IBM501 Report: Analyzing Samsung Bribery and Business Practices

This report critically examines the 2017 Samsung bribery scandal involving the heir to the Samsung empire, Lee Jae-yong, who was charged with corruption and subsequently freed after a short prison sentence. The paper argues that this case is a significant example of bribery against international b...Read More

Samsung Bribery Charges and International Business Practices 1
Samsung Bribery Charges and International Business Practices
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Introduction
The paper intends to evaluate the bribery scandal associated with the heir to the Samsung
empire who was charged with the offense in 2017, incarcerated and then even before one year
ended, he was freed. The paper will demonstrate how bribery as a business practice is against
international business practices. The analysis will reveal that the move by South Korean court to
free Mr. Lee is unacceptable move and it encourages bribery and that it is against the
international convention on bribery and corruption.
Samsung Bribery Charges
According to Harris (2018) the heir to the Samsung empire was sentenced in 2017 by
South Korean justice to five years in prison for corruption in the resounding scandal that swept
away South Korean President Park Geun-Hye. This ruling could deprive the world's leading
maker of captain's smartphones for a long time, and thereby hinder its ability to make crucial
investment decisions. But Samsung Electronics has ensured a strong team at the rudder. The
prosecution had required 12 years in prison against Lee Jae-Yong, vice president of Samsung
Electronics and son of Samsung group president Lee Kung-Hee (Harris and Jung-a 2018).
Mr. Lee, 49, was found guilty of bribery, abuse of social good, perjury and other counts
in connection with payments to Ms. Park's shadowy confidante, Choi Soon-Sil. Lee Jae-yong,
who, according to the Financial Times, is possibly the most powerful man in his country, was
notably accused of having promised 43.3 billion won (35 million euros) to foundations created
by Choi Soon-sil, friend and confidante of President Park Geun-hye (who was dismissed and
incarcerated in March) (Sang-Hun, 2018). In return, the government supported the merger, in
2015, of two subsidiaries of the group, Samsung C & T and Cheil Industries, a highly contested
operation that was primarily intended to strengthen the hold of Lee Jae-yong on Samsung (Harris

Samsung Bribery Charges and International Business Practices 3
and Jung-a 2018). The court has estimated that it has paid a total of 8.9 million won (6.6 million
euros) to buy the government's support for the generational handover to the top of the group
following the heart attack of his father in 2014 (Financial Times Limited 2018). Mr. Lee denies
everything, his defense explaining that he was not aware of these transfers and did not approve
them (Harris and Jung-a 2018).
However, one year later, Mr. Lee was freed. According to Sang-Hun and Zhong (2018)
Mr. Lee barely spent one year before he was freed. Sang-Hun and Zhong (2018) further revealed
that in South Korea, tycoons are not punished. There is no way in which 15 years can be reduced
to less than one year.
Analyzing the case from international business practices
In this section, I will demonstrate that the action taken to prosecute Mr. Lee due to
bribery case is theoretically sound and that it is an affirmation of the international laws on
corruption and bribery. Bribery and corruption are two vices that hinder fair trade. However, the
action to free him after barely one year is unacceptable. It is an indication that the powerful are
above the law and this is not good in business world (Bomann-Larsen and Wiggen, 2005)
One of the theories that can explain the situation facing Samsung is Principle-Agent-
Client theory proposed by Banfield in 1975. The theory believes that corruption is committed by
a combination of three players; principle, agent and influencer.. For the case of Samsung, the
principal is the President Park. Park was bound to be the major beneficiary of the bribery. Mr.
Lee represents the agent. The third party is royal family. The family are truing to obtain benefits
from the Samsung company and hence are indirectly sponsoring the bribery. The rational choice
theory reveals that an agent is likely to execute corrupt deals if the returns are favorable. And he
did that exactly. But what about the consequences? International business practices expect that

Samsung Bribery Charges and International Business Practices 4
the competition and business practices are fair to all parties. In international realm, corruption
represents a major threat to sustainable development (OECD, 2013). Shattering the democratic
process of commercial practices the multiplication of corrupt pacts breaks the equality of
commercial actors, just as it distorts the free competition. Mechanisms, imposed or voluntary,
which establish the relations between the business world and criminal circles are more and more
protean to the point of raising, today, the problem of organized business crime (Donaldson and
Preston, 1995). Obtaining contracts by international commercial transactions, administrative and
fiscal derogations, the takeover of companies following the acquisition of information, which
occur through the payment of hidden commissions, are all acts benefiting speculators few
scrupulous at the expense of other investors. The consequences, adverse effects on entire
populations and the credibility of companies, are colossal. First, with regard to the effects on the
populations, and particularly on the states experiencing economic difficulties, the lack of
transparency and responsibility of the public and private sectors is the fertile ground facilitating
the payment of bribes: a payment of a commission of one million euros can lead to a loss one
hundred times higher for a country then undergoing a cancellation of the projected development
plans (Bonell & Meyer, 2015).
Corruption permeate all countries. In South Africa, the Shaik lawsuit has highlighted the
responsibility of multinationals for the payment of bribes in arms market transactions involving
French companies. Moreover, corruption does not only concern states experiencing economic
difficulties (Ghoshal and Moran, 2005).
Nevertheless, there is an awareness of the need to fight against such a scourge. Following
the signing of the OECD and UN conventions, many countries have adapted their legislation on
corruption, particularly since 2005 (OECD 2009).

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Today, the new articles 445-1 to 445-4 of the Penal Code from the 2005 Act deal with
bribery in the private sector and penalties applicable to natural persons and legal persons. This is
an additional penalty of the business sector materializing the fight against corruption.
Thus, "the offering (or assigning), at any time, directly or indirectly, of offers, promises, gifts
(Graycar & Smith, 2011), presents or any advantages to obtain from a person who, without being
a depositary of the public authority or a public-service mission carries out, in the course of a
professional or social activity, a management function or a job for a natural or legal person, or
any body, whether refrain from performing an act of his activity or function or facilitated by his
activity or function (Graycar & Smith, 2011), in breach of legal, contractual or professional
obligations ". From now on, the repression of corruption in the private sector is no longer
exclusively reserved for employees (Wuthi-Udomlert, 2013).
More concretely, and by comparison with public sector corruption, any private law
person under the above conditions can be prosecuted for both passive and active bribery (Prahlad
and Hammond, 2002). If in the public sector, the leaders of private commercial companies can
be prosecuted for active bribery, in the private sector, any person (the company manager, the
partner, the shareholder, the auditor, the analyst the lawyer, the notary, the accountant, the
journalist or the employee) can be prosecuted for active or passive bribery (Banisar, 2011). The
result is a growing criminalization of the business sector to cover all forms of illicit pacts. This
endorsement of the Framework Decision is based on an economic and competitive logic. This
broadening of the criminalization of corruption extends and formalises the ethical imperative of
business investment. The terms are quite broad, which makes the text repressive. Thus, the
means of corruption can be varied (remunerations, sums of money, tables, commissions, leisure
travel, loans at reduced rates ...).

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The penalties incurred by individuals is five years imprisonment and 75,000 euros fine.
Moreover, the criminal liability of legal persons is also enshrined in the matter: it extends to five
times the fine incurred by individuals (Biegelman & Biegelman, 2010). But legal persons also
incur penalties such as the prohibition of exercise, the exclusion from public contracts, the
confiscation of the thing used to commit the offense, as well as the posting and dissemination of
the decision to conviction. These sanctions are intended to separate the leaders and legal persons
having made corruption a company strategy (Wells, 2015).
It is this development that must be emphasized in the sense of an international fight
against corruption. We know that the repressive domain is an integral part of the sovereign
power of the state. This is one of the expressions of state sovereignty. With the exception of the
International Criminal Court competent to judge crimes against humanity, the authorities of
prosecution and judgment cannot act outside their territories. This is why the ratification of
international conventions and the integration of Community framework decisions constitute the
compromise of cooperation to fight against corruption (Harris, 2003). These instruments make it
possible to change the laws of each State in the sense of making them compatible or in the sense
of harmonization. The latter then allows each state authority to apprehend and repress
internationalized corruptive actions according to national laws in accordance with the
conventions.
Establishing the link between international practice and Samsung case
It is undisputable that if Mr. Lee could not have been charged with bribery, fair
competition could have been inhibited. According to some observers, Lee Jae-yong's
condemnation could be an opportunity to solve the long-standing problem of the chaebol
[Korean conglomerates] model - the opacity of governance and transfer of power within the

Samsung Bribery Charges and International Business Practices 7
family of the founder, via means often illegal, the newspaper adds. The Lee family holds less
than 5% of the group's shares, but controls the technology giant via an enigmatic network of
cross-shareholdings. The move taken by South Korea to jail and then free Mr. Lee signifies that
there is real problem (Roy, 2004). It shows that South Korea is not yet ready to implement the
international convention on corruption. It should be noted that several countries have
demonstrated their willingness to fight bribery (Hawley, 2015). In Europe, until very recently, a
company that wanted to win a market could pay a commission to an intermediate public
buyer. This mechanism, which existed in France, allowed an enterprise to credit a numbered
account for the benefit of the intermediate decision maker and to obtain authorization from the
Ministry of the Economy and Finance for this payment and for the tax deductibility thereof
(Hawley, 2015). Today, such actions are incriminated for corruption because they lead to a
breakdown of equality between the various commercial actors.
In the United States, while the Sarbannes-Oxley Act's assessment has allowed for a
certain streamlining of activities and information flows, the fight against corruption has had to be
strengthened, particularly following the awarding of public contracts in Iraq (Hawley, 2015).. In
Japan, despite the 2005 reform of the state agents' code of ethics, information leaks from senior
government officials to commercial companies for the procurement of public contracts revealed
unfounded sums at the expense of other companies.
There is indeed a general evolution of states and companies following the signing of the
United Nations Convention against Corruption in 2003, ratified by France in July 2005 (OECD
2009). The fight against corruption is indeed a necessity on the international level as the
phenomenon includes elements of foreignness (Roy, 2004). Actors' actions are rarely limited to
one territory. This is why the imperative of fighting corruption has been incorporated by many

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states. This consecration is all the more understood through the influence of the international
standard since it favors the adaptation of national legislation (Hawley, 2015).
The OECD Convention of 17 December 1997 on Combating Bribery of Foreign Public
Officials in International Business Transactions has been transposed in many states (OECD
2009). Most nations are harmonizing their laws to match the international conventions (Roy,
2004). In fact, 37 countries have ratified the OECD Convention and are moving their legislation
towards harmonization, which makes it possible to incorporate the principle of equivalence of
incriminations between states (OECD 2009).
It is this principle of reciprocity or equivalence of incriminations that lays the foundation
for the international fight against corruption. Thus, for example in Finland, a law was passed in
2005 condemning any company that paid a bribe, regardless of whether the beneficiary of this
counterparty is a person with or without public authority (OECD 2009).
In Brazil, a new law regulating public-private partnerships has made it possible to
develop greater transparency on infrastructure development, thus attracting many commercial
actors (OECD 2009). Similarly, in Japan, the Prevention of Unfair Competition Law and the
Code of Ethics have been amended in the sense of transparency of public and private
procurement. In the United Kingdom, the UK's public export credit insurance firm stepped up
bribery and corruption enforcement in 2004 (OECD 2009).
Then, as part of the trend of greater ethical governance, the penalization of these
behaviors plays a preventive role: it induces companies to behave in the sense of a credibility and
reputation protected. Indeed, more than ever the credibility of the commercial actors is put on the
agenda.

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Corporate financial scandals such as Enron show how disloyal actions have disastrous
consequences for companies, shareholders and employees (McClean and Elkind, 2003). The
interest of shareholders, investors and partners, suppliers and customers are the arguments put
forward to stop the phenomenon of corruption international.
Conclusion
From the foregoing analysis, it is apparent that the business practice exercised by Mr. Lee
is unacceptable. It constitutes a form of bribery and corruption. As indicated, corruption and
bribery hinder fair competition. International conventions do not encourage any company to
engage in any form of corruptions. Individuals states are expected to harmonize the local laws to
meet the international convention. The analysis demonstrated that the move taken by the South
Korean court to jail Mr. Lee was good. However, the same court later released him before
completing the jail term. This is unacceptable and it encourages other companies to engage in
bribery and corruption.

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