As Samsung investigation continues, South Koreans face up to their 'tradition' of graft

Prosecutors cleared presidential candidate Lee Myung Bak on Wednesday. But the corruption case against Samsung, the country's largest company, continues.

In a culture accustomed to bribery and payoffs, corporate and political scandals are so common that Koreans tend to shrug them off. Still, asks Kim Hae-suu, an office manager, "When can we stop seeing this kind of disgraceful news?"

The decision of prosecutors Wednesday not to press charges against the conservative Lee Myung Bak, front-runner in the campaign for election as president on December 19, was hardly consoling. "The prosecutors don't want to be on the wrong side if he wins," says Ms. Kim. "They want to stay out of trouble. I'm sure that psychology worked."

For many Koreans, the scandal surrounding Mr. Lee, a former business leader who won respect and popularity as mayor of Seoul for revamping traffic and beautifying the downtown, fits in with a pattern of corruption that also periodically ensnares the country's business empires, most recently the biggest of them all, the Samsung group.

In such an atmosphere, the proliferation of scandals raises the question of whether this fast-growing society is hopelessly mired in corruption or going through a phase it may eventually outgrow.

"This is kind of a Korean tradition," says Park Nei-hei, who is an adjunct professor at the University of Pennsylvania's Wharton School and a member of the board of the Samsung Corp., the group's trading arm. Mr. Park senses "a strong desire for change" but says that "nobody's free from corruption." He agrees that prosecutors looking into Lee's past were "concerned with his possible victory."

Lee, cleared in an investigation in which a one-time business partner was indicted for embezzling more than $40 million, appears likely to solidify his lead in polls that show he'll get 40 percent of the votes, twice as many as his nearest rival. Still, his leftist foe, Chung Dong Young, a former unification minister dedicated to the government's policy of rapprochement with North Korea, calls the decision "void" and promises to keep looking for evidence.

One explanation for pervasive – and seemingly tolerated – high-level graft in South Korean business comes from the country's rapid, relatively unregulated growth of the past several decades. The engines of that economic ascent are the sprawling business groups, called chaebol, that form the historic backbone of Korea's economy. The chaebol's profligate spending habits were largely responsible for having forced the South Korean government, 10 years ago this week, to appeal to the International Monetary Fund for a $58 billion bailout.

"Maybe it's the rapid development of the past decade," says Koh Il-dong, senior fellow at the Korea Development Institute, a government-affiliated think tank. In the past, says Mr. Koh, "We didn't have regulations and rules, and lots of transactions, gifts were taken for granted as good social custom."

That explanation helps account for why bureaucrats, professors, and company people are often rumored to give large sums to superiors and contacts for promotions, contracts, and rule-bending. For Samsung, South Korea's largest chaebol, and other large groups, the stakes can be much higher.

The Samsung investigation is sure to go on much longer than the probe into the fund run by Lee's former business partner and may well have much deeper implications for the chaebol. Samsung's sales last year accounted for 17 percent of the country's nearly $900 billion GDP.

"The chaebol are still in a dark age," says Jang Ha-sung, dean of business at Korea University in Seoul. "Although our society has changed, the chaebol dominate the economy. They are at every corner of life in Korea."

The massive investigation surrounding the group is based on accusations by its former top lawyer, who says executives stashed more than $200 million in corporate funds in more than 1,000 secret accounts in order to pay off influential public officials.

"Any corporation is involved in these scandals," Park says. He accuses the former Samsung chief counsel who exposed the slush funds of betraying his former bosses after having "got all the favors from them."

Despite widespread public revulsion, scandals surrounding Samsung and Lee Myung Bak appear to have done little to reverse a conservative trend in which government economic policies – not corporate mismanagement – are blamed for unemployment and slow growth.

At political rallies, Lee shouts pledges to "reform the economy" and "bring jobs," in part by loosening regulations seen as impeding the chaebol. At the same time, he tells cheering crowds "a smear campaign" surrounding his past is "all lies."

Mr. Jang, a long-time crusader for shareholders' rights, believes the Samsung case "is more significant for Korea than Enron was to the United States." Enron, the energy company that went bankrupt in 2001 after falsifying profits, was far smaller than the Samsung group, whose 60 companies account for 20 percent of the shares on the Korea Stock Exchange.

Jang sees the scandals as darkening the entire campaign. "People get confused," he says. "These candidates are all the same. They are not talking about what they will do if elected."

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