[Editorial] Supreme Court should postpone ruling until Samsung Biologics accounting fraud is investigated

Samsung’s Vice Chairman Lee Jae-yong

Details are emerging about Samsung’s destruction of evidence in connection with accounting fraud at Samsung BioLogics. In a May 7 raid on the Samsung Bio factory in Incheon’s Songdo neighborhood, prosecutors found the accounting team’s shared server and laptops hidden underneath the floor. Samsung Bio said they ripped up the floor and hid the items underneath ahead of investigations by financial authorities and prosecutors in May of last year. It’s a staggering development. Prosecutors explained that they were able to pinpoint the location of the hidden items after receiving statements on the destruction of evidence during the questioning of Samsung Bio employees arrested on May 5.

Earlier on May 3, prosecutors found a large-capacity server that Samsung Bio subsidiary Samsung Bioepis had hidden at the house of an employee – a team leader employed in the area of security. Evidence also emerged of Samsung Bioepis examining the mobile phones and laptops of its employees to delete data containing keywords such as “JY” (Lee Jae-yong), “VIP” (believed to be a reference to ex-President Park Geun-hye), and “merger.”

The only conclusion that can be drawn is that this was an organized effort orchestrated at the conglomerate level to destroy evidence. Prosecutors are also broadening the scope of their investigation after obtaining evidence of involvement by the Samsung Electronics business support task force – the latest incarnation of the group’s former Future Strategy Office. On May 8, prosecutors requested arrest warrants for a business support task force director identified by the surname Baek and a security advancement task force director identified by the surname Seo on charges of evidence destruction and incitement to destroy evidence.

It is impossible to shake suspicions that Samsung’s destruction of evidence bears some connection to Vice Chairman Lee Jae-yong’s trial on charges of offering bribes to ex-president Park Geun-hye. The accounting fraud at Samsung Bio was closely connected with Lee’s succession to management authority. Samsung is suspected of fraudulently inflating the value of Samsung Bio, a Cheil Industries affiliate, so that the 2015 merger between Samsung C&T and Cheil Industries would take face under favorable conditions for Lee. At the time, Lee was Cheil Industries’ majority shareholder with a 22.2% stake, but held no stocks at all in Samsung C&T. With the merger, however, Lee became majority shareholder (16.5%) of the newly integrated Samsung C&T – the Samsung Group’s de facto holding company – putting the finishing touches on his takeover of the management reins.

The key question in Lee’s trial is whether he provided Park with bribes in exchange for support for the merger and his resulting rise to management authority. While the first court in Lee’s case sentenced him to five years in prison, the second cleared him of some of the charges and freed him with a suspended sentence, concluding that there had been “no efforts to facilitate the management authority succession.” The ruling essentially made Lee out to be a victim of extortion by Park Geun-hye. A Supreme Court sentencing hearing is expected to take place sometime in June.

In a May 7 press conference, Democratic Party lawmaker Park Yong-jin said the Supreme Court’s ruling in Lee’s case “should be postponed until after the prosecutors announce the findings of their investigation into the Samsung Bio accounting fraud.” His argument was that a proper ruling can only come when the true facts of the accounting fraud has been taken into account. It’s a reasonable position, and we hope the Supreme Court will actively consider it.

Please direct comments or questions to [[e-mail]]