The heads of South Korean conglomerates including Samsung, Hyundai Motor and Hanwha appear to have passed a qualification screening by financial authorities, which tested whether they are eligible to run or own financial arms of the group they lead. However, questions are being raised over the effectiveness of the screening, as it allows those who have been indicted on charges of malpractice and embezzlement.

The Financial Services Commission said Sunday, “We found no distinct problems while screening the qualifications of the leaders,” after reviewing major shareholders of 190 credit card, insurance and securities firms on whether they are eligible to run the financial firms. The business tycoons were reviewed as to whether they violated any fair trade, tax evasion or finance-related laws under the revised corporate governance law, which was enforced in August of last year. 

Some industry watchers say the verification process is too soft and more rigorous ethical standards are required for the leaders, who otherwise could disturb the financial and capital markets with their enormous power.

The draft corporate governance law had initially required the leaders be free from special criminal charges, including malpractice and embezzlement. But the charges were later dropped due to opposition from then-ruling Saenuri Party in 2013.

Early this year, the chief of the antitrust watchdog, Kim Sang-jo, who was then a professor at Hansung University, said, “Special crimes should be included in the corporate governance law considering the screening is designed to filter out unqualified major shareholders who may harm the soundness of financial companies.”

If the law is again discussed at the National Assembly to include special crimes, the de facto leader of Samsung, Lee Jae-yong, may face trouble in taking over a stake of Samsung Life Insurance, a key unit of Samsung Group’s governance, from his bedridden father Lee Kun-hee.

Lee Jae-yong, currently detained on bribery charges, is slated to go on trial next month.

“Samsung should not be relieved from the latest conclusion because the law still has room for changes. If Lee is found guilty, he will have trouble in succession,” said Park Ju-gun, the head of corporate analysis firm CEO Score.

Under the revised corporate governance law, the financial watchdog should screen the heads of financial firms every two years to determine whether they are eligible to run the financial firms. When controlling shareholders of financial entities violate finance-related laws, their voting rights can be restricted for up to five years.

The screening of financial firms was originally only for banks and mutual savings banks, but its scope expanded as concerns on the stability of financial firms have risen following the bankruptcy of Dongyang Group, which damaged around 40,000 small investors by inappropriately selling commercial papers and corporate bonds in 2013.

The chiefs who were subjected to the review included Samsung Group Chairman Lee Kun-hee, Hyundai Motor Chairman Chung Mong-koo, Hanwha Chairman Kim Seung-youn and Lotte Chairman Shin Dong-bin.

By Shin Ji-hye (shinjh@heraldcorp.com)