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Reuters
SEOUL, South Korea — A former cabinet minister was arrested Saturday on charges that he illegally pressured the national pension fund to approve a merger between two Samsung subsidiaries, a deal that helped ensure that control of South Korea’s most powerful conglomerate passed from its chairman to his son.
Prosecutors have accused the former official, Moon Hyung-pyo, of ordering South Korea’s National Pension Service to cast a crucial vote in favor of the merger between Samsung C&T and Cheil Industries in July of 2015, when Mr. Moon was the health and welfare minister. Mr. Moon is now chairman of the pension fund, the world’s third largest, which is overseen by the Health Ministry.
Mr. Moon denied the accusation at a parliamentary hearing on Nov. 30. But on Saturday, a court granted a special prosecutor a warrant to arrest him on charges of abusing power and interfering with what was supposed to be the pension fund’s independent investment decision.
A conviction of Mr. Moon on the charges would raise serious questions about the legitimacy of the $8 billion merger, which helped Samsung’s vice chairman, Jay Y. Lee, tighten his control over the business that his father and grandfather built into South Korea’s biggest, most lucrative chaebol, or family-controlled conglomerate. Mr. Lee’s father, Lee Kun-hee, is Samsung’s chairman but has been incapacitated by health problems.
Mr. Moon was arrested by the special prosecutor investigating President Park Geun-hye, whose powers have been suspended since the National Assembly voted to impeach her on Dec. 9. The special prosecutor is seeking to determine whether Mr. Moon acted on Ms. Park’s behalf.
The National Assembly’s impeachment bill alleged that Ms. Park solicited bribes from Samsung and other conglomerates, which she has denied. South Korea’s Constitutional Court is to decide in the coming months whether Ms. Park should be formally removed from office or reinstated.
In the months after the Samsung merger was approved, the conglomerate contributed $17 million to two foundations controlled by Choi Soon-sil, a longtime friend and confidante of Ms. Park’s who is a central figure in the corruption scandal. Samsung also signed an $18 million contract with a sports management company that Ms. Choi ran in Germany, to fund a program for training Korean equestrians that mainly benefited Ms. Choi’s daughter. Samsung also contributed $1.3 million to a winter sports program for young athletes that was run by Ms. Choi and her nephew.
State prosecutors, who have indicted Ms. Choi on extortion charges and named Ms. Park as an accomplice, have alleged that the two conspired to force Samsung and other businesses to donate to Ms. Choi’s foundations. But the special prosecutor, separately, is considering a much more serious charge of bribery, investigating whether Ms. Park, through Mr. Moon, ordered the pension fund to back the merger in exchange for Samsung’s support for Ms. Choi.
During parliamentary hearings into the corruption scandal, top executives at Samsung and other conglomerates admitted contributing to Ms. Choi’s foundations and companies. But they all denied seeking favors in return; they said they felt pressured to give the money, suggesting that they were victims of extortion, not participants in bribery.
The merger last year was widely seen as an important step in the transfer of Samsung’s leadership from Lee Kun-hee to Jay Y. Lee.
The Lee family held a controlling stake in Cheil and wanted to use it as a de facto holding company for the entire group. The merger enabled Cheil to absorb Samsung C&T’s shares in other Samsung subsidiaries, including the flagship company, Samsung Electronics.
Elliott Management, an American activist hedge fund, had campaigned to block the merger, saying that it wronged minority shareholders by grossly undervaluing Samsung C&T shares.
But the pension fund, Samsung C&T’s largest shareholder, supported the deal, which was approved at a shareholders’ meeting by a very thin margin. The merger cut the value of the pension fund’s 11.9 percent stake in C&T by $300 million, according to some estimates.
Both Samsung and the pension fund have said that the merger would benefit all shareholders eventually.
