Samsung Group chief Jay Y. Lee was arrested on Friday over his alleged role in a corruption scandal rocking the highest levels of power in South Korea, dealing a fresh blow to the technology giant and standard-bearer for Asia's fourth-largest economy.

Samsung reveals executive reshuffle as corruption scandal continues ©BBN 

Corruption Probe Deepens Samsung's Issues

The special prosecutor's office accuses Lee of bribing a close friend of President Park Geun-hye to gain government favors related to leadership succession at the conglomerate. The 48-year-old Lee, scion of the country's richest family, was taken into custody at the Seoul Detention Centre early on Friday after waiting there overnight for the decision. The company's de facto leader Lee Jae-yong has been arrested for bribery, embezzlement and perjury in connection with the country’s corruption scandal in a big setback for South Korea’s largest conglomerate that could hinder its succession and restructuring plans.

Lee is a suspect in an influence-peddling scandal that led parliament to impeach Park in December, a decision that if upheld by the Constitutional Court would make her the country's first democratically elected leader forced from office. Samsung and Lee have denied wrongdoing in the case. Prosecutors have up to 10 days to indict Lee, Samsung's third-generation leader, although they can seek an extension. After indictment, a court would be required to make its first ruling within three months. Prosecutors plan to question Lee again on Saturday. No decision had been made on whether Lee's arrest would be contested or whether bail would be sought, a spokeswoman for Samsung Group said. 

Sensitive Time For the Company

Shares in Samsung Electronics ended Friday down 0.42% in a flat wider market. Ratings agencies are not expecting any impact on the flagship firm's credit ratings, claiming that Lee's arrest would accelerate improvements in management transparency and corporate governance. While Lee's detention is not expected to hamper day-to-day operations at Samsung firms, which are run by professional managers, Bloomberg experts said it could hinder strategic decision-making at South Korea's biggest conglomerate, or chaebol. Samsung is going through a restructuring to clear a succession path for Lee to assume control after his father was incapacitated by a heart attack in 2014. Decisions that could be complicated by Lee's arrest include deliberations over whether to reorganize the group under a holding company structure, as well as its plan to abandon its future strategy office, a central decision-making body that came in for criticism during the scandal. Staff moves have also been in limbo. Samsung, which employs around half a million people, has yet to announce annual personnel promotions and changes, which it typically does in December.

A Scandal with a Wider Impact in South Korea

Prosecutors have focused on Samsung's relationship with Park, 65, accusing the group of paying bribes totaling 43 billion won ($37.74 million) to organizations linked to Choi to secure government backing for the controversial 2015 merger of two Samsung units, a deal that was seen as key to smoothing Lee's succession. Major business groups criticized the company arguing that this scandal will increase uncertainty and undermine global confidence, posing a big burden on the already struggling South Korean economy. Lee's incarceration comes as Samsung Electronics tries to get past last year's disastrous roll-out of its Galaxy Note 7 smartphones, which were prone to fires. It is under pressure for the upcoming launch of its next flagship phone, the Galaxy S8, to be a success.