Judicial Risk Realized After 10 Years... Samsung's Clock Running Backwards

Over 5 Years of Investigation... Prosecution Indicts Lee Jae-yong and Others Without Detention
Worst Case of Leadership Vacuum Avoided... Additional Samsung Biologics Case to Restart from First Trial
"Global Competition in Semiconductors Fierce, Domestic Investment Environment Severely Impacted"

[Asia Economy Reporters Hyewon Kim and Changhwan Lee] On the 1st, as the prosecution pushed forward with the indictment of Samsung Electronics Vice Chairman Lee Jae-yong, the judicial risks facing the Samsung family and the entire group entered a prolonged battle that could last up to 10 years. Samsung’s timeline has effectively reset to about five years ago when the prosecution began its investigation. The business community expressed concerns that the prosecution’s excessive investigations and forced indictments, ongoing for years, are firmly holding back Samsung, which is struggling to move forward amid the protracted COVID-19 pandemic.

Samsung Avoids Worst-Case Leadership Vacuum but Faces Prolonged 'Judicial Risks'; The Lost Decade Becomes Reality

With the prosecution’s decision to indict without detention key current and former Samsung executives including Vice Chairman Lee, the investigation into Samsung Biologics’ accounting fraud and merger and succession allegations has been temporarily concluded after about 1 year and 9 months. However, within Samsung and legal circles, there is a view that the conclusion should be seen as coming after 4 years and 9 months from when Lee was first questioned as a witness by the special prosecutor in November 2016. This is because the prosecution’s investigation, which started with the Samsung Biologics accounting issue, was conducted essentially on the same track as the special prosecutor’s investigation into the Samsung C&T-Cheil Industries merger. In fact, the prosecution viewed the entire process from the 2015 Samsung C&T and Cheil Industries merger to the accounting changes at Samsung Biologics as part of Lee’s efforts to secure management succession. It took nearly five years to examine the charges of a single case, fueling ongoing controversy over excessive investigation and accusations that evidence was sought after a predetermined conclusion.

Ultimately, with the prosecution’s insistence on indictment, Samsung now faces the reality of a lost decade. Although the rejection of the arrest warrant for Vice Chairman Lee avoided the worst-case scenario of a leadership vacuum, he has been additionally indicted over the Samsung Biologics case and must undergo a retrial starting from the first trial. Considering the ongoing bribery trial related to the Park Geun-hye and Choi Soon-sil political scandal, it is an unprecedented situation where normal management activities have been difficult for nearly 10 years since the first special prosecutor investigation.

Objective figures underscore this. Over the past 4 years and 9 months, Vice Chairman Lee has been summoned by the prosecution 10 times and faced three detention warrant hearings, setting remarkable records. The trials following the special prosecutor’s indictment have amounted to as many as 80 sessions. Of these, Lee personally attended about 70 sessions, including 53 in the first trial alone. The total trial time for the first trial reached 477 hours and 50 minutes. During the nearly two-year prosecution investigation into allegations such as Samsung Biologics’ accounting fraud, there were over 50 search and seizure operations and more than 430 summonses of executives and employees.

Busy 'Global Samsung' Ultimately Hampered... Experts Warn "Growing Distrust in Global Samsung Could Negatively Impact South Korea’s Investment Environment"

Even while facing the risk of detention, Vice Chairman Lee frequently visited domestic and overseas business sites, showing a strong will to minimize the leadership vacuum. However, judicial risks surrounding not only Lee but Samsung as a whole have lengthened, dampening the internal atmosphere. Bold and aggressive investments in new businesses that will support the future of Samsung and the national economy?such as semiconductors, smartphones, automotive electronics, 5G, and artificial intelligence (AI)?are likely to be deprioritized for the time being.

Concerns are growing especially as the global business environment surrounding Samsung’s core semiconductor business becomes increasingly competitive. To achieve the long-term plan “Semiconductor 2030” vision, which aims to invest 133 trillion won by 2030 to become the world’s number one system semiconductor company, Samsung must outpace competitors within just 10 years, but the gap remains significant. Among non-memory sectors, the semiconductor foundry business lags far behind Taiwan’s TSMC, which holds the world’s largest market share. According to market research firm TrendForce, Samsung Electronics’ market share in the global foundry market is expected to be 17.4% in the third quarter of this year, far below TSMC’s projected 53.9%. On the 25th of last month, TSMC announced the construction of a new 2nm ultra-fine process factory, intensifying pressure on Samsung Electronics.

Due to COVID-19, attractive merger and acquisition (M&A) opportunities are emerging in the market, but Samsung has fully suspended investments despite having sufficient funds. Since acquiring the U.S. automotive electronics company Harman in 2016, Samsung Electronics has not conducted any major M&A deals. The halt in large-scale M&A since 2017 is attributed to the increasing judicial risk uncertainty following Lee’s detention related to the political scandal, making investment decisions difficult. While overseas competitors like Apple and Amazon have taken an aggressive approach by seizing M&A opportunities amid the COVID-19 economic crisis, Samsung has not even attempted such moves.

Professor Hong Kiyong of Incheon National University’s Department of Business Administration said, “Lee’s trial will inevitably take years as it may go all the way to the Supreme Court. Business is based on trust with counterparties, and the uncertainty about Samsung’s future could affect capital procurement and increase distrust in Samsung as a global company, which will negatively impact the overall investment environment in South Korea.”

This content was produced with the assistance of AI translation services.