A South Korean court on Friday (August 25) found Lee Jae-yong, heir to the Samsung empire and its de facto leader, guilty on charges of bribery and embezzlement, and other crimes.
The court sentenced Lee to five years in prison. That’s less than the 12-year term prosecutors were hoping for. But it’s long enough to ensure that he will actually spend time behind bars. Lee’s father, Lee Kun-hee, himself was once convicted for tax evasion, but he never served prison time because sentences of up to three years (paywall) can be suspended.
The ruling puts a cap on months of proceedings that tied the country’s single most important company to a corruption scandal revolving around former president Park Geun-hye. Park was impeached in March and is herself separately on trial. The court found Lee guilty of providing 7.2 billion won (US$6.38 million) in bribes to help fund the equestrian career of the daughter to Park’s personal confidante, according to state-run news agency Yonhap. The court added that bribes were given in anticipation of helping secure approval for a merger between two Samsung subsidiary companies that gave Lee more power at the expense of other shareholders.
Not long after the court issued its sentence, representatives from Bae, Kim and Lee, the firm serving as Lee’s defense team, said it would immediately appeal the decision.
The sentencing comes at a critical time for Samsung Electronics, the most valuable part of the empire. Just days ago it unveiled its latest flagship smartphone, the Galaxy Note 8. It’s the company’s first major device release since the disastrous rollout of the Galaxy Note 7, which hit shelves last year with faulty batteries that exploded—leading to a global recall that cost the company billions of dollars. Sales for the Galaxy Note 8 will test whether consumers still have faith in the Samsung brand. And the device will also face competition from the upcoming iPhone, which looks set to come with several new features that will mark firsts for the industry.
The conviction also marks a win for Koreans hoping to hold accountable the country’s chaebol—the country’s family-run conglomerates, which the public has increasingly resented for their corruption and grip on the economy. Newly-elected president Moon Jae-in made chaebol reform a key part of his campaign platform.
With Lee due to serve prison time, how will his absence affect Samsung’s actual business? It’s not entirely clear. Despite being recognized as Samsung’s top figure, Lee’s actual duties at the company remain the subject of speculation. His official title is vice chairman at Samsung Electronics. Many believe that he remains largely uninvolved with day-to-day operations at the group, and that’s how he portrayed himself in the trial.
Meanwhile, investors have already shown indifference to some of the macro-level challenges faced by Samsung. Amid slowing global smartphone demand, the awful Galaxy Note 7 rollout, and the ongoing corruption scandal, Samsung Electronics’ stock price continued to soar over the past year. Investors have bet that manufacturer demand for Samsung’s components—namely OLED screens and flash memory— will help bring in revenue despite the aforementioned challenges. Although the unit’s stock price dipped severely this month, it’s quite possible that this optimism will lead to a rebound.
The conviction won’t necessarily mean that Lee is incapacitated at Samsung, either. It’s possible that due to the company’s economic and cultural importance to South Korea, he could be given a presidential pardon, as former presidents often have to previously convicted chaebol leaders. Or, following past precedent, he could play an influential role in the company from prison.