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     Jan 21, 2012

The sleaze that shames Seoul
By Aidan Foster-Carter

Quite a contrast, aren't they, the two Koreas? One is a weird, weepy-creepy, nasty dynastic dinosaur. The other is ultra-modern, hi-tech, dynamic and vibrant: a stunning success story. So much so that in November the Economist headlined a feature on South Korea: "What do you do when you reach the top?" [1] (Their answer: Tweak a few things here and there.)

Top of what, though? Exports are one thing, but virtue is another. Those of us who enthuse and root for South Korea have a problem. Amid all the glitter, there are some bits that stink.

I keep a running file on Korea called "Corpulent Governance" (geddit?). It's always full, sad to say. Right now, it's


overflowing. So here are some tales to make you hold your nose - or retch, or weep. It gives me no pleasure to write thus, but this stuff has to be faced up to.

First up, the chaebol (conglomerates). Many top Korean companies, including household names, are run by crooks. That's not a libel; it's a fact. The chairmen of Samsung, Hyundai Motor, SK and Hanwha - the first, second, third and tenth largest business groups - have all been convicted of crimes in Korean courts of law. And three of them (guess the exception) have spent time behind bars - though only serving a fraction of their supposed sentences.

Usually it's financial, but not always. In 2007 Kim Seung-youn, the chairman of Hanwha - founded as Korea Explosives, but now inter alia Korea's second largest non-bank financial group, big in insurance - hired goons to beat up some guys who got in a fight with his son; even wielding a metal bar himself. [2]

Sentenced to 18 months, Kim pleaded ill-health and was out in no time. The Korea Times recently called Kim a "Dragon CEO" (he was born in 1952), noting wryly that the mythical beast may remind people of this event. [3] No one seems to care.

Unbelievably, this was the man whom last year South Korea chose as a leading lobbyist in its (successful) bid to host the 2018 Winter Olympics. As the Financial Times commented: "Let's hope he has some more gentle means of persuasion at his disposal than steel pipes." [4] Seoul must have decided it needed to send a heavy hitter, if you'll pardon the expression.

Another such thug is at least behind bars where he belongs. Chey Chul-won - a cousin of SK chairman Chey Tae-won, and former CEO of SK's logistics affiliate, the aptly named Might & Main (M&M) - received an 18-month jail sentence last February for beating a laid-off truck driver with a baseball bat.

Yoo Hong-joon had staged a one-man protest for months outside group headquarters in Seoul. One day Chey called him in, hit him repeatedly with other executives present, and then threw checks at him as "compensation". [5] Charming.

In his defense, Chey claimed that what he did was no worse than goes on in the army every day. (South Korea still has universal male conscription.) It turned out he'd earlier threatened a woman living in the apartment below his - again with a baseball bat, and with three club-wielding goons in tow - after she complained about "extreme" noise from upstairs. Police were called, but laid no charges. Afraid, the woman and her family moved out, sharpish. [6]

But more often, as I said, it's money. Take the three largest chaebol. Though successful as businesses, all are marred by financial malpractice - but have only had their wrists slapped.

Since the old Hyundai group broke up, Hyundai Motor is the number two conglomerate. It has grown to become the world's fifth largest car-maker, led by Chung Mong-koo - who in 2006 spent two months in jail prior to conviction in 2007 for embezzling US$100 million to create slush funds. Sentenced to three years, he never went back inside; a judge ruled that the economy needed him. And in 2009 he got a special pardon from President Lee Myung-bak. [7]

So did the ultimate teflon tycoon, Samsung's Lee Kun-hee. Like Chung, Lee's business nous is not in doubt. But nor are his convictions. In July 2008, Lee was fined $109 million for tax evasion. [8] Two years later, he was again fined US$89 million plus a three year suspended jail term for illegal bond trading back in 1996: part of a ploy to line up his son Jae-yong as his successor. [9] (As in North Korea, so at Samsung. In both cases the kid had better be good.)

The fines are peanuts to Korea's richest man, whose wealth Forbes put at US$9.3 billion last year. [10] When the tax fuss broke he resigned as group chairman, but bounced back in 2010 to chair its flagship Samsung Electronics (the shareholders weren't consulted) after President Lee - as an ex-Hyundai CEO, a chaebol man himself - pardoned him on all counts. [11] Handy.

Some say the rot runs deeper yet. Samsung's former top legal counsel turned whistleblower in a book published in 2010, which sold 120,000 copies though no Korean paper dared even mention it - for fear the wrathful behemoth would withdraw advertising. If you believe Kim Yong-chul, Samsung has much of the Seoul establishment in its pay. Prosecutors called that baseless, and Samsung said it was "seething" at this "pile of excrement" - but it didn't sue. [12]

We've already mentioned SK (formerly known as Sunkyong). While not a global name like Samsung or Hyundai, the number three chaebol has grown rapidly in the past decade. Last year, it posted sales of $114 billion, up 30% from 2010. Originally a textile manufacturer, SK's assets now include Korea's largest oil refinery and its leading mobile phone network.

And would you like chips with that, Mr Chey? Don't mind if I do. SK's latest acquisition is Hynix, the world's number two memory chipmaker (Samsung is number one). It bought this from the creditor banks which have long run it (it once was part of Hyundai) for $3 billion, in a rather farcical "auction": SK was the sole bidder, after shipping group STX pulled out.

In his new year message, issued on January 18, SK chairman Chey Tae-won vowed to make Hynix the world's top chipmaker. Isn't this a bit late for a new year message? - unless they had decided to Asianize, and mark the Year of the Dragon instead of the Western one.

Indeed, normally the message would have come out a month earlier. The reason it didn't, and also for SK canceling its regular new year's meeting for the first time in 59 years, is that Chey currently finds himself in a spot of bother. On January 5, prosecutors indicted him and his brother, SK vice chairman Chey Jae-won (who is being held in custody). The charge is that they used $170 million in company funds to cover personal losses on futures trading.[13]

The Cheys are innocent until proven guilty. But Chey Tae-won has form. In 2003, he was convicted of a $1.2 billion accounting fraud: no small potatoes. You can guess the rest, or maybe you remember. After a few months in jail, Chey was out and back in charge.

That riled Sovereign Asset Management, a New Zealand-owned fund which had invested in SK. Battle ensued, as Sovereign tried and failed to oust Chey. Koreans rallied round their compatriot, while other foreign investors mostly watched. Eventually Sovereign cashed out - for a huge profit. SK's governance was much improved, but with a felon still at the helm.

In law that's no longer so, since - you guessed, again - Lee Myung-bak gave Chey Tae-won a pardon in 2008. Two years later, Chey was chosen to be the face of Korean business to the world, when he hosted the business summit held alongside the Seoul Group of 20 summit. A highly respected and doubtless able figure, he's a regular at the World Economic Forum and is probably heading to Davos even as I write; he hasn't missed one since 1998.

Depressing, isn't it? Samsung, Hyundai Motor and SK - I'm not so sure about Hanwha - are all in many ways great companies, indeed world beaters. (That's enough beating - Ed.)

And yet all are run by men who, whatever their business acumen, also have convictions (and I don't mean their beliefs). In many if not most other countries, East or West, such a criminal record would either formally disbar them from office, or would be regarded as so shameful that they could not in conscience continue. Bad image for the company, and for the country.

But not in South Korea. That saddens me. It can't be right, or good in the long run. But who will do anything about it? Politicians, maybe? Park Geun-hye, a leading contender for the presidency - Lee Myung-bak's successor will be elected on December 19 this year - hinted recently that if elected she may tighten up on the chaebol - even though she is a conservative who now leads the ruling Grand National Party, albeit no friend of Lee MB. [14]

Yet many South Koreans would snort at the idea that politicians can clean up the chaebol, or anything else - because they too are mired in scandals. That is a second and separate sad Seoul saga, and a tale to be told in another article. Watch this space.

1. See here.
2. See here.
3. See here.
4. See here.
5.See here.
6. See here.
7. See here.
8. See here.
9. See here.
10. See here.
11. See here.
12. See here.
13. See here.
14. See here.

Aidan Foster-Carter is honorary senior research fellow in sociology and modern Korea at Leeds University, and a freelance consultant, writer and broadcaster on Korean affairs. He has visited South Korea some 25 times in the past 30 years, starting in 1982.

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