South Korea releases jailed executives

February 11, 2014 12:46 pm

South Korea releases jailed executives

By Simon Mundy in Seoul

South Korean courts have commuted the prison sentences for fraud of two of the country’s most prominent businessmen, undermining hopes of a crackdown on high-level corruption.

The chairmen of several of the country’s leading chaebol business groups, including Samsung and Hyundai, have been convicted of fraud, but typically received only suspended prison sentences. The jail terms handed down to the chairmen of Hanwha Group and LIG, two of the biggest chaebol, had been seen by some market watchers as reflecting a shift towards tougher punishment for corrupt corporate leaders.

Those hopes were dashed on Tuesday, however, as both men were told they could go free. “The judges in the higher courts are continuing their past habits – we won’t allow these chairmen to go to prison, no matter what,” said Lee Jisoo, a lawyer at the Centre for Good Corporate Governance in Seoul.

Kim Seung-youn, chairman of Hanwha – which spans sectors including stockbroking and weapons systems – had been sentenced in August 2012 to four years in prison and a $4.5m fine, after using company money to support other companies that he ran, causing losses of up to Won300bn ($281m). But a Seoul appellate court commuted this to a three-year suspended sentence, citing Kim’s efforts to repay the lost money and his ill health.

Koo Cha-won, the chairman of LIG Group – which focuses on insurance and IT services and was spun off from LG Group in 1999 – was jailed for three years in October 2013. He had ordered the group’s construction affiliate to issue debt to help him reassert control over other businesses, although he knew it was on the verge of insolvency. The Seoul High Court commuted this to a three-year suspended sentence on Tuesday, noting that Koo had promised to sell his stake in the group to repay investors.

The string of fraud cases against South Korea’s corporate leaders has contributed to investor concerns about weak corporate governance standards at its family-controlled business groups – one factor behind the relatively weak valuations of Seoul-listed companies.

Park Geun-hye, president since February 2013, promised a tougher stance on corporate corruption as part of a drive for “economic democratisation“. She vowed to abandon the practices of her predecessor Lee Myung-bak, who repeatedly pardonedbusiness leaders convicted of fraud, citing their importance to the economy.

However, Ms Park’s promises of “economic democratisation” have since been overshadowed by her emphasis on the need to boost growth. Concerns about the broader economy may have been a factor behind the decision to release the two executives from custody, said Mr Kim at the CGCG. He noted that courts will soon rule on fraud cases involving the chairmen of several other chaebol, including CJ Group, SK Group and Tongyang Group.

“I think they must have felt the burden [of] concern about the Korean economy,” Mr Kim said. “What will happen if all those chairmen go to prison?”