The Seoul Central District Court sentenced Vice Chairman Lee Jae-yong of Samsung Business Group to five years in prison this afternoon. Lee’s Lee's lawyers said they will immediately appeal the case to higher court.
The prosecutors earlier demanded 12 years in prison against Lee on the ground that Lee had offered or pledged 43.3 billion won (US$38 million) to win the government's favorable decision for a merger between two affiliates under terms designed to increase his control over Samsung.
The court ruled that Lee gave 7.2 billion won in bribes.
After a long period of legal battle, business watchers in Korea predicted a tough time ahead for Korea’s top business conglomerate.
There has not been a major tumble among Samsung affiliates since the imprisonment of Lee. Samsung Electronics posted a record-high operating profit of 14.1 trillion won in the second quarter.
Experts, however, said Samsung is expected to face challenges over the long term as the company may struggle to make decisions for key projects including mergers and acquisitions.
The Samsung Business Group, according to Yonhap News Agency, carried out six M&A projects last year, including U.S. Harman International Industries Inc., but no major investment into mergers was made throughout 2017.
As global tech giants are aggressively making investments to take the lead in the artificial intelligence, Internet of Things and virtual reality industries, industry watchers said the prolonged absence in Samsung's leadership may cause the company to fall behind the competition.
Samsung has also been refraining from making changes in executive posts since the hospitalization of Lee Kun-hee, the head of the Samsung empire, in 2014. With the absence of his only son Jae-yong, the company may end up maintaining most of its governing structure this year as well.
Lee Jae-yong focused on restructuring Samsung by selling the defense and chemical affiliates, but his efforts to streamline the portfolio stopped as well.
Industry watchers said Lee's imprisonment will also deal a harsh blow to Samsung's brand reputation around the globe.
Experts said Samsung Electronics may be penalized under the Foreign Corrupt Practices Act, which punishes U.S. firms that engage in bribery overseas. Although Samsung Electronics is not a U.S. company, the scope of the law was extended in 2008, which opened the possibility it could include the South Korean firm, experts said.
If Samsung actually faces regulations under the law, the company can be excluded from U.S. public procurement projects.
Samsung Electronics will also face trouble in utilizing Lee's network of business leaders.
Lee can no longer participate in global gatherings of business officials such as the Boao Forum in Asia or the Business Council.
Following heightened ethical and moral standards in the business community around the globe, industry watchers said the imprisonment of the vice chairman will eventually lead to complications for Samsung's overseas business operations.
"Samsung boasts a thorough governing structure of experts. Its daily business will run without trouble," an industry insider said. "But the conglomerate will face hurdles in making long-term decisions to find future growth engines and strategies."