SEOUL — The head of CJ Group, a major conglomerate in South Korea, was arrested on charges of embezzlement and tax evasion as the country’s parliament enacted a series of laws on Tuesday that were aimed at protecting smaller businesses from large corporations like his, which have dominated the economy for decades.
Lee Jay-hyun, the CJ Group chairman, who was locked up shortly before midnight Monday, was accused of stashing hundreds of millions of dollars under others’ names, dodging 70 billion won, or $61 million, in taxes and misappropriating 100 billion won in company money.
Mr. Lee, 53, a grandson of Lee Byung-chull, the founder of the Samsung empire, was the first tycoon to be arrested on corruption charges since President Park Geun-hye took office in February amid mounting public calls for “economic democratization.” In her inaugural speech, Ms. Park took note of public sentiment, vowing to deal sternly with tycoons involved in white-collar crimes and the conglomerates’ expansion at the cost of smaller businesses.
Although all the rival parties agreed during the presidential campaign last December to enact several bills that would act as checks on the conglomerates’ power, the writing of the legislation has proven contentious.
South Korea’s economic growth has depended heavily on exports and expansion led by a small group of family-owned conglomerates like CJ, Hyundai and Samsung. The conglomerates, known as chaebol, have vigorously lobbied the National Assembly in recent months, insisting that overly strict restrictions would hurt their competitiveness and profitability and damage the South Korean economy in general, an argument supported by many lawmakers affiliated with Ms. Park’s conservative governing party.
Ms. Park recently said any overhaul bills should not hurt the chaebols’ potential for leading economic growth as the economy slowed, and the political opposition accused her of retreating from her campaign promises.
After months of bickering, the competing parties agreed on several pieces of legislation Tuesday.
Under one new law, subsidiaries of a chaebol partly owned by its chairman’s family would have a harder time monopolizing supply orders from the rest of the business empire. Amid widespread discontent over the widening gap between rich and poor, South Koreans have fumed at the way the tycoons helped their children inherit easy fortunes: Companies sold shares to the chairmen’s children at unrealistically low prices or showered lucrative business orders on affiliates owned by the chairmen or their families without conducting competitive bidding.
But even before that bill was put to a vote, critics said political bargaining had turned it into a “paper tiger” with too many loopholes and exceptions.
“This is cheating the people in the name of economic democratization,” Solidarity for Economic Reform, a civic watchdog on chaebol, said in a news release.
Another law passed Tuesday protects the rights of small-business owners who operate convenience stores under a franchise agreement with chaebols. A third reduced the maximum percentage of a bank a chaebol is allowed to own to 4 percent, from 9 percent .
By trying to curb the power of chaebols, Ms. Park is struggling with her father’s legacy.
Her father, the longtime strongman Park Chung-hee, who ruled South Korea from 1961 to 1979, nurtured a handful of family-controlled businesses with easy credit, subsidies, tax benefits and protection from foreign competitors. Those companies, including Samsung and Hyundai, have grown into globally recognized conglomerates that have been widely credited with leading South Korea’s economic growth, exporting goods as diverse as computer chips, cellphones, cars and ships.
But at home, the sprawling corporate empires are also seen as predators, as their dominance in increasingly diverse swaths of the economy has come at the expense of smaller businesses. For example, they run rapidly expanding nationwide chains of hypermarkets, supermarkets and 24-hour convenience stores that have squeezed out traditional markets and mom-and-pop stores.
Article source: http://www.nytimes.com/2013/07/03/business/global/south-korean-executives-arrest-seen-as-move-to-tame-conglomerates.html?partner=rss&emc=rss