[Editorial] Full scale re-investigation needed in Lee Kun-hee’s borrowed name accounts

Samsung Electronics Chairman Lee Kun-hee apologizes to the South Korean people on April 22, 2008 after it was revealed he had illegally stashed billions of dollars in borrowed name accounts. (by Kim Jin-su, staff photographer)

More borrowed-name accounts belonging to Samsung Electronics Chairman Lee Kun-hee have come to light. The National Tax Service (NTS) has identified many more following the 1,199 accounts with 4.5 trillion won (US$4.2 billion) in assets that were discovered during Samsung Special Prosecutor Cho Joon-woong’s 2008 slush fund investigation against Lee.

The NTS recently reported its discovery to a Democratic Party task force dedicated to Lee Kun-hee’s borrowed name accounts. In accordance with regulations on protecting the confidentiality of individual taxpayer information, the service reportedly did not disclose the specific number of accounts or the amount held in them.

The NTS continues looking for stocks, deposits, real estates, and other assets concealed under borrowed names by chaebol directors and other wealthy South Koreans. In a parliamentary audit last month, Democratic Party lawmaker Kim Du-kwan revealed a report on assets found concealed under borrowed names between 2012 and 2016. According to its findings, the NTS identified 11,776 people holding over 9.3 trillion won (US$8.6 billion) in assets under borrowed names over the five-year period.

In his apology to the South Korean people after the Samsung Special Prosecutor investigation, Lee Kun-hee pledged to “convert to borrowed-name accounts to real-name accounts, pay all missed taxes, and use the remaining money for worthwhile causes.” He spoke as though all of his borrowed-name accounts had come to light. The discovery of additional ones proves this was not the case. In other words, he lied.

Samsung’s claim to have completed all conversions from borrowed to real-name accounts was also proven false last month. The group was supposed to follow normal conversion procedures, paying associated taxes and penalties according to the Real Name Financial System Act. Instead, funds were simply withdrawn from borrowed-name accounts and placed in Lee’s accounts, with only the names changed. The promise to use the remaining money after taxes on worthwhile causes has also gone unfulfilled.

The discovery of more and more borrowed-name accounts belonging to Lee is raising questions about the nature of the funds. During the Special Prosecutor’s investigation, Samsung said the assets had been inherited from late group founder Lee Byung-chull – a claim the prosecutor took at face value. But with the Samsung Group’s total annual sales totaling 13.5 trillion won (US$12.5 billion) in 1987 when Lee Kun-hee took over as group head, the amounts in the accounts are simply too large. This explains why many are alleging the accounts to be a slush fund created by Lee with company money, not inherited assets.

It is not right for the NTS to refuse to release details on grounds of protecting tax information privacy. It isn’t clear just what they’re trying to protect when a promise to the nation has been proven false. The creation of borrowed-name accounts is an illegal act that undermines the financial order and tax justice. The NTS and Financial Supervisory Service (FSS) need to hold a full-scale reinvestigation of Lee Kun-hee’s borrowed-name accounts.

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