Prosecution’s move shakes up Samsung trying to pick up biz

Shockwaves were sent across Samsung Electronics as the prosecution sought an arrest warrant against Vice Chairman Lee Jae-yong over the merger of two affiliates in 2015.

The tech giant has been making active moves under Lee’s lead to accelerate businesses amid challenges from the COVID-19 pandemic and trade war between the US and China.

The Seoul Central District Prosecutors’ Office’s request to arrest Lee and two former Samsung executives, Choi Gee-sung and Kim Jong-joong, came just a day after Samsung sought an outside review of the prosecution’s investigation. The prosecution has been looking into the merger between Samsung C&T and Cheil Industries and its correlation with the group’s plan for leadership transfer from Chairman Lee Kun-hee to Jae-yong.

The investigation into Lee and Samsung’s succession has been going on for four years. Lee has been summoned for questioning numerous times, including a total of seven questionings by the special prosecutors in 2017 with regard to a presidential bribery scandal. More recently, Lee was called in twice in May.

There has been constant debate over the legitimacy of the investigation and the request for a warrant against the heir apparent who lacks risk of flight.

“The prosecution has suddenly requested for arrest warrants when the related process has just begun,” Samsung’s legal representatives said. “It has neutralized our legitimate right to an objective judgment from the perspective of experts and the public.”

The latest development is expected to deal a blow to Samsung that has been taking multiple measures to restore public trust and accelerate business momentum.

While Samsung Electronics saw its revenue rise 5.61 percent on-year to 55.3 trillion won ($45.4 billion) in the first three months this year, its performance fares weak compared to over 10 trillion won of quarterly operating income in 2018. The prospects for this year’s second quarter is weaker due to the impact from the pandemic.

Lee has been active in spearheading Samsung’s plan to become the world’s No. 1 logic chipmaker by 2030 through combined investment of 133 trillion won.

He recently visited Xian, China, last month to check on the ramp-up at Samsung’s memory plant, being the first foreign business tycoon to visit the country under the COVID-19 quarantine regulations.

Samsung also announced a total of 18 trillion won worth investment plans to build a new foundry and memory plant in Pyeongtaek, Gyeonggi Province, after Lee’s return.

Earlier last month, Lee held a rare public apology over controversies related to his succession and labor union, vowing to redeem public trust upon recommendation from the newly created independent compliance committee.

“It will be hard for the vice chairman to continue his business meetings or other activities for the time being,” said a Samsung official.

If the warrant is approved, it will be the first time in 29 months that Lee will be arrested for criminal charges.

By Song Su-hyun (song@heraldcorp.com)