World

Samsung Group visited by police as part of Korean government scandal probe

South Korean prosecutors raided the offices of Samsung Group on Wednesday, a prosecution official said, after media reports of alleged links with a confidante of President Park Geun-hye who has been indicted in an influence-peddling scandal.

Also raided was NPS, the world's 3rd-largest pension fund

Employees walk past logos of Samsung Group at its headquarters in Seoul on Wednesday. South Korean prosecutors investigating a corruption scandal surrounding the country's president and her friend raided a unit of the country's largest business group, as well as the national pension fund. (Jang Se-young/Newsis via AP)

South Korean prosecutors raided the offices of Samsung Group on Wednesday, a prosecution official said, after media reports of alleged links with a confidante of President Park Geun-hye who has been indicted in an influence-peddling scandal.

Prosecutors also raided South Korea's largest pension fund, the National Pension Service (NPS), an NPS spokeswoman said. The Yonhap news agency reported that investigators were probing NPS's decision to approve the $8 billion merger of Samsung C&T Corp and Cheil Industries last year.

The raids signalled that prosecutors are expanding their investigation into allegations of influence-peddling in the corruption scandal that has rocked Park's presidency over the relationship between the government and big businesses.

NPS, the world's third-largest pension fund, has come under scrutiny by the media and civic groups over its approval as a major shareholder of the merger between two affiliates of Samsung Group, South Korea's largest family-run conglomerate.

Its backing was seen as crucial to the success of the merger and some South Korean media reports said its approval came under mysterious circumstances.

South Korean President Park Geun-hye, whose term ends in 16 months, has resisted calls to resign but allowed an investigation to take place. (Lee Jin-man/The Associated Press)

A Samsung Group spokeswoman confirmed prosecution officials had visited the group's headquarters but she could not provide further details. The NPS spokeswoman declined to give further details.

Prosecutors raided four locations — the NPS headquarters, NPS Investment Management office headquarters, Samsung Group offices and the office of a former NPS investment management official — said a prosecution official who was not authorised to speak to the media and declined to be identified.

Park and her confidante, Choi Soon-sil, are under investigation for allegedly improperly pressuring major conglomerates, including the Samsung Group, to raise funds for foundations that backed Park's policy of promoting the cultural and sports communities.

Foundation donations under scrutiny

Lee Young-ryeol, the senior prosecutor directing the probe, said on Sunday 53 conglomerates, "fearing direct and indirect drawbacks to business activities such as tax audits", were "coerced to contribute funds" to the foundations.

Park Ju-gun, head of research firm CEO Score, said there was little surprise that prosecutors were now seeking evidence in Samsung Group offices about how the merger may have been influenced by the conglomerate's contributions to the foundations.

The merger of the Samsung affiliates was approved by shareholders in July 2015 and prosecutors said the two foundations involved were set up in the following six months.

"This was expected. Due to the circumstances in this case, prosecutors cannot help but be suspicious about the genuine intent behind the donation, such as the timing," CEO Score's Park said.

President Park, through her lawyer, has pushed back on a request by prosecutors to question her about the case, potentially the first time a sitting South Korean president would be interrogated in a criminal case.

Park, who's five-year term ends in February 2018, has resisted calls to resign but has apologized twice, saying she only sought to benefit the economy and not herself, but acknowledges carelessness in her ties with Choi.

Protesters shout slogans on Nov. 19 in Seoul after they were blocked by riot policemen in a road nearby the presidential Blue House during their march calling for the president to step down. (Kim Kyung-Hoon/Reuters)

However, the growing calls for her to resign and Park's virtual withdrawal from public activities has left a worrying power vacuum in South Korea. Choi and former presidential aide An Chong-bum were indicted on Sunday and charged with abuse of power, a major blow to the president's fight for political survival.

NPS has defended its decision in the face of criticism that the deal helped the Samsung Group family to cement control of the merged firms at the expense of other shareholders.

"The reason we approved the merger was due to taking a comprehensive view of the merger's synergy effect and potential for stock value increase," it said in a statement last week.

There were "special circumstances" where NPS-owned stakes in both firms were valued at a similar amount, it said. The size of NPS' combined stakes in both firms was about 2.4 trillion won ($2.05 billion US), or three per cent of NPS's domestic stock portfolio.

However, according to records of the NPS Investment Office committee's decision to back the merger in July 2015, acquired by an opposition lawmaker and seen by Reuters, the NPS had calculated a merger ratio of 1:0.46 of Cheil Industries shares to Samsung C&T shares, based on its valuations of the two firms.

This differed from Samsung Group's proposed ratio of 1:0.35, which the NPS committee noted was comparatively unfavourable to Samsung C&T shareholders.

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