Samsung executives sentenced for destroying evidence regarding accounting fraud

The Samsung flag in front of its offices in Seoul’s Seocho neighborhood on Aug. 29. (Shin So-young, staff photographer)

No direct rulings on Samsung Biologics case itself

The Samsung flag in front of its offices in Seoul’s Seocho neighborhood on Aug. 29. (Shin So-young, staff photographer)

“The court cannot know the specifics of the internal working process at Samsung. But if it is the sort of culture where subordinate employees blindly execute their superiors’ orders without questioning their legality or illegality or distinguishing their means and methods, I have to question whether this is desirable for Samsung’s continued growth as a global company.”

These were the words delivered by Judge So Byeong-seok of Seoul Central District Court’s 24th criminal division on Dec. 9 while sentencing Samsung Electronics vice president-level executives in a case concerning alleged destruction of evidence of accounting fraud by Samsung BioLogics. The executives in question had been indicted and arrested on charges of incitement to destroy evidence for ordering their subordinates to destroy evidence.

“South Koreans feel great pride when they see domestic companies like Samsung active overseas. But that growth is only supported by the public when it takes place in a fair manner in compliance with laws and procedures,” the court said.

In its ruling that day, the court sentenced Lee Wang-sik, vice president of the Samsung Electronics financial and accounting team to two years in prison and handed out 18-month sentences to Kim Hong-gyeong, vice president of the Samsung Electronics project support task force, and Park Moon-ho, vice president of the Samsung Electronics human resources team. Other employees at the executive director, department director, and deputy director level received suspended sentences.

An executive director surnamed Baek with the project support task force and another surnamed Seo with the security advancement task force, both received 18-month prison sentences suspended for three years along with 80 hours each of community service. Three other employees, including an executive director surnamed Yang and a department director surnamed Lee with Samsung BioLogics (Samsung Bioepis), received suspended sentences of up to 18 months in prison and 80 hours of community service.

The court found the defendants guilty on all counts of evidence destruction, concluding that serious and organized criminal activity had taken place at the group level, including the tearing up of factory floors to hide information and the use of storage areas at executives’ homes. The court stressed that the crime could not be viewed as minor, as it involved the destruction and concealment of evidence that might lead to the truth behind the Samsung BioLogics accounting fraud.

But the court did not issue a ruling that day on the Samsung BioLogics accounting fraud allegations themselves.

“The mere recognition that there was a possibility of an investigation being opened into the Samsung Bio accounting fraud allegations and that it includes issues that will be closely contested in a trial on the merits is sufficient for making a determination of guilt and sentencing in this case,” the court explained. The court also exercised its authority to strike references to “in relation to the management succession of Vice President Lee Jae-yong” and “to justify the merger” from the indictment’s explanation of the background and motivation behind the crimes, on the grounds that the trial was not for a criminal case specifically concerning the evidence destruction.

Court’s disappointment in prosecutors’ investigation

The court further expressed disappointment with the prosecutors’ investigation. In explaining the reasons for its sentencing decisions, it lamented that the “accounting irregularity case has not even led to any indictments yet, despite considerable evidence having been acquired and the investigation lasting for several months.”

“If there is an indictment in the future, there is likely to be a heated battle in terms of legal principles and the question of whether the criminal charges are justified,” it said.

Lee Wang-sik and the other defendants were accused of ordering and carrying out the systematic destruction of evidence related to accounting at Samsung BioLogics and its affiliate Samsung Bioepis around May to June 2018 after predictions of an investigation by prosecutors into accounting fraud allegations. On Children’s Day (May 5) of last year, a meeting was held at Samsung Electronics’ building in Seoul’s Seocho neighborhood, where participants decided to conceal or doctor accounting information and internal reports for Samsung BioLogics and Samsung Bioepis. A large number of documents containing specific terms such as “JY” (Lee Jae-yong), “merger,” and “Future Strategy Office” were subsequently deleted. A Samsung BioLogics shared server and dozens of notebook computers containing dozens of terabytes of data were also concealed under the floor of a Samsung BioLogics factory in Incheon’s Songdo neighborhood.

By Ko Han-sol, staff reporter

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