Prosecutor to Indict Samsung Chairman for Tax Evasion

Prosecutor to Indict Samsung Chairman for Tax Evasion. April. 12, 2008 03:52. dnsp@donga.com verso@donga.com.

The special prosecution team investigating Samsung Group’s corruption allegations summoned Chairman Lee Kun-hee for the second time on Friday.

Some 250 reporters, 300 police officers and 60 protesters thronged to the special team’s building in Hannam-dong, Seoul, from early morning.

Lee arrived at the building at 2 p.m. and answered with only slight smiles to reporters’ questions.

▽ Tax evasion amount to be confirmed

The independent counsel said it would make its final conclusion on how much Lee had evaded in taxes by creating some 1,300 borrowed-name stock trading accounts. This means the prosecution will soon decide on what charges it will indict Lee.

To that end, the prosecution team has invoked the Supreme Court’s ruling against Kim Hyeon-cheol, son of former President Kim Young-sam. The nation’s highest court found him guilty of tax evasion in April 1999. Kim was criminally punished for tax evasion for the first time in Korea’s legal history.

“The logic applied to Lee’s case can be found in detail when you refer to the ruling involving Kim Hyeon-cheol,” an official of the counsel said on condition of anonymity.

The ruling was the first one where the Supreme Court elaborated on under what situation a bank account under a borrowed name is subject to criminal penalties.

▽ Borrowed-name accounts and criminal punishment applicability

The use of a bank account under someone else’s name is not punishable, in and of itself.

The ruling against Kim said, “The act of using bank accounts under other people’s names itself, without consideration of specific motivations and situations, does not constitute active concealment of incomes.”

However, the ruling interpreted the following cases as an active concealment of incomes: when the suspect has several borrowed-name bank accounts to disperse funds; when he or she deposits funds to different borrowed-name accounts repeatedly; and when the effect of hiding incomes is evident by borrowing the name of someone who is in a special relationship with the suspect.

If these criteria are to be applied to Lee’s case, he will most likely face criminal charges.

The special prosecution team has confirmed during the first investigation that Lee had divided the money to about 1,300 borrowed-name bank and stock trading accounts, that when executives and employees who had lent their names died, quit the company, or transferred, the funds were deposited to other accounts, and that those who had lent their names are the group’s executives.

▽ Samsung tries to minimize the tax evasion amount

Some may raise question whether it constitutes active concealment if the stock trading of the borrowed-name accounts had taken place only one time. The fact the money were repeatedly deposited to most of the borrowed-name accounts indicates the lack of trading.

In case of Lee’s indictment, Samsung is expected to defend him by emphasizing that his act was neither active nor complete, citing the cases of some executives who admitted the possession of borrowed-name accounts.

Though the amount of money in an account reaches hundreds of billions of won, if there has been no transaction since the opening of the account, it is not subject to criminal penalties because there have been no capital gains.

Samsung has seen Chairman Lee’s indictment as a fait accompli and sought to minimize the amount of evaded taxes. However, the amount that was confirmed as of Friday was said to be over 100 billion won.

According to the prosecution team, Jeon Yong-bae, director of the group’s strategy and planning department, who is allegedly known to be Lee’s asset manager, has been trying to reduce the amount of tax evasion whenever he is grilled.