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Abu Dhabi, UAEMonday 18 June 2018

Jail term suspended for Samsung's Jay Lee by South Korean court

Surprise reversal raises questions about the government’s ability to reform powerful chaebol

Jay Y Lee, co-vice chairman of Samsung Electronics, speaks to reporters as he leaves the Seoul Detention Center in Uiwang on Monday. Jean Chung / Bloomberg
Jay Y Lee, co-vice chairman of Samsung Electronics, speaks to reporters as he leaves the Seoul Detention Center in Uiwang on Monday. Jean Chung / Bloomberg

A South Korean high court unexpectedly let Samsung Electronics vice chairman Jay Lee walk free after suspending his prison sentence for bribery, in a stunning reversal that raises questions about the government’s ability to reform powerful chaebol or a large family-owned business.

The heir to the country’s largest conglomerate had appealed his sentence, which the court reduced by half to two-and-a-half years on Monday. He will be on probation for four years, the court said. Mr Lee stood up and looked around with a blank stare after the ruling, blushing as he walked out of court. He was detained for 353 days, according to South Korean news service Yonhap.

“The government has been dilly-dallying over chaebol reform,” said Jun Sung-in, a professor of economics at Hongik University. “It will face more pressure to step up. This has become another typical chaebol case.”

Lee, 49, was the highest-profile business figure to have been embroiled in a graft investigation that brought down former Korean President Park Geun-hye and inflamed resentment toward the country’s well-connected chaebol. Prosecutors originally sought a dozen years for Mr Lee, arguing that would help establish the rule of law for a country re-examining ties between government and business.

A Seoul court had earlier convicted him of giving a confidante of Ms Park’s thoroughbred horses in the hope it would secure government support for a merger that would help his ascension to the top of the company. Lee denied any legal wrongdoing and appealed the original sentence, saying he never sought to unseat his hospitalised father as Samsung Electronics chairman in the first place.

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While Mr Lee was in detention, Samsung Electronics appointed new leaders in his absence and continued to outperform. The Samsung scion’s original six-month long trial centred on a 2015 merger between two Samsung affiliates that gave Lee fresh shares in Samsung C & T Corp, then a major shareholder in smartphone maker Samsung Electronics. Prosecutors alleged Lee knew about a secret relationship between Ms Park and her friend and used that knowledge to ensure the deal passed, tightening his grip on the smartphone and memory chip maker. The shares of Samsung, climbed 41 per cent in 2017 as the trail took place, ended up less than 1 per cent in Seoul. Samsung C & T’s stock rose 2.9 per cent on Monday.

Samsung says it merged the two companies to boost their competitiveness, and Mr Lee argued during the trial that the deal didn’t shore up his control over the electronics company.

Despite opposition from investor Paul Singer, the deal got approved with backing from the government-run National Pension Service, a major shareholder. Moon Hyung-pyo, then chairman of the service, was sentenced to two and a half years in jail for leaning on his fund to endorse the merger.

Ms Park, who was removed from power in March and is on trial separately for charges of corruption and abuse of power, has denied seeking bribes for herself or her friend. Her confidante Choi Soon-sil, the recipient of the horse, has also denied charges.