Suspicion is growing over a secret link between Samsung Group, South Korea's biggest family-run conglomerate, and President Park Geun-hye's longtime confidante Choi Soon-sil who has been indicted for criminal acts in conspiracy with the embattled president.
Choi was charged by prosecutors on Sunday with multiple counts including abuse of power and extortion. Park was identified as an accomplice to Choi, becoming the first sitting president of South Korea to be investigated as a suspect.
Choi, whose friendship with the president dates back to the 1970s, is accused of using the friendship to prod 53 conglomerates, including Samsung, into donating 77.4 billion won (65.9 million U.S. dollars) to two non-profit foundations controlled by Choi.
Samsung made the biggest donations, offering 12.5 billion won to Mir Foundation, a cultural fund, on Oct. 27, 2015 and 7.9 billion won to K-Sports Foundation, a sports fund, on Jan. 12 this year, respectively.
Prosecutors saw the donations as a move to avoid possible government retaliations such as tax inquires, but they also probed whether Samsung donated to get favors in the merger of its two subsidiaries, crucial to the transition of management control.
The investigation would be a key to decide the criminal penalty on President Park and her confidante. By law, abuse of power and extortion are sentenced to a maximum of five years in prison, but conviction of bribery charge amounting to over 100 million won get punishment of at least 10 years in jail or life imprisonment.
According to local media reports, the prosecution office began to look into the merger of Samsung C&T and Cheil Industries last July to create a de facto holding company of the country's largest conglomerate.
It was aimed at helping Samsung Electronics Vice Chairman Lee Jae-yong to succeed management control from his father Chairman Lee Kun-hee, who has been hospitalized for two and a half years on heart attack.
Elliott Management, a U.S. hedge fund, strongly opposed the merger due to an unfair exchange ratio of stocks between the two affiliates. Elliott was the third-biggest shareholder of Samsung C&T before the merger.
Samsung proposed a swap of every Samsung C&T share for 0.35 Cheil Industries stocks. It was favorable to the shareholders of Cheil Industries, in which Vice Chairman Lee and other members of the founding family held a 42-percent stake.
The Samsung proposal was approved on July 17, 2015, as the National Pension Service (NPS), a shareholder of Samsung C&T, voted for it at a general meeting of shareholders. The NPS was the second-biggest owner of Samsung C&T shares at the time.
The merger motion was approved with a 69.5-percent support, just 2.8 percentage points above the two-thirds of the voting stocks required for passage. Without the NPS vote in favor, Vice Chairman Lee may have gotten into a big trouble in the transfer of power.
Local newspaper Hankyoreh reported last week that the presidential office Cheong Wa Dae and then Minister of Health and Welfare Moon Hyung-pyo pressured the pension fund operator to support the merger, citing a member of the NPS's advisory board.
The NPS usually hands over sensitive decisions to the advisory body, but the endorsement was determined by an internal discussion as over half of the advisors were highly likely to oppose the merger.
Citing the minutes of the internal discussion, Hankyoreh's reported on Tuesday that the national pension fund supported the Samsung-proposed exchange ratio though it acknowledged that an exchange of every Samsung C&T share for 0.46 shares of Cheil Industries would be fair.
If it proves that the presidential office pressed the NPS to back the Samsung merger in return for bribes, President Park and her confidante would face the minimum of 10-year imprisonment. Moon, former wealth minister who is the NPS chairman, has denied the allegations.
A week after the merger approval, President Park held an open meeting with 17 conglomerate chiefs on July 24, 2015. Park met separately one by one with seven heads of them, including Vice Chairman Lee Jae-yong.
In the following month, Samsung Electronics began to give 2.8 million euros to a German company owned by Choi. Prosecutors would look into whether there was any quid pro quo for the money.
Vice Chairman Lee and other senior Samsung executives had been summoned by prosecutors for questioning. The South Korean parliament plans to call in Lee as a witness during next month's separate investigation into the scandal involving the president and her friend.
