As a student, Park Young Sun always enjoyed standing up to the big boys.
“She was the unofficial head of all the girls and would confront boys that bullied or played pranks on them,” said Bruce Lee, a fund manager who first met the three-term opposition lawmaker almost five decades ago when they were seven-year-olds in elementary school in Seoul.
Park has shifted her sights from schoolyard bullies to business titans and her latest target is as powerful as they come: the family behind the nation’s biggest conglomerate or chaebol, Samsung Group. She says they should pay back profits from a 1999 deal later ruled by courts to be illegal — money she says the family may use to fund the transfer of assets to the children of Samsung patriarch Lee Kun Hee. Lee remains hospitalized following a heart attack.
“The average South Korean salary-man has to honestly pay tax even when their inheritance is small, whereas chaebol members like the Lees can make enormous profits from illegal transactions to pay their tax,” Park said in an interview last month at her lawmaker’s office in Seoul, echoing previous statements she’s made about the transaction.
Samsung Group declined to comment on the SDS transaction.
The fight over the family’s Samsung SDS Co. profits illustrates the growing public resentment toward the industrial groups including Samsung that led South Korea’s rapid economic rise, the so-called Miracle on the Han. The ill-feeling was central to the 2012 presidential election, when voters seeking limits on chaebol dominance won concessions even from President Park Geun Hye’s traditionally pro-business party.
Wealth Transfer
The Seoul High Court handed Samsung Chairman Lee a three- year suspended sentence in 2009 and fined him 110 billion won ($99 million) for tax evasion and breach-of-duty on grounds that he and his family benefited from an illegal transfer of wealth in the SDS deal. Lee also made voluntary payments including to Samsung’s own charity.
Samsung Group declined to comment on the payments.
When SDS held an initial public offering last year, it revealed the market value of the family’s stake for the first time. The listing netted Lee’s children, including his presumed heir Lee Jae Yong, about 2.4 trillion won, more than three times more than Lee’s fine and voluntary payments combined, according to Park’s office.
“The jackpot was a success rooted in illegal actions,” broadcaster KBS reported ahead of SDS’s trading debut last November.
Chaebol watchdogs including the Center for Good Corporate Governance say the children will probably face an inheritance tax bill of about $6 billion on their father’s assets.
Samsung Group said Lee Jae Yong and his sisters were unavailable for comment.
Without Knowledge
The money should be confiscated because the younger Lees’ SDS assets derive directly from the 1999 transaction, Park said. She submitted a bill to parliament in February that would make it illegal for third-parties, even those without knowledge of a crime, to profit from illegally-attained assets. It would apply to the Lees if passed, she said.
“By passing this bill, we’ll prevent chaebol heirs from playing around with company stocks to illegally facilitate their succession,” she said.
South Korea’s largest corporate lobby group disagrees, arguing that while the public may intuitively feel that profits from illegal transactions should be confiscated, the new law would essentially reopen an old case.
“The core problem of the proposed bill is that this is a finished case,” Shin Seuk Hun, head of the corporate policy team at the Federation of Korean Industries, said by phone. The bill may also violate the constitution “by suggesting a person that has already been punished can be punished again,” he said.
Public Eye
Even chaebol watchdogs say the bill may be too radical for politicians to pass, and in that sense, it’s typical Park. No stranger to publicity, she gained prominence during an earlier career as a journalist in which she became the first South Korean to broadcast live from North Korea’s capital, Pyongyang.
She first took an interest in the Lees’ SDS transaction as a news anchor, and then as the first female head of financial news at top-three broadcaster MBC. She’s maintained that focus as the New Politics Alliance for Democracy’s representative for Guro-gu, the site of South Korea’s first industrial complex and still home to thousands of workers.
Local media dubbed her the ‘chaebol sniper’ after parliament passed her bill to strengthen a 1997 law that prevents affiliates in industrial groups from taking stakes larger than 5 percent in financial companies. Designed to stop chaebol owners from using banks as private ATMs, Park’s 2006 amendment made the rule apply retroactively and forced chaebol to unwind existing holdings as well as preventing new ones.
Good Politics
Park’s latest bill comes at a time when challenging the chaebol is also good politics, as public pride over world- beating smartphones and cars shifts toward concern that smaller companies are being stifled. The combined assets of the five biggest have a value equivalent to 56 percent of South Korea’s economy, according to the Fair Trade Commission.
A survey done by the Korea Press Foundation in January found that 64 percent of South Koreans consider oppressive behavior by the chaebol to be a serious problem. The poll was during the ‘nut-rage’ furore surrounding Heather Cho, daughter of Korean Air Lines Co. Chairman Cho Yang Ho, who ordered a crew member to deplane following a row over in-flight service. Cho was sentenced to jail for usurping the pilot’s authority.
Shareholders including Park’s school friend Lee, the head of local activist fund Zebra Investment Management, openly criticize the chaebol for weak corporate governance they say is depressing the country’s stock prices. It’s a phenomenon called the ‘Korea Discount,’ where domestic companies trade at lower multiples than global peers due to risks associated with a perceived lack of transparency.
Cheaper Shares
The Kospi index, South Korea’s benchmark, is trading at 11 times 12-month projected earnings, compared with 16 times for the MSCI all country index.
The current government has kept President Park’s election campaign promise to introduce curbs on the chaebol, including banning new cross-shareholdings between group affiliates and offering incentives to restructure using holding companies that provide a clearer ownership picture.
Those measures still leave room for bills targeting specific behavior, including Samsung’s SDS deal, Park said.
“If we let something like the SDS deal slide, it will aggravate wealth inequality, social issues and ultimately impede South Korea’s economic development,” she said. “I’m not going after the chaebol to bring them down, I’m actually trying to make them better and stronger.”
