- Associated Press - Thursday, July 7, 2011

SEOUL — Allegations of multibillion-dollar fraud at banks and revelations by South Korea’s top business conglomerate of shady dealings are forcing the country to grapple anew with a legacy of deep-seated corruption.

State prosecutors have been probing a burgeoning scandal at regional savings banks. The Ministry of Land, Transport and Maritime Affairs has come under a cloud amid reports of officials receiving bribes and being lavishly wined and dined.

Lee Kun-hee, the influential chairman of Samsung Electronics Co. who himself has run afoul of the law more than once over the years, has publicly blown the whistle on corruption within the Samsung conglomerate, the nation’s biggest, and called for a clean-up.

Just last year, South Korea was basking in the global spotlight as the proud host of the Group of 20 economic summit, drawing praise for its journey from grinding poverty to affluence in six decades that included the Korean War and a transition from military rule to a boisterous democracy.

The latest slew of alleged malfeasance highlights a darker side of that transformation as South Korea strives to play a greater international role.

The problem is embedded in the country’s bureaucracy and its Confucian-based culture that emphasizes family connections, regional ties and friendships forged in school, said Kim Taek, a specialist in public administration ethics at South Korea’s Jungwon University.

“Corruption in Korea is a kind of time-honored tradition without which social success would be almost impossible,” he said.

It also can be traced to decades of close links between past authoritarian governments headed by former army generals and the big business conglomerates such as Samsung, Hyundai and the now-defunct Daewoo that drove the country’s industrialization.

South Korea, one of the world’s poorest countries a half century ago, now has a seat at the top tables of global governance such as the G-20, boasts world-beating corporations and has ambitions to be a leader in many fields, including becoming a regional financial center to rival Tokyo and Hong Kong.

The government acknowledges such aspirations are threatened unless the country cleans up its act.

Corruption in the civil service is a “problem that we must overcome to enter the rank of top-class nations,” Prime Minister Kim Hwang-sik told officials.

Some 86.5 percent of respondents in a Korea Institute of Public Administration survey of small and large companies described corruption among high-ranking public officials as “serious” in 2010, the highest result since the poll began in 2000.

Transparency International, a corruption watchdog, gave South Korea a rating of 5.4 in its 2010 corruption perceptions index — midway between highly corrupt and very clean. That ranks South Korea alongside countries and territories such as Botswana, Puerto Rico and Poland but far below many of the developed nations it has sought to emulate.

“Foreign investors are sensitive to the level of corruption as a source of business risk,” Jean-Marie Hurtiger, president of the European Union Chamber of Commerce in Korea, told reporters. “The government should aim for a zero corruption society.”

Prosecutors have filed charges against executives and large shareholders at Busan Savings Bank, accusing them of illegal loans, accounting fraud and other wrongdoing worth more than $6.5 billion.

Operations at eight savings banks have been suspended. In carrying out the probe of the banks, suspicions have arisen that regulators, lawmakers and other officials may have taken bribes and used influence, such as delaying investigations.

Meanwhile, Mr. Lee dropped a bombshell by saying that the massive conglomerate that Samsung Electronics anchors had discovered internal corruption and called for group-wide measures to prevent a recurrence.

The 69-year-old Mr. Lee, South Korea’s richest citizen, whose words and actions are closely watched, said that unspecified “irregularities” were found at Samsung Techwin Co., which makes robots and supplies weapons to the South Korean military.

Mr. Lee’s revelation appears to have been generally well received. The liberal Hankyoreh newspaper, long a Samsung critic, praised what it called “swift and stern measures” such as the resignation of Samsung Techwin’s CEO and the disciplining of officials.

President Lee Myung-Bak is pushing for the establishment of a “fair society” as a key policy aim and has called for corruption to be punished, though it is unclear how successful he will be.

South Korea has cracked down before in the form of high-profile prosecutions, though convictions do not always derail careers. Temporarily disgraced businessmen and officials have ended up back in their previous positions or new ones later on.

Few big shots do time behind bars. They often get suspended prison sentences — adding to perceptions that the rich and powerful can act with virtual impunity.

Judges keep a close eye on what effect their decisions might have on the national economy.

In 2007, an appellate court suspended a three-year prison sentence given to Hyundai Motor Chairman Chung Mong-Koo for embezzlement. The presiding judge said the auto tycoon was too important to serve time.

Samsung’s Mr. Lee was convicted of tax evasion in 2008, fined and handed a suspended prison sentence. He resigned as chairman after his indictment, but returned to the post last year after a nearly two-year absence.

Many convicted executives and officials, including Mr. Lee and Mr. Chung, have received special presidential pardons. The aim is usually to foster reconciliation or pave the way for people with key knowledge, experience and skills to continue to contribute to the country’s development.

“The overall standard of Korea has definitely improved,” President Lee said during a visit to the Financial Supervisory Service to berate officials about the savings bank scandal. “But even though the world looks at us with a greater respect, there are still parts of Korea that seem to reflect an era when Korea was much more backward than it currently is.”

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