On the 5th of February 2018, I was interviewed by Al Jazeera International during the 6 pm News. This “live” interview was held after that Samsung heir Lee Jae-yong, who was jailed for corruption, was released from prison on appeal. The Samsung scandal was related to the impeachment of President Park Geun-hye over alleged corruption and cronyism. I tried to offer some insights into the dynamics of corporate corruption and the reasons why penalties for corruption are still very light in comparison to the ones applied for violent crimes and crimes against property.
Specifically, I was asked to answer three main questions. Due to the fact I had only 3 minutes to answer, I have decided to write this post to briefly expand on the concepts I covered during the interview and foster a constructive debate on the burning issue of corporate corruption.
Question 1: How did Lee Jae-yong get off on these charges, considering he brought down a president?
Besides the technicalities of the case at issue (after that the Samsung heir sentenced to five years in jail in August 2017, he was eventually given a suspended sentence after having served one year in prison), the main issue here is that corruption is punished globally with the application of relatively light penalties.
At the moment we face two burning questions related to corruption. The first is related to substantive criminal law, while the second concerns procedural criminal law. As regards the former, the issue is connected with the light penalties usually applied by criminal justice systems in the case of economic crime. The fact that the seriousness of the offenses like corruption is not perceived as it should be can trace its roots back to the very origin of our criminal justice systems. As Michel Foucault highlighted, when the bourgeoisie influenced the establishment of modern criminal law systems, it determined that violent crimes and crimes against property were punished in a much more severe way than economic crimes like corruption. This because the bourgeoisie naturally aimed at punishing harshly the criminal conducts that its members feared the most whilst establishing light penalties for the offenses commonly committed by its members such as fraud and corruption. Our criminal justice systems still suffer from the influence of such an enduring legacy.
It is not surprising that one can be sentenced easily to four years in prison for robbery even if the stolen goods have low value whereas he/she can obtain a suspended sentence for fraud or corruption not only in Asia but also in many Western countries even if that criminal conducts cause substantial economic harm.
From a procedural criminal law perspective, we have to accept that to fight against corruption in an effective way we should accept the use of invasive investigative techniques. Corruption is a subtle criminal phenomenon characterized by shady deals, extensive conflicts of interests, intricate webs of connections and widespread clientelism; that means that without the adoption of instruments such as telephone tapping and audio surveillance on a large scale we will never be successful. Of course, the use of such investigative techniques should be well regulated so to avoid abuses and unduly violations of the right to privacy.
In other words, a stronger medicine is required. Corruption still appears widespread around the globe and pervades every aspect of our societies. We must treat this criminal phenomenon with the importance it deserves and adopt more effective strategies to fight its spread.
Question 2: Is it common for big business leaders and executives to be released or even in some cases get off on charges of corruption in Asia?
The pervasiveness of corporate corruption and the difficulties to convict top corporate executives for the perpetration of such a criminal phenomenon is strictly connected with the very nature of corruption and its inherent connection with power.
As Lord Acton stated in the distant 1887: “Power tends to corrupt and absolute power corrupts absolutely.” This is particularly true in relation to corporate and political corruption. If one simply considers that, in 2016, a single multinational enterprise like Walmart had yearly revenues (i.e., $ 482 Billion) that were greater than the Gross Domestic Product of Poland (i.e., $ 471 Billion), it easy to realize how corporate wealth and power can generate large-scale corrupt practices. We have experienced how corporate corruption can exert devastating effects on the social texture of a country and on its environment. For example, just think about the dramatic social and environmental damages caused by decades of corrupt practices perpetrated by oil companies in Nigeria.
At the same time, the fact that such a criminal phenomenon affects mainly the dominant class of a country explains why for ages it was de facto tolerated without a serious political will to fight against it, sanction the perpetrators and implement effective regulatory countermeasures. It was not until the 1990s that the fight against corruption was included in the political agenda all over the globe as an involuntary effect of the global economy where only the fittest survive and that requires business operations to be carried out honestly and transparently to avoid unfair competition between the various multinational enterprises.
Finally, we cannot underestimate that the consolidation of power and wealth in the hands of huge corporations not only allows them to lobby effectively with the aim of watering down the adoption of domestic regulations that can effectively fight against economic crime (see, for example, how in the United States the energy companies let the Congress nullify the transparency rules adopted under the Dodd-Frank Act of 2010) but also give the top executives the possibility to recruit the best lawyers and accountants to take advantage of any loophole present in our criminal justice systems.
Question 3: Look at this case, could this be bad for the Samsung brand and business?
If multinational enterprises were operating in a perfect market with hundreds of players all competing fairly against each other, a scandal like this would have had profound effects on the company’s business operations.
Unfortunately, this is not the case. Powerful multinational corporations like Samsung operate in a regime of oligopoly that will allow them to survive. Such a situation, which has been also defined as alliance capitalism, occurs where a network of enterprises replace cartels but exert the same regulatory function of competition. On these occasions, after a major scandal, the firms’ share value commonly falls but then recovers after a relatively short period of time. This happened for example in relation to the Volkswagen’s emission scandal. This is one of the major issues we currently face with corporate misconducts.
For years we have thought that the market would be able to regulate itself and we adopted a laissez-faire approach. But now, especially after the financial crisis of 2008, it is clear that this approach is absolutely untenable. We definitely need more governmental intervention, stricter rules on corruption and substantive investments in corporate social responsibility measures.
Finally, I would like to highlight that corporate corruption represents a particularly burning issue in South Korea because of the very corporate structure that characterizes Korean enterprises. Korean corporations are known as “chaebols” which are family run conglomerates structured in an extremely hierarchical way which fosters unswerving loyalty and passive acceptance of corporate misconduct. The consolidation of wealth and power among a small number of families is often criticized because it can facilitate the perpetration of corrupt practices. What we should hope is that scandals like that will lead to a reform of such an archaic corporate system.
7 thoughts on “Three thoughts on corporate corruption in the wake of the Samsung’s heir release from prison”
Thank you for sharing this wonderful interview! This helped me in not only understanding the issue of corruption faced but your answers also cleared any potential questions. Once again, I would like to take this opportunity to congratulate you sir!
Thank you very much for your kind words. I am really glad to have students like you, who appreciate what we try to enhance the learning environment at the MBA.
To minimize on the issues mentioned above related to the samsung scandal this could the beginning of a solution as follow: please press link https://www.youtube.com/watch?v=QKG8-VktDXo
Romulo da Costa
MBA/IBM Graduate | PhD International Financial Fraud Management Candidate
It is true that the many burning issues our societies are currently facing derive from the fact that, by the end of the 19th century, the principal economic basis of classical liberalism – the ideal of a market economy – had produced several adverse consequences because of the circumstance that the profit system had concentrated vast wealth in the hands of a relatively small number of industrialists and financiers. It is also interesting that some ideas proposed by Ken O’Keefe somehow recall in an implicit way Nozick’s support to the centrality of the protection of individual rights.
However, we cannot share O’Keefe’s view or support his ideas here. We are a forum of discussion, which is based on the ideas that pluralism and diversity are beneficial to society and that the ability and willingness to tolerate the existence of opinions that one dislikes or disagrees with is a virtue. We aim at facilitating interaction between representatives of all the involved social groups, and we cannot support any form of extremism, which naturally tends to degenerate into dangerous fanatical views.
So my suggestion is to focus instead on the ideas that distinguished scholars promote. For instance, see this interesting talk by Dr. Ha-Joon Chang on Neo-classical Economics: https://www.youtube.com/watch?v=RuVrbYIZq7c
The release of Lee Jay-yong makes a mockery of the fight against Corruption. The existing legislation such as the 2003 U.N. Convention against Corruption, which has five areas to be looked at in cases of suspected corruption that 183 countries signed up to, alongside the OECD convention 1997 on combatting bribery of foreign public officials in international business transactions, which was updated in 2009 with further recommendations, are being totally ignored in this case.
Are there loopholes in these legislations that need to be closed or is it that big Corporations are above the law?
Unless these legislations are properly used, reviewed and enforced, corruption will continue to thrive
Well done Costa.
Some interesting articles to keep following this story:
Song Jung-a, “South Korea judiciary faces political backlash after Lee ruling,” Financial Times, 6 February 2018 (https://www.ft.com/content/fc05e89a-0b03-11e8-8eb7-42f857ea9f09).
“Remove the taint of cronyism in South Korea,” Financial Times, 6 February 2018 (https://www.ft.com/content/eea25cde-0b39-11e8-8eb7-42f857ea9f09).