Samsung executives guilty of destroying evidence in fraud case

Three employees jailed for up to two years in case linked to $3.9bn accounting fraud

Eight employees from Samsung group affiliates were found guilty of destroying evidence by a court in Seoul, in a case linked to allegations of a $3.9bn accounting fraud suspected as part of a plot to cement control with the company’s founding family.

Three Samsung Electronics executives were handed jail sentences of up to two years by the Seoul Central District Court, according to state news agency Yonhap citing a court decision.

The case involved employees from two other Samsung affiliates, drugmaker Samsung BioLogics and its subsidiary Samsung Bioepis.

It followed a raid on a Samsung BioLogics factory on the outskirts of South Korea’s capital in May, where prosecutors uncovered a cache of electronic devices, including laptops and a computer server hidden beneath a meeting room floor. 

During court proceedings in October, prosecutors alleged the Samsung employees took part in the “biggest crime of evidence destruction in the history of South Korea”. Prosecutors had sought tougher jail sentences of up to four years.

Experts think the ruling will spur a broader investigation into whether top Samsung executives orchestrated moves to transfer power at Samsung Electronics to vice-chairman Lee Jae-yong, son of ailing chair Lee Kun-hee and heir to the country’s biggest company.

Financial regulators in Seoul previously alleged that Samsung BioLogics inflated the value of affiliate Samsung Bioepis by $3.9bn in 2015. The net impact of this was to boost Lee Jae-yong’s control of Samsung Electronics, the group’s crown jewel,critics argued.

Samsung BioLogics did not immediately comment on Monday. The company has disputed the claims of accounting fraud. Samsung Electronics declined to comment.

The employees indicted in the investigation admitted destroying evidence but they denied that their actions were linked to Lee Jae-yong’s succession or the alleged fraud, according to local media reports. 

Legal troubles have further complicated the outlook for the world’s biggest manufacturer of smartphones and memory chips. Samsung Electronics has struggled to find new growth drivers and has faced a worse than expected downturn in the computer chip market and slower global smartphone sales. 

Recommended

The FT View The editorial board
Learn from the failings of South Korea’s conglomerates
Tuesday, 16 April, 2019

Monday’s decision came as Lee Jae-yong, Samsung’s de facto leader, awaited a separate court ruling on charges of bribing former president Park Geun-hye. Lee Jae-yong, who was imprisoned in 2017 but freed a year later, has denied any wrongdoing. Park was impeached over two years ago and later jailed in a related corruption scandal.

The cases have raised questions of opaque governance at chaebol, the sprawling groups which dominate South Korea’s economy.

Park Sang-in, an economics professor at Seoul National University, said Monday’s prison sentences were “significant” and were a positive step for South Korea’s courts in terms of cases relating to chaebol. 

However, Mr Park said it was “too early to say” whether the prosecutors would be able to prove wider fraud allegations against the conglomerate.