Samsung, SK, LG vow to abandon FKI

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Samsung, SK, LG vow to abandon FKI

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The heads of nine conglomerates attend a parliamentary inquiry on Tuesday to be questioned on hefty donations to two nonprofit foundations controlled by Choi Soon-sil, the controversial presidential friend. From left: CJ Group Chairman Sohn Kyung-shik; LG Group Chairman Koo Bon-moo; Hanwha Group Chairman Kim Seung-youn; SK Group Chairman Chey Tae-won; Samsung Electronics Vice Chairman Lee Jay-yong; Lotte Group Chairman Shin Dong-bin; Hanjin Group Chairman Cho Yang-ho and Hyundai Motor Group Chairman Chung Mong-koo. Far right in the second row is Huh Chang-soo, head of GS Group. LG chief Koo, Hanwha chief Kim, Lotte chief Shin, Hanjin chief Cho and Hyundai Motor chief Chung raise their hands to indicate their disapproval of the dissolution of the Federation of Korean Industries, the country’s largest business lobbying group. [NEWSIS]

Samsung Electronics Vice Chairman Lee Jae-yong said Tuesday that the Samsung Group will leave the country’s largest business lobbying group in the aftermath of an abuse of power scandal imperiling the Park Geun-hye administration, which will deal a critical blow to the Federation of Korean Industries (FKI).

During a day-long parliamentary questioning of business leaders implicated in the scandal Tuesday, Lee said he would stop making contributions to the FKI, declaring, “I will stop myself from doing any activity with the FKI.”

Lee also said he would abolish Samsung Group’s Future Strategy Office, known as the group’s command center for future business projects. The office is accused of orchestrating the company’s nearly 30 billion won ($25.65 million) in funding of projects backed by controversial presidential friend Choi Soon-sil and her inner circle. Lee said he knew many people had suspicions about the Future Strategy Office and heard criticisms of it from lawmakers.

The FKI has been accused of having served as a tool for the Blue House and Choi Soon-sil to launch two nonprofit foundations and get big business groups to contribute to them.

The FKI helped collect 77.4 billion won from 53 conglomerates for the Mi-R and K-Sports foundations. The two foundations are at the center of the unprecedented political crisis and are suspected to have been created to be used as a source of money for President Park after she leaves office.

Aside from Samsung leader Lee, SK Group Chairman Chey Tae-won and CJ Group Chairman Sohn Kyung-shik agreed that the FKI should be dissolved, as it carried no merits anymore. As with Samsung chief Lee, SK’s Chey and LG’s Koo also expressed their intention to leave the FKI.

The FKI was founded in 1961. Its founding members included Lee’s grandfather Lee Byung-chull, the founder of Samsung Group.

The heads of eight top business groups sat before lawmakers Tuesday in the largest parliamentary inquiry into big businesses in 28 years. The last time the National Assembly called conglomerate chiefs in for questioning was in December 1988, when lawmakers were investigating companies’ contributions to the Ilhae Foundation, which military strongman Chun Doo Hwan used as a slush fund.

Sitting stone-faced before 18 lawmakers in a hearing room filled with journalists, corporate owners answered sharp questions about their contributions to the two non-profit foundations founded and managed by Choi Soon-sil and whether they were made in return for business favors.

The eight business titans were Samsung’s Lee; CJ’s Sohn; SK’s Chey; Hyundai Motor Group Chairman Chung Mong-koo; LG Group Chairman Koo Bon-moo; Lotte Group Chairman Shin Dong-bin; Hanwha Group Chairman Kim Seung-youn and Hanjin Group Chairman Cho Yang-ho. GS Group Chairman Huh Chang-soo also attended the hearing, but as chairman of the FKI, which launched the Mi-R and K-Sports foundations.

Samsung’s Lee told lawmakers that he was asked by the president to contribute to the country’s cultural and sports sectors. He said he had two one-on-one meetings with the president.

At the center of attention is whether Samsung gave 20.4 billion won to the two foundations and deposited 4.3 billion won in a German account held by Choi to win the approval of the Park administration for its merger of Samsung C&T and Cheil Industries last year.

Samsung needed the approval of the National Pension Service (NPS) for a merger of the two affiliates using a ratio of 1:0.35, meaning one share of Samsung C&T was deemed equal to 0.35 shares of Cheil. The merger was meant to consolidate Lee’s control over Samsung Group. If the NPS approved the merger last year due to the pressure from the Blue House, public reaction could be extremely negative. The NPS is a state-run body in charge of managing pensions for over 21.4 million people, almost half of Korea’s population. The NPS held an 11.6-percent stake in Samsung C&T and a 5-percent stake in Cheil Industries when it approved of the merger. The merger was opposed by some shareholders, who said the value of Samsung C&T was underestimated in the share value ratio of 1:0.35.

Lee flatly denied his company made the contributions to the Mi-R and K-Sports foundations in the hopes of receiving a business favor.

“We received many requests for financial contributions from many sectors of society, including the culture and sports sectors. Never have I committed money in the hope of winning some favor. The same principle applied [for the Mi-R and K-Sports foundations],” said Samsung’s heir apparent, who repeatedly apologized for “causing concerns” to the people. He said he would take all responsibility, including the legal one, over the Choi scandal.

Lee’s testimony, however, didn’t seem to satisfy the lawmakers.

“We have testimony that proves that Samsung messed with people’s pension accounts held by the NPS to help its corporate ownership succession [for Lee Jae-yong],” snapped Rep. Park Young-sun of the Minjoo Party of Korea.

Rep. Park pressed Lee to clarify who in the Samsung Group approved sending 4.3 billion won to a German bank account controlled by Choi. Lee said he could not recall, an answer that drew ridicule from the four-term lawmaker.

“Why don’t you hand over your position to someone with a better memory?” asked the lawmaker.

Rep. Youn So-ha of the People’s Party held a picket that read “Arrest Lee Jae-yong” with Lee’s picture on it. He said he had brought from a street rally protesting the Park government.

Asked about Samsung’s alleged sponsorship of Choi’s daughter Chung Yoo-ra, a dressage athlete, Lee said he had been briefed that his company had no other choice in a difficult situation. The company’s support of Chung totaled billions of won.

“What do you mean by difficult situation? Isn’t that because Jung is Choi’s daughter? You refuse to confirm because your answer could get you charged with bribery,” said Rep. An Min-suk of the Minjoo Party.

In response, Lee repeated his apology, saying, “I am so sorry for letting people down.”

For South Korean business groups, the Tuesday questioning could go down as a day of infamy that proves the government and the business continue to collude in the way they did under authoritarian regimes of the 1960s, ‘70s and ‘80s. The Choi Soon-sil scandal has also exposed the government’s far-reaching and very personal control over business groups - to a point of demanding the dismissal of executives who got on the wrong side of the Blue House.

CJ Group Chairman Sohn Kyung-shik acknowledged he was pressured to dismiss CJ Vice Chairwoman Lee Mi-kyung by the Blue House. Rumors have circulated that Lee raised the ire of the president because CJ’s media arm produced a number of movies deemed to be liberal or left-wing. Lee is also rumored to have outshone the president at a World Economic Forum in Davos, Switzerland in January 2014.

Sohn said such government interference in business group’s personnel management took place during years of military ruling in the past.

But while the business chiefs were questioned aggressively by the 18 committee members over their hefty contributions to the Choi-controlled foundations, they all denied they had done so expecting rewards from the Park administration.

If they did expect favors in return, they can be charged with bribery by an independent counsel investigating the Choi scandal. The president can be charged with a “bribe to third person” crime. Article 130 of the Criminal Act, which defines the charge, says, “A public official or an arbitrator who causes, demands or promises a bribe to be given to a third party on acceptance of an unjust solicitation in connection with his duties shall be punished by imprisonment for not more than five years or suspension of qualifications for not more than ten years.”

At times the lawmakers spoke to the business chiefs as though they were chiding children for bad behavior. The most aggressive questioning centered on Samsung’s Lee, who looked shaken at times while repeatedly saying he was deeply sorry for the trouble he had caused.

Lee said he had not been aware of his company’s 20.4 billion won commitment to the two foundations, saying he “had not been briefed” on it by his subordinates as they were small-scale projects.

Samsung chief Lee arrived at the National Assembly at 9:25 a.m., flanked by bodyguards and his close aides, as labor groups rallied near the entrance calling for his arrest. One picket read that Lee should be jailed for inflicting damage on the NPS.

He was showered with questions as he rushed through the building, but did not offer journalists any remarks.

All other chairmen arrived at the same spot within the next 20 minutes, adopting the same silent stance as Lee or saying only, “I will do my best,” a profession of modesty in the Korean language.

When asked whether he thought Hanwha Group was falsely accused in the Choi-gate scandal, Chairman Kim Seung-youn wore an air of confidence and replied that the hearing was a “good chance” to speak on behalf of his conglomerate, hinting of Hanwha’s innocence in any corporate wrongdoing.

Hyundai Motor Group Chairman Chung Mong-koo’s arrival at 9:35 a.m. marked one of the most violent moments leading up to the hearing, as enraged union members shoved their way through the crowd of reporters with pickets in their hands, only to be tackled by Chung’s bodyguards at the front line.

Minjoo Party Rep. Sohn Hye-won brought up the scuffle during the hearing and claimed she read media reports of his bodyguards having “attacked civilians.” When the lawmaker asked Chung for an apology, the chairman replied that it was “the first time hearing about it,” and that he would “look into it.”

It was only after Rep. Sohn said there was actual video footage of the scene that Chung muttered: “There were a lot of people… If it caused trouble…I should apologize. That’s the right thing.”

Media interest was exceptionally high on Tuesday morning as droves of reporters, including the foreign press, jammed the entrance of the National Assembly for the rare sight of nine chaebol tycoons filing into parliament to be grilled en masse.

By 7 a.m., three hours before the hearing, the nearly 60 seats in the Assembly’s press briefing room were occupied. Reporters who arrived later dispersed throughout the building, many gravitating to lobby televisions to watch live coverage.

Executives accompanying their bosses sighed and fretted at the remarkable scenes in the hearing room. Roughly 20 disgruntled officials in dark business suits were in a lobby at 10 a.m., which rose to 35 in the afternoon.

BY KANG JIN-KYU, LEE SUNG-EUN [kang.jinkyu@joongang.co.kr]

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