[See Part 1 of the Ultimate Choi Soon-sil-gate Explainer here]
As promised, here is Part 2 of the Ultimate Choi Soon-sil-gate Explainer.
I. OVERVIEW
Because the amount of Choi Soon-sil’s corruption is completely overwhelming, it is a good idea to approach this huge list with a sense of direction.
Choi Soon-sil
(source)
The general modus operandi of Choi Soon-sil has been as follows: Choi would receive the president’s plan for governance, and ran her own “shadow cabinet” that would give comment on the presidential policy plans. In doing so, Choi placed her cronies and her cronies’ cronies in significant policy-planning positions (usually those in pop culture and sports promotion sectors,) and dismissed those who would not go along with her plans. With the cronies in place, Choi and her cronies steered a significant portion of Korea’s national budget to their companies, most of which were shell corporations that did not actually perform the work for which they were contracted or did so in a shoddy manner. Choi and her cronies also peddled influence with Korea’s largest corporations, sometimes stealing outright and sometimes granting certain favors. Choi’s pattern of corruption was the most brazen when it came to her daughter, who fraudulently gained admission into the prestigious Ewha Womans University based on a dicey equestrian scholarship.
The net result is astonishing. It is not an exaggeration to say that Choi Soon-sil was involved in virtually every major policy initiative from the Park Geun-hye administration. Choi received national security briefings and gave comments on Park’s Dresden speech, the most significant pronouncement of South Korea’s policy on North Korea. Choi and her cronies steered the budget allocated for upcoming Pyeongchang Winter Olympics. Korea’s largest corporations—including most notably Samsung—lined up to curry favor with Choi, and their bribery changed the fate of the companies in a very real sense. Through the privatization of governmental power, Choi Soon-sil was on her way to creating a vast network that would be ostensibly engaged in promoting culture and sports, but in fact would pay her and her cronies.
II. HOW TO USE THIS EXPLAINER
Because there is so much ground to cover, I divided the currently outstanding allegations into following categories:
A. Interfering in State Affairs
B. Hiring and Firing
C. Stealing National Budget
D. Stealing from Corporations
E. Horseplay
F. Drug Use and Sewol Ferry Disaster
To make this list useful, I gave a number to each allegation, which is grouped with other similar claims.
I made this list by reading the Korean news coverage of this scandal for the past month. Each allegation has a hyperlink to Korea’s newspaper or TV station that reported the story. Obviously, everything below is no more than an allegation, as there has been no trial that actually assessed the veracity of these claims. I do have a solid BS detector when it comes to Korea, so I only included the allegations that rose beyond the speculative level. If you don’t like this list, you can ask for a full refund of the money you paid me to read my blog.
III. SUPER BASIC STUFF YOU SHOULD KNOW
Korea's president Park Geun-hye lives in Cheongwadae, also known as the Blue House because of its blue tile roof. Blue House is itself a large bureaucracy, in which presidential aides work. The aides are organized into ten departments, whose heads are called "chiefs" [수석]. This is a separate thing from the cabinet, which is made up of several ministries headed by ministers, much like the U.S. cabinet is made up of departments headed by secretaries. When you envision Korea’s executive branch, you should visualize the Blue House giving orders to various ministries. The President and the Blue House aides would set the policy direction, and the ministers would receive the directives to execute them.
Choi Soon-sil had a close group of cronies who executed her corrupt plans. The most important cronies were Blue House chief Woo Beyong-u and other Blue House aides who served Choi’s eyes and ears within the presidency. Other important cronies include Kim Jong, who is the Vice Minister of Culture, Sports and Tourism, and Cha Eun-taek, a K-pop music video director who actually implemented the Choi’s plan to swindle the government and extort corporations. Choi also actively used her family, including (now divorced) husband Jeong Yoon-hoi, daughter Jeong Yoo-ra and niece Jang Si-ho.
If you are ready, after the jump is the comprehensive list of all allegations of corruption against Choi Soon-sil.
Got a question or a comment for the Korean? Email away at askakorean@gmail.com.
IV. THE ALLEGATIONS
A. Interfering with State Affairs
A.1. Receiving State Briefings. Through her cronies planted in the Blue House, Choi Soon-sil received highly confidential policy materials from the Blue House long before they were made public. In particular, Choi Soon-sil received:
A.1.a. Cabinet meeting briefings,
A.1.b. Major economic initiatives such as the plan to boost the real estate market.
A.1.c. Drafts of major presidential speeches, including the Dresden Address in which Park Geun-hye famously declared that Korean unification would be a “bonanza” (or daebak.) [See A.2.c.]
A.1.d. Plans for Major personnel moves including, the Prime Minister, head of the National Security Agency (Korea’s spy agency,) head of the Supreme Prosecutor’s Office and Blue House chiefs.
Armed with this information, Choi Soon-sil could plant her own crony in significant positions [see B.1.a., B.1.b.] and adjust her holdings in a way that would benefit from Korean government’s policies. [See A.2.d., C.4.a.]
A.2. Setting National Policy. Choi Soon-sil and her cronies not only received the state briefings, but actively participated in giving comments and setting policy directions.
A.2.a. Park Geun-hye herself directed her aides to send documents to Choi Soon-sil, and would ask questions like: “Did Choi confirm this?” Yoo Jin-ryong, former Minister of Culture, Sports and Tourism, claimed that after he resigned, the new minister and vice ministers ran policies by Choi’s crony Cha Eun-taek for his approval. For her part, Choi Soon-sil would complain that it was “tiresome to coach the president on every little thing.”
Go Yeong-tae, former fencer and Choi
Soon-sil's gigolo (source)
A.2.b. Choi would run her own “shadow cabinet” of sorts, made up of Cha Eun-taek, Choi’s gigolo Go Yeong-tae, Lee Seong-han who was the chairman of Choi’s bogus foundations [see D.1.a.], and so on. The “Choi cabinet” would meet at a coffee shop in Gangnam that Choi Soon-sil owned [see A.2.d., C.2.d.]. Choi Soon-sil would host the leaders of Korean politics and business at this café, essentially running her own private Blue House. In fact, a Blue House security team was assigned to a building nearby the café, presumably to guard Choi Soon-sil. Choi also accompanied Park Geun-hye when the president was traveling abroad.
A.2.c. Choi Soon-sil’s favorite activity, according to her gigolo, was to edit presidential speeches. Choi edited the Dresden Address, presidential remarks at a cabinet meeting, presidential commemorating the May 18 Gwangju Massacre, etc.
A.2.d. Choi’s most astonishing interference is the “Report for Supporting Korea’s Creative Culture,” which is essentially a budget proposal for the Ministry of Culture, Sports and Tourism. In the report, Choi demanded a budget of more than US $160 million for construction of cultural centers, creating culture promotion programs, etc. [See C.1.b.] Of course, Choi’s shell companies would be designated to run these programs, allowing Choi and her cronies to pocket the money. For example, Choi planned to franchise her café and have the café be the exclusive coffee shop for the “K-Sports Club,” the local sports clubs that the government would build. The budget was approved in late 2014, and Choi Soon-sil’s projects were in the early stages of implementation when the scandal was revealed. [See C.2.d.]
B. Hiring and Firing
As it is the case for any enterprise, Choi Soon-sil’s corruption plan depended on placing the right people in the right places. In some cases, Choi Soon-sil and her cronies would put people they could trust into positions of power; in other cases, Choi would simply reward people loyal to her with outrageous positions. Choi and her cronies were likewise diligent in getting rid of people who got in their way.
B.1. Hiring in Government. Choi Soon-sil placed as many cronies as possible in the Blue House, other government positions and state-owned corporation positions, particularly those involved in doling out culture and sports-related budget.
B.1.a. The most significant Choi Soon-sil ally is Woo Byeong-u, a Blue House chief whose wife was friends with Choi. Because Woo had a distinguished career as a prosecutor, his appointment did not cause much of a stir. But Choi also turned her personal trainer Yoon Jeon-chu into a Blue House aide, which did cause a stir. (Yoon’s former clients also included movie stars Jeon Ji-yeon and Han Ye-seul.) Choi also turned one of her nephews and the nephew’s friend into Blue House aides. Astonishingly, the last job that Choi’s nephew had was a temp position for a department store. The Blue House aides, in turn, interfered with appointments of high-ranking police officials.
B.1.b. Choi and her cronies involved themselves in a number of appointments. The most significant one appears to be Jeon Dae-ju, ambassador for Vietnam. In Korea, ambassador positions are given almost exclusively to those who worked for the Ministry of Foreign Affairs for a very long time after passing the very difficult civil service exam. Jeon, however, was a businessman and had no government experience at all. Choi Soon-sil was also involved in appointing the head of the Korean Cultural Center in New York and Paris, as well as the head of the Korea Creative Content Agency or KOCCA. (Anyone who watched a Korean band at SXSW should be familiar with KOCCA—that is the agency that is in charge of sending the musicians to Austin, Texas.)
B.2. Hiring in Private Sector. Choi Soon-sil also influenced hiring in the private sector as a part of her influence-peddling.
B.2.a. Choi maintained a substantial amount of assets in Germany, in which she planned to retire after Park Geun-hye administration was over. Choi’s banker who ran the German subsidiary of the KEB Hana Bank received a rapid promotion to an executive position after he returned to Korea. Ahn Jong-beom, one of the Blue House chiefs who was also Choi’s crony, called the Korean Air to demand a promotion for a manager in Korean Air’s Frankfurt office. The manager was promoted to run Korean Air’s Jeju office, but soon was accused of sexual harassment. Ahn, the Blue House chief, called again to prevent the manager’s termination. (Korean Air refused, and the manager was terminated. Blue House retaliated for this slight. [See B.4.b., C.4.d.])
Kim Yeong-jae, Choi Soon-sil's
plastic surgeon (source)
B.2.b. By all indications, Choi is a fan of various medical procedures, including plastic surgery and prescription sleeping medication. [See F.2.a.] Kim Yeong-jae, Choi’s personal plastic surgeon, received an adjunction position at the prestigious Seoul National University Medical School, although Kim lacked the requisite qualifications. Kim would also unofficially accompany Park Geun-hye on her presidential visits to foreign countries. [See B.3.b.]
B.3. Firing in Government. Like any good HR manager, Choi and her cronies were efficient in getting rid of people who got in the way.
B.3.a. Anyone within the government who attempted to dig into the connection between the president and Choi Soon-sil was purged. The early attempt to reveal Choi Soon-sil happened in late 2014, when it was alleged that Choi’s husband Jeong Yoon-hoi was interfering with the Blue House business despite having no official position. (Of course, we know today that the real mastermind was not Jeong, but his wife Choi Soon-sil.) Cho Eung-cheon, former Blue House chief in charge of internal audit, was the one who raised this issue. For his trouble, Cho was terminated and prosecuted for violating confidentiality laws. Cho was found not guilty, but one of the former Blue House aides who assisted Cho’s internal investigation received seven years in prison, which was reduced to suspended sentence on appeal. Choi Gyeong-rak, a police officer who was assisting Cho, committed suicide after coming under Blue House pressure. After 2014, the Blue House kept a black list of prosecutors who they considered unfavorable.
The Blue House also cracked down on members of the media on this issue as well. [See B.4.a]
B.3.b. Government officials who failed to meet Choi Soon-sil’s objectives were also purged. Park Geun-hye personally named two under-ministers (next in line after minister and vice minister) of the Ministry of Culture, Sports and Tourism to be fired, for producing a report concerning the fishy judging of an equestrian event in which Choi Soon-sil’s daughter competed. [See E.1.b.] When Choi’s plastic surgeon Kim Yeong-jae’s plan to market into Kazakhstan failed [see B.2.b], the head of Korean Culture Center in Kazakhstan was summarily dismissed despite having a year and a half left in his term. Government initiatives that seemed to duplicate the efforts of Choi Soon-sil’s fake foundations were also cancelled. [See D.1.a.]
B.3.c. More commonly, government officials in the Park administration chose to hit the “eject” button as hard as they could. For example, Minister of Culture, Sports and Tourism Yoo Jin-ryong resigned after seeing the Blue House terminate the under-ministers. [See B.3.b.]
B.4. Harassing Media, Corporations and Civilians. While Choi and her cronies could not directly fire people in the private sector, they brought all of the government’s force onto bear to harass those who were in their way.
B.4.a. Using Korea’s liberal defamation laws, the Blue House sued the newspapers and individuals who dared to expose Jeong Yoon-hoi and Choi Soon-sil. Blue House aides sued the journalists and editors of Segye Ilbo, the newspaper that initially reported on Jeong Yoon-hoi’s improper influence over the Blue House [see B.3.a.] for defamation. (The suit was later dropped.) Blue House also indicted journalists who inadvertently got close to Choi Soon-sil—such as Kato Tatsuya of Japan’s Sankei Shimbun, who reported on the rumor that president Park Geun-hye was with Jeong Yoon-hoi during the Sewol ferry disaster. [See F.3.a.] During the interrogation for criminal defamation, Kato recalled that the prosecutors were particularly interested in how much he knew about Choi Soon-sil.
B.4.b. Choi Soon-sil extorted from large corporations, and punished the corporations that refused to pay into her slush fund. The biggest corporate victim of Choi was Hanjin Group, which is affiliated with Hanjin Shipping and Korean Airlines. Hanjin has been a thorn in the side of Choi Soon-sil and the Blue House. Korean Airlines terminated its employee accused of sexual harassment despite Blue House pressure. [See B.2.a.] Cho Yang-ho, president of Hanjin Group, was serving as the chairman for Pyeongchang Winter Olympics Organization Committee, and refused to give a subcontract to a company owned by Choi Soon-sil and Cha Eun-taek. [See C.4.d.] Hanjin only contributed around US $800,000 to foundations owned by Choi Soon-sil, a small amount relative to other large corporations that paid into Choi’s slush fund. [See D.1.a.] For this, the Ministry of Culture, Sports and Tourism pushed Cho out of his chairman position. Three months later, Hanjin Shipping—the sixth largest shipping company in the world—filed for bankruptcy, despite the expectation that the Korean government would step in to bail out one of the largest companies in Korea that would cause a massive ripple effect on the Korean economy.
CJ E&M was also a major victim. Although CJ paid more into the slush fund [see D.2.a.], the fact that CJ produced a television show satirizing Park Geun-hye and a movie with a positive narrative about the former president Roh Moo-hyun was a reason enough to harass the company. Cho Won-dong, a Blue House chief who was one of Choi’s cronies, called CJ E&M’s vice president and forced her to resign.
B.4.c. Choi Soon-sil and her cronies also harassed individuals who did not cooperate with their plans. Choi had the gall to harass figure skating champion Yuna Kim—perhaps the stupidest thing that Choi could have done, considering Yuna Kim’s messianic stature as Korea’s greatest sports hero. Choi’s crony Cha Eun-taek was promoting a calisthenics program [see C.2.e.] and asked Yuna Kim to help with the promotion. Kim refused, and was denied the 2015 Sportsman of the Year Award from Korean Sport & Olympic Committee despite being the overwhelming favorite based on her stellar performance at the 2014 Winter Olympics.
One of Choi Soon-sil’s most significant projects was her daughter Jeong Yoo-ra, who was admitted to the prestigious Ewha Womans University based equestrian scholarship. [See E.2.c.] When Jeong came in second in an equestrian competition, the police came at the end of the competition and arrested the judges. When an Ewha professor noted that Jeong missed too many classes and may fail the class, Choi Soon-sil personally visited the professor and screamed into her face. Fearing for her safety, the professor later left the country.
C. Siphoning the National Budget
With the ability to influence the Korean government’s policy direction, Choi Soon-sil and her cronies set Korea’s national policies such that the government budget would come to their pockets. They did so by operating a number of companies, some of which were relatively legitimate ones rendering actual services. More commonly, Choi’s companies were shells whose sole purpose was to serve as a vessel for money. Choi particularly focused on culture and sports promotion, which naturally led her to the biggest upcoming culture and sports event in Korea—the Pyeongchang Winter Olympics in 2018.
C.1. Riding the Hallyu Cash Wave. For the last decade, Korea has had a consistent governmental project to promote its culture abroad. As it turned out, this was the easiest money for Choi and her cronies to steal.
C.1.a. Have you ever wondered why the booths sponsored by the Korean government at KCONs around the world are so shitty? Wonder no more. One of Choi Soon-sil’s companies, ostensibly engaged in the business of events planning, was running the KCON and took a large cut of the budget. At KCON France 2016, for example, Choi’s company received around US $550,000 to operate a booth for introducing Korean food. The booth served cold pastries and hardened rice cakes. Choi’s company also handled cultural events in Mexico, Ethiopia, Uganda and Kenya, as well as the events for Korea-ASEAN summit meeting, stealing government budget in the process..
C.1.b. Korean government also operates Korean Cultural Center around the world. Choi Soon-sil essentially set the budget for the cultural centers opening up in new locations. (She also controlled personnel movements of the existing cultural centers. [See B.1.b.]) Choi’s “shadow cabinet” demanded that a Korean Cultural Center open in Abu Dhabi, and the center indeed opened in March of this year. [See A.2.d.] If this scandal was not revealed, Choi and her cronies surely would have pocketed the budget allocated for Korean Cultural Center Abu Dhabi. Choi’s cronies also were also pursuing “K-tower” projects in Iran and Myanmar, setting up a building filled with stores related to Korean cultural products—with Choi’s shell company taking a cut.
C.1.c. Choi Soon-sil also wanted Kim Yeong-jae, her personal plastic surgeon, to have an overseas presence, although the plastic surgeon was a solo practitioner with few special qualifications. [See B.2.b., B.3.b.] The doctor accompanied the president’s international trip in an unofficial capacity, and negotiated local governments—usually in the Middle East—about opening an international office. When the doctor failed to make headway abroad, Korea’s diplomats paid the price. [See B.3.b.]
C.1.d. One of Park Geun-hye administration’s major initiatives was the “creative economy”—which may as well have been Cha Eun-taek’s personal piggy bank. Korean government allocated approximately US $110 million on constructing “creative culture centers” around Korea. Cha spent most of the budget, but the whereabouts of the money remains a mystery, as the Minister of Culture, Sports and Tourism specifically prohibited his subordinates to audit the expenditure. Cha also envisioned a “K-Culture Valley,” which was to be a massive complex holding a theme park, concert halls, traditional houses to be used as guest houses, etc. CJ E&M won the bid for the construction, and received massive discount on the rent to be paid on the land that was not previously in the plans. (Aside: if you see a tacky government project in Korea that is called “K-something” or another, at this point you can safely assume that it had to do with Choi Soon-sil.)
C.2. Siphoning Sports Budget. In addition to cultural budgets, Choi Soon-sil focused on stealing the budget allocated for sports events. Because Choi’s daughter and niece were involved in horseback riding [see E.1.a.], and Choi’s gigolo Go Yeong-tae was previously a gold medalist in fencing in the Asian Games, there was a cover for Choi to be involved in sports business.
C.2.a. Korean government has been developing the mountain ridges on Korea’s eastern coast—which includes Pyeongchang, the site for the Winter Olympics—to attract tourists. The development plan includes a horseback riding park, to be run by Choi Soon-sil’s family.
C.2.b. Ministry of Culture, Sports and Tourism compelled a casino company to start a fencing team for the disabled. (It is ordinary for Korea’s corporations to sponsor a sports team, but definitely not ordinary for the government to order the sponsor.) The casino company found that all the athletes for the team had an exclusive contract with a management company owned by Choi Soon-sil. In other words, the casino company was simply paying Choi by way of its fencing team that it was ordered to create.
C.2.c. Pursuant to the Dresden Address (which Choi Soon-sil edited [see A.1.c., A.2.c.],) Korean government was planning to establish a DMZ World Peace Park. The park includes a sports complex that would host events for North and South Korea. Choi Soon-sil’s shell company was supposed to run the sports complex, which was never built because of tensions between the two Koreas.
C.2.d. Korean government had a program to promote local sports by setting up around the country “K-Sports Clubs,” whose management rights Choi Soon-sil attempted to obtain. Because the management rights for a new club was easier to obtain, Choi’s cronies attempted to open a number of new K-Sports Clubs in Namyangju, Dangjin and Gochang. In addition to general management rights, Choi attempted to operate the coffee shops and stores inside the club. [See A.2.b.]
C.2.e. Cha Eun-taek won the government bid, worth around US $300,000, to create a calisthenics program. Cha paid less than US $7,000 to the person who actually created the calisthenics regimen. The sports stars who refused to participate in the promotion of the calisthenics regimen—most notably Yuna Kim—were frozen out of government awards and subsidies. [See B.4.c.]
C.3. Miscellaneous. Of course, culture and sports were hardly the only budget items that Choi Soon-sil and her cronies grubbed on.
Cha Eun-taek (center), a K-pop music video director and
one of Choi Soon-sil's major cronies (source)
C.3.a. Cha Eun-taek’s advertisement company suddenly won a bid to make a TV commercial for Financial Services Commission, Korea’s equivalent of the Securities and Exchange Commission. The FSC had no previous plan to make the advertisement, and there was no competitive bidding. Cha made the commercial mostly by hiring subcontractors, whom he did not pay until moments before he was arrested.
C.3.b. Cha Eun-taek’s crony set up a school for advertisement professionals and received around US $1.2 million in government subsidy. There was no competitive bidding for winning the subsidy.
C.3.c. Choi acted as Park Geun-hye’s clothing coordinator, and had a budget of nearly US $2 million a year. But one of Choi’s employees who was working in Choi’s dress room studio said Choi did not spend more than US $200,000 in tailoring for the president. The president’s jacket was less US $200, and her shirt was less than US $20. For accessory, Choi gave Park Geun-hye a cheap purse that her gigolo designed.
C.3.d. Choi’s personal plastic surgeon Kim Yeong-jae also got a piece of the action. [See B.2.b, B.3.b., C.1.c.] Although Kim was hardly renowned in his field, his small clinic received around US $1.2 million in government subsidies for researching the material for stitches.
C.4. Pyeongchang Olympics. Choi Soon-sil’s focus on culture and sports budget naturally led her to the biggest upcoming culture and sports event of Korea—the 2018 Winter Olympics in Pyeongchang.
C.4.a. Choi Soon-sil had advance knowledge that Korean government would push for Olympics in Pyeongchang, and held large plots of land in the region. Choi’s land was not approved for development, but she was developing the land against regulations at any rate—and no government action was taken until the scandal was revealed.
C.4.b. As she did with other government contracts, Choi Soon-sil and her cronies inserted themselves in the big ticket items of the Olympics. Choi’s shell company won the US $125 million bid for constructing the temporary structures, whose expenditures are difficult to track because the structures are taken down after the Games are over. Choi Soon-sil’s niece Jang Si-ho established a Winter Sports Talent Development Center, ostensibly for the purpose of nurturing young talents in winter sports, and swindled the government assistance. (Samsung also “donated” more than US $1 million to this center. [See D.3.a.])
C.4.c. Choi and her cronies also ensured that the Olympics would please Park Geun-hye’s personal sensibilities. Although Pyeongchang’s mascot was set as a tiger and a bear, Minister of Culture, Sports and Tourism Kim Jong-deok, a Choi crony, insisted that the mascot should be changed to a Jindo dog, Park Geun-hye’s pet. This forced the Organization Committee Chair Cho Yang-ho to make an emergency trip to the International Olympics Committee to change the mascot. The IOC refused the change, apparently because Koreans eat dogs.
C.4.d. Cho’s failure to change the mascot, as well as his tendency to require strict compliance with the bidding rules for the Olympics-related contracts, made him a thorn on Choi Soon-sil’s side. Eventually, Minister of Culture, Sports and Tourism Kim Jong-deok forced Cho to resign from being the chairman of the Organization Committee. [See B.4.b.]
D. Influence Peddling with Corporations
In a country like Korea where the government sets the industrial policy, controlling the government necessarily means having a significant leverage with corporations. Choi Soon-sil, naturally, maximized these opportunities as well. Choi’s main vehicles for dealing with corporations were two “foundations”—Mir Foundation and K-Sports Foundation, which were ostensibly established for developing sports talents. Choi and her cronies in the Blue House, including the president herself, met with the leaders of Korea’s major corporations to ask for “contribution” into those foundations. In exchange, Choi would give out contracts and other favors.
D.1. Straight-Up Extortion. Much of Choi Soon-sil’s collection efforts were exactly that—extorting money for no benefit in exchange (except perhaps the benefit of not being driven into bankruptcy.)
D.1.a. Choi Soon-sil set up Mir and K-Sports Foundation in 2014, ostensibly for discovering and nurturing sports talents. In the process, the Ministry of Culture, Sports and Tourism disbanded its own program doping the same. [See B.3.b.] Choi apparently wanted to set up the foundation to assist her daughter, a gold medalist in dressage in the Incheon Asian Games 2014. [See E.1.b.]. Initially, normal people led both of the foundations, but they were quickly replaced by Choi’s cronies. (Choi Soon-sil tapped the man who was running her favorite massage shop as the chairman of K-Sports Foundation.) When the initial chairman of Mir Foundation demanded more transparency in the foundation’s operation, a Blue House chief called him to tell him to resign.
Federation of Korean Industries, the association for Korea’s 53 largest corporations, essentially served as the money collector for these two foundations. The Blue House and Park Geun-hye herself ordered the FKI to put in more than US $645 million into the two foundations, and allocated the amount among the different corporations, with the implied threat that the companies would face tax audits and unreasonable delays in all government actions.
Of course, the foundations hardly spent this money into their stated purpose of developing sports talent. One of the biggest expenditures was to take out massive insurance policies (essentially acting as a savings account) for Choi’s cronies.
D.1.b. The US $645 million contribution was only the first round of extortion. After the first round, Park Geun-hye met with the chairman of Lotte Group to demand another US $62 million—while the chairman was under investigation for embezzling his company’s money. After some resistance—which included the offer to actually build a physical sports center—Lotte eventually ponied up the cash. Choi Soon-sil also demanded POSCO open a badminton team to be managed by her management company. [See C.2.b.] POSCO initially refused, but later opened a fencing team and paid US $1.2 million to Choi’s company for management fee.
D.1.c. Choi Soon-sil and her cronies did not just steal money; sometimes, they attempted to steal a whole company. In early 2015, POSCO planned to sell off its subsidiary called Poreka, an advertisement company. Lotte and a smaller company called CommTogether expressed interest in acquiring Poreka. At this point, Park Geun-hye personally ordered that Poreka cannot be sold to a large company, effectively taking out Lotte from the bidding process. Then Choi’s crony Cha Eun-taek attempted to acquire Poreka through Cha’s shell company, but POSCO would not sell to Cha’s shell because the shell had no history of being in the advertisement business. After CommTogether acquired Poreka, Cha had his crony (Song Seong-gak, head of KOCCA) threaten CommTogether’s CEO into giving up the company, claiming the government would “bury [him] and eliminate [his] company through tax audits.” Because CommTogether held on until the end, Poreka remained with CommTogether.
D.1.d. Cha Eun-taek wanted Poreka because getting advertisement contracts was one of his main ways of stealing money. [See C.3.a.] The Blue House ordered major corporations to give advertisement contract to Cha’s company. Hyundai Motors, for example, gave a US $5 million contract for advertisement production to Cha, who never entered into the formal bidding process. Similarly, Korea Telecom gave Cha a US $5.5 million contract for advertisement, although Cha’s company had little previous experience in creating a major advertisement company for large corporations like KT.
D.1.e. Choi’s cronies had many other ways to steal from corporations. Cha Eun-taek, for example, sold one of his buildings to a subsidiary of Ottogi, a major food manufacturer, for a price that was at least US $1.8 million higher than the market rate. Jeong Yoo-ra, Choi Soon-sil’s daughter, had standing letters of credit from KEB Hana Bank, allowing her to obtain loans up to US $380,000 as a teenager.
D.2. Giving Out Deals. To her (dubious) credit, Choi Soon-sil did not simply steal from Korean corporations. Once becoming aware that Choi was in the position to control policies and direct contracts, corporations engaged in a quid pro quo with Choi.
D.2.a. All of Korea’s major corporations were compelled to pay into K-Sports and Mir Foundations. [See D.1.a.] Lotte Group saw the payment as an opportunity to win government bids—specifically, in duty free stores. Although Lotte lost out in the earlier bidding process to open a new duty free store, it obtained the approval after it paid more than US $2 million into Mir Foundation. CJ Group paid US $1 million into the two foundations because Park Geun-hye implied in the meeting with CJ that she would pardon its former CEO Lee Jae-hyeon, who was imprisoned for embezzlement and tax avoidance. After CJ paid, Lee received a special pardon from the president, and won the bid for the construction of K-Culture Valley. [See C.1.d.]
The smaller Daelim Corporation paid less into the foundations—only around US $500,000—but it managed to put its employee and a former employee on Mir Foundation’s board. Daelim was prohibited from entering into government construction bids because of prior anti-competitive behavior, but it received an early reprieve last year.
D.2.b. Of course, the influence-peddling was not just through the two foundations. Lee Yeong-bok, owner of the company that managed the luxurious LCT condos in Busan, was Choi Soon-sil’s friend, and accordingly LCT condos received a designation for investment immigration, allowing foreign investors into the condos receive permanent residency in Korea. In one instance, Choi Soon-sil had the president to compel Hyundai Motors to award a contract to a car parts manufacturer—which was owned by the parents of Choi’s daughter’s friend.
D.3. Samsung. Korea’s flagship corporation deserves a special section here, because it continued its tradition of excellence by finding the way to outdo Korea’s other large corporations in this scandal. What separates Samsung is the fact that it managed to find the most efficient use of its bribes, such that it may have leveraged the bribe money into the greatest benefit.
D.3.a. What is remarkable about Samsung’s relationship with Choi Soon-sil was that Samsung focused on the thing that Choi cared for the most—namely, her daughter Jeong Yoo-ra and the horses that Jeong used for equestrian competitions. [See E.1.a.] Initially, Samsung had the plan to contribute US $15 million to Korea Racing Authority, the government body that oversees equestrian events. Although the plan did not actually materialize, it was widely understood that the contribution was meant to flow to Jeong. At some point, however, Samsung decided to cut out the middle man and pay Choi and Jeong directly, paying more than US $6.5 million to Choi’s shell companies in Germany—ostensibly for the purpose of sponsoring Jeong’s equestrian training. Samsung, through an affiliate, also purchased a horse park in Germany for US $2.2 million, presumably for Jeong’s use. Samsung Electronics’ German subsidiary also bought several horses to be rented to Jeong for free. For good measure, Samsung also paid more than US $1 million to a bogus sports talent development center run by Choi Soon-sil’s niece Jang Si-ho. [See C.4.b.] Samsung is the only company that paid Choi Soon-sil directly, rather than through K-Sports and Mir Foundations—proving once again that one doesn’t get to be Korea’s greatest corporation without outworking others.
D.3.b. Through this relationship, Samsung may have gotten out the greatest value. As is the case with many Korean and Japanese corporations, Samsung has an extremely complicated corporate structure that enables its founding family—currently headed by the third-generation heir Lee Jae-yong—to control the entire group while actually holding few shares. In 2015, as Samsung Group was attempting to hand over the reins from Lee Jae-yong’s father Lee Kun-hee, it announced that Cheil Industries, one of Samsung subsidiaries, would acquire another subsidiary Samsung C&T. Cheil’s acquisition of C&T had very little business purpose; the only point of the merger is to allow Lee Jae-yong, who held a large share of Cheil, to pick up C&T’s shares for cheap and ultimately control the whole Samsung Group.
Elliott Management, a U.S. hedge fund, attempted to play the spoiler in Cheil’s attempt to acquire Samsung C&T. Elliott, which managed to quietly acquire a significant portion of Samsung C&T, opposed the merger with Cheil unless Cheil was willing to pay significantly more for Samsung C&T’s shares. The decision came down to Korea’s National Pension Service. The NPS is the fourth largest pension fund in the world, and was the second largest shareholder of Samsung C&T. Both Lee Jae-yong and Elliott appealed to the NPS, and the NPS ended up deciding in Lee Jae-yong’s favor and approved the merger, although the NPS was aware that it would lose money as a result of its vote.
NPS is supposed to be an independent, quasi-governmental organization with its own board of directors and investment committee that would vote to maximize its returns. But there are now allegations that the NPS did not make its own investment decision in the Cheil-Samsung C&T merger. Rather, former Blue House chief Ahn Jong-beom—one of Choi Soon-sil’s cronies—directed the NPS as to how it should vote. As a result of the merger, the NPS lost nearly US $300 million, but the Samsung Group was able to transfer its control to Lee Jae-yong at a low cost.
E. Horseplay and Ewha University
Jeong Yoo-ra, Choi Soon-sil's daughter
(source)
Amid her corruption spree, Choi Soon-sil focused particularly on something about which any Korean mother would care the most—her daughter’s college admission. Because Choi’s daughter Jeong Yoo-ra was not the sharpest tool in the shed, Choi concocted a plan to backdoor Jeong’s admission by way of equestrian scholarship.
E.1. Horseplay. The first step in Choi’s plan to send her daughter to college was to turn her into a decent horseback rider.
E.1.a. It appears that Choi Soon-sil got the idea of equestrian scholarship from her niece Jang Si-ho, who was herself a rider and was admitted to the prestigious Yonsei University on equestrian scholarship. (Jang’s admission to Yonsei is also under investigation.) Generally speaking, sports or art scholarship that involves a huge upfront cost—which causes a tiny field of competition—is an oft-used backdoor for Korea’s rich but dumb children to gain admission into prestigious colleges. For example, Cho Hyeon-ah of Korean Airline’s “nut rage” fame (and incidentally, daughter of Cho Yang-ho, the former chairman of the Pyeongchang Olympics Organization Committee) was trained as a harpist to gain admission into Seoul National University. A harp is very expensive; a horse is more so. (But of course, Jeong Yoo-ra received her horses for free from Samsung. [See D.3.a.])
E.1.b. Unsurprisingly, Jeong was not a very good rider. One equestrian event judge who saw Jeong’s game video said Jeong was not a rider but a passenger, being carried around on a horse like a piece of luggage. Transforming Jeong into a championship level rider meant a thorough combination of intimidation and bribery, which was easy in Korea which only has around 5-6 professional judges for equestrian events. After one event where Jeong, then senior in high school, failed to win the first place, Choi Soon-sil had the local police to have the judges under arrest. [See B.4.c.]
As a result of heavy bribery and intimidation, Jeong barely made the cut to make the Korean National team for 2014 Incheon Asian Games. Although she came in 8th place for the individual event, she won a gold medal in team dressage.
E.2. Going to College. With the hard-earned gold medal at hand, Jeong Yoo-ra would try her hand at getting into Korea’s best colleges, and landed in Ewha Womans University. (Aside: Please don’t email me to tell me I misspelled “women’s” in Ewha Womans University. The misspelled “womans” was a deliberate choice by the school’s founder, American missionary Mary F. Scranton, who chose the ungrammatical singular form based on the belief that her students should respected as individuals.)
E.2.a. Jeong Yoo-ra built her reputation as a dressage athlete by competing in events since childhood. In most of her events, however, she competed alone—because Korean Equestrian Federation allowed a “competition” to be held as long as there was just one participant. In 2008, for example, Jeong Yoo-ra as a 13-year-old participated in five events and won all five. But she was the sole participant in four of the competitions, and the fifth competition only had one other rider.
E.2.b. Jeong barely attended high school. In her senior year, she came to school only 17 days out of the year. Jeong’s classmates recalled that she would show up in the morning, sleep through classes and went home before lunch time. Although high school athletes are limited to participating in four competitions a year, Jeong competed six or seven times a year to boost her record. When Jeong’s teacher reminded her that she could not enter into more than four competitions a year, Choi Soon-sil visited the school to scream at the teacher for thirty minutes in the middle of the class, with all of the students looking on bewildered. Choi also attempted to bribe the teachers into giving passing grades to her daughter. (To the teachers’ credit, most of them refused th