Indicted Samsung Chairman Resigns

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By Blaine Harden
Washington Post Foreign Service
Tuesday, April 22, 2008; 9:22 AM

SEOUL, April 22 -- It's been an awful week for the family that for two generations has controlled the largest business conglomerate in South Korea.

Samsung Group Chairman Lee Kun-hee was indicted last Thursday for tax evasion and breach of trust. He resigned in disgrace Tuesday, after apologizing to South Koreans for causing "much grief."

His wife is also resigning as head of a Samsung art gallery and cultural foundation. And his son -- long regarded as heir-apparent to the Samsung throne -- was pushed out of his senior management position and will be sent into exile as a manager in a yet-to-be-named emerging market.

But don't count the Lee family out just yet.

A peculiar tick of the South Korean legal system is that judges here -- not wanting to upset the economic apple cart -- rarely sentence corporate titans to long prison terms and seldom strip them of their empires.

The Lee family, for all its public-relations woes and legal entanglements, remains the dominant shareholder in Samsung, the jewel in South Korea's conglomerate crown.

The highly profitable cluster of 59 companies makes everything from memory chips to ships, employs a quarter-million people around the world and accounts for a fifth of South Korea's exports. About 55 percent of the company is owned by foreign investors.

History suggests that Lee Kun-hee's chances of going to jail -- on charges that include evading about $120 million in taxes -- are slim.

A recent study of white-collar prosecutions found that South Korean judges in 82 percent of cases released convicted executives without requiring that they serve time in prison.

This pattern of leniency derives, in most cases, from a judge's determination that a corporate defendant has contributed to the growth of South Korea's economy.

And while Lee Jae-yong, the son of the longtime chairman, is to be sent abroad by Samsung for an unspecified period of corporate penance, his long-term ability to shape the company's future seems likely to endure, owing to his family's complex web of stock cross-ownership throughout the conglomerate.

"I do not expect to see substantial change in who runs Samsung," said Kim Sang-jo, an economics professor at Seoul's Hansung University.

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© 2008 The Washington Post Company

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