money from the Mir and K-Sports foundations.  Korea Times reported that Korea’s special prosecutor is seeking help from German authorities to secure evidence about Ms Choi’s alleged hidden wealth of USD668mn, said to be spread across 500 paper companies and bank accounts opened across Europe.

Analysis and Comment

As with the case of Ericsson in Sweden, great credit for this investigation belongs with the media. In contrast, law enforcement deserve no praise.  It is clear that patronage, political influence and bribery have been used to quash investigations and dismiss prosecutions. Meanwhile, journalists quietly continued their investigations and only broke the story when the main players had committed to provable lies.  I really admire their dedication and their results. There is extensive coverage of different aspects of this story available, but if you want more details, I recommend this article as the place to start.

The apple did not fall far from the tree: in the 1970’s, Choi Tae-min was accused of corruption and undue influence on President Park Chung-hee and now his daughter has developed and exploited her own relationship with President Park Geun-hye and may also have inducted her own daughter into the family traditions.

As covered in my previous article, KT Corporation and Samsung were among 50 corporations which made so-called donations to Ms Choi’s foundations.  This tells you something about both Korean culture and Korean corporate governance.  It also tells us something about the fraud managers, audit committees, non-exec directors and auditors who didn’t stop or report any of these donations.  According to the investigators, there could be USD668mn washing around out there.

I thought that whistleblowers played an interesting role in this story, although one was far less obvious than the other.  There is no reference to a whistleblower in the US Securities and Exchange Commission (SEC) press release about KT Corporation, but under the heading ‘Cooperation and Remediation’ the SEC Order states:

KT did not self-report the conduct described in this Order

This page can be found on the SEC website:

This provides little detail, but suggests that a claim has been assessed under the whistleblower arrangements.  By tracing the whistleblower awards from file number 2022-025, it appears that a reward of 30% has been approved.  In case you don’t remember, in February 2022, the SEC announced that KT Corporation will pay USD6.3mn to resolve charges that it violated the Foreign Corrupt Practices Act. Some whistleblower is set to receive around 2 million dollars as reward for their honesty.

Principles versus Semiconductors

It will be very interesting to see how the relationship between the USA and Samsung develops.  According to the BBC, Lee Jae-yong was released early, with the Presidential Office saying it hoped that under his leadership, Samsung would help the country produce semiconductors and vaccines.  BBC analyst Laura Bicker said this appeared to be an economic decision by South Korea’s Justice Ministry.  Samsung subsequently pledged to invest USD206bn in the next three years in fields such as chips and biopharmaceuticals.  Laura Bicker says there was pressure to free Lee came from the US Chamber of Commerce:

American businesses argued that his release was vital to help combat a shortfall of computer chips. Samsung is currently mulling multi-billion-dollar investments in semiconductor facilities in the US.

The SEC fined KT Corporation for its corruption and demanded ongoing monitoring. In contrast, the SEC took no action over Samsung Electronics because their business is only listed in Korea and not on any US stock exchange.  Samsung and KT Corporation have been caught in the same illegal activity, yet one was fined and the other is potentially going to be permitted to make billion-dollar investments in new semiconductor facilities to be located in the USA.  This must be producing some interesting debate in the US administration about whether Samsung’s bribery and corruption makes it a suitable technology partner.  What will win out, principles or semiconductors?  I know where my money is, because money always chases more money.

David Morrow
David Morrow
Dave has 35 years of law enforcement, investigation and fraud management experience including multiple international assignments. He is a recognised telecoms fraud expert and for a number of years chaired the GSMA workgroup responsible for Security & Fraud Risk Assessments.

Dave now provides fraud management support as an independent consultant.