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Appeals Court Spares Jail Term for Samsung Group ex-Chairman Lee Kun-Hee
Former Samsung Chairman Lee Kun-Hee

An appeals court found former Samsung Group chairman Lee Kun-Hee guilty of tax evasion but dismissed the more serious breach of trust charge linked to his wealth transfer, affirming a lower court's verdict that spared him a prison sentence.

Lee's controversial wealth transfer to his son, Jae-Yong, "caused losses to shareholders, not to the company" and the behavior "cannot be held accountable for breach of trust," Judge Seo Ki-Seog of the Seoul High Court said on Oct. 10.

For the tax evasion account the judge handed out a three-year prison term, suspended for five years, and a 110 billion won (US$79 million) fine, as did the lower court. The judge called the evasion "very unjust."

The verdict essentially cleared the way for the tycoon to transfer the group's control to Jae-Yong. Lee, 66, who appealed for leniency in hearings, was tight-lipped as he walked out of the packed courtroom.

"I don't know much about law," Lee said, asked by a reporter how he viewed the verdict.

With a mandate sanctioned by the National Assembly, a special prosecutor indicted Lee in April on charges of evading 112.8 billion won in taxes by hiding assets under borrowed-name stock accounts between 2000 and 2006 and orchestrating the murky wealth transfer to Jae-yong in the mid-1990s.

Jae-Yong acquired convertible bonds from Samsung's de-facto holding company, Everland Theme Park, and shares of other Samsung affiliates at "remarkably low" prices, prosecutor Cho Joon-Woong said. The bargain takeover helped the younger Lee evade inheritance taxes and caused tremendous losses to shareholders, he said.

The court ruled, however, that Everland shareholders' losses do not constitute breach of trust by Lee.

"The low-priced issuance can cause losses to existing shareholders by driving down share prices," the judge said. "However, shareholders and the company are separate legal personalities and their losses are not corresponding."
The court ordered former Vice Chairman Lee Hak-Soo and Kim In-Joo, head of the group's now-dismantled strategic planning office, to perform 220 hours of community service for the same charges.

The prosecutor was expected to appeal to the Supreme Court. He had demanded a seven year jail sentence and a 350 billion won fine for Lee. The final verdict is expected by December.

Civic groups severely criticized the court for setting a bad example. Its not-guilty decision on the wealth transfer virtually paved the way for other tycoons to bequeath their wealth to their children without paying taxes, they said. Such murky management and dubious accounting practices are blamed for having pushed the country near to default in the 1997-98 Asian financial crisis.

"All the lessons we've learned over the past 10 years since the financial crisis have come to nothing," said Kim Sang-Jo, a trade professor of Hansung University and outspoken critic of Samsung.

The probe started in January after a former Samsung lawyer raised the corruption allegations.

To shed Samsung's tarnished image, Lee resigned in April and the group carried out a management overhaul, dismantling its strategic planning office and relegating the former chairman's authority to executives.

Samsung generates roughly 20 percent of Korea's exports. Its 59 affiliates range from shipbuilding to handset carriers, theme park and life insurance. Samsung Electronics Co. is the world's largest maker of computer memory chips and second-largest maker of mobile phones. (Yonhap News)

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