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Samsung’s Billionaire Heir Scores Public Win in Graft Probe

Sohee Kim

(Bloomberg) -- Samsung heir-apparent Jay Y. Lee scored a symbolic public victory Friday after a civilian review panel recommended against indicting the billionaire on charges of corruption.

The panel, convened after Lee’s lawyers invoked the rarely used system in an effort to undermine prosecutors, voted in favor of halting an indictment, a spokesperson for the supreme prosecutors’ office said by phone. While not legally binding, that judgment could prove difficult to contravene.

“We respect the decision made by the committee members,” Lee’s attorneys said in a statement. “We are thankful that the panel gave an opportunity for Samsung and vice chairman Jay Y. Lee to overcome the current crisis by focusing on business activities.”

In most legal systems of the developed world, public prosecutors get to decide which cases to pursue, with judges or juries acting as a check by determining the ultimate verdict. In South Korea, the approach is a little different.

The country has established an unusual process that allows suspects to call for an independent panel of experts to review prosecutors’ investigations. The highest-stakes case since this novel system was established in 2018 was heard Friday when lawyers for the billionaire scion of Samsung Group tried to convince a panel his prosecution for alleged financial crimes would be unfair.

Attorneys for Lee, de facto leader of Samsung Electronics Co., squared off Friday against government prosecutors before 14 academics, legal experts and civil activists.

Lee, embroiled in an increasingly contentious dispute with Korean prosecutors over allegations of bribery and accounting manipulation, represents the biggest test so far of a civil committee system created to help check prosecutors’ powers. Friday’s panel served as a barometer for how the public views the Samsung chief’s culpability as well as a test of the legitimacy of prosecutors, whose leader in Korea is appointed by the president.

Lee’s attorneys -- who invoked their right to convene that group -- gambled the panel will rule in his favor, particularly after prosecutors failed this month to win an arrest warrant for the executive. Samsung, the world’s largest smartphone and memory chip maker and a symbol of Korea’s decades-long economic ascent, spent millions in past months on initiatives to battle Covid-19, including the widespread testing that’s proven instrumental in curbing the pandemic at home.

“If the panel decides the case is not indictable, prosecutors will be put under immense pressure, and that’s what Samsung is aiming for,” Park Ju-gun, president at corporate research firm CEOScore.com, said before the panel’s recommendation was announced.

Read more: Samsung Billionaire’s Fate at Risk Despite Role in Virus Fight

Before Lee’s request, few outside of legal circles had even heard of the civil panel option. Adopted as part of prosecution reforms under the Moon Jae-in administration, it’s similar to the grand jury system except the panel members are chosen -- at random -- by the supreme prosecutors’ office from an existing pool of several hundred previously vetted names.

Now, the little-known system proved pivotal to a case that’s spurred nationwide controversy, pitting the country’s most powerful chaebols, or conglomerates, against government agencies that have pledged to diminish their influence and cozy ties to the Blue House.

South Korea’s special prosecutors first indicted Lee in early 2017 on charges of bribery and corruption, alleging that Samsung provided horses and other payments to a confidante of the former president to win support to help ease his succession. The case heard Friday was related and centers on whether Lee and Samsung used illegal means to help him take control of the conglomerate founded by his grandfather.

Why Samsung’s Billionaire Scion Is Facing Jail Again: QuickTake

The current probe kicked off after regulators concluded Samsung Biologics Co. intentionally violated accounting rules and inflated its value ahead of an initial public offering. Prosecutors suspect the violation was intended to justify the merger ratio between Biologics’ major owner, Cheil Industries, and Samsung C&T. That in turn helped bolster the value of the heir’s stake in Cheil and his influence at Samsung Group. The Biologics unit has said it didn’t violate accounting standards. Lee’s attorneys, which include several former senior prosecutors, may argue to the panel that the Biologics transactions were legitimate and approved by authorities at the time.

Lee also counted on his image as a virus-fighter and national business leader to not just win a favorable panel review on Friday, but also more broadly influence the ongoing trial, said Lee Sang-hun, analyst at HI Investment & Securities. Beyond Samsung’s highly visible battle against Covid-19, Lee scored points last month after he issued a rare public apology for past mis-steps, and vowed never to pass Samsung’s reins to his children.

Prosecutors have mostly followed the panel’s decision in past cases, according to local media. They can ignore an unfavorable outcome and move forward with an indictment -- but that risks angering the populace. Public opinion is so important in Korea it’s been known to sway court verdicts. Lee’s request for a panel has incensed prosecutors, who regard the move as an attempt to circumvent the legal process by appealing to a third party.

“Samsung is striving to reduce legal risks with support from public opinion,” said Lee of HI Investment & Securities.

Read more: Court Rejects Arrest of Samsung’s Lee in Succession Probe

(Updates with comment from Lee’s lawyers in third paragraph.)

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