LEE MYUNG-BAK CLEARED IN BBK SCANDAL

C O N F I D E N T I A L SEOUL 003464

SIPDIS

SIPDIS

E.O. 12958: DECL: 12/10/2014
TAGS: KN KS PGOV PREL PINR
SUBJECT: LEE MYUNG-BAK CLEARED IN BBK SCANDAL

Classified By: POL Joseph Y. Yun. Reasons 1.4 (b,d).


1. (C) Summary: On December 5, the Prosecutor's Office
announced that Lee Myung-bak was clear of suspicion in the
BBK stock manipulation scandal. While the United New
Democratic Party (UNDP) and others have vowed to continue to
fight to unearth Lee Myung-bak's connection to the scandal,
the official announcement by the Prosecutor effectively means
the end of BBK until after the presidential election. More
importantly, the announcement should take the wind out of
independent candidate Lee Hoi-chang's sails. UNDP candidate
Chung Dong-young has pinned his hopes on unifying liberal
candidates and connecting Lee Myung-bak to BBK. With one of
his key goals out the window, Chung must now focus his
efforts on trying to finish ahead of Lee Hoi-chang. Lee
Myung-bak, who already enjoyed a 20 percentage point lead
over the next most popular candidate, is likely to show even
stronger poll results, making his win all but decided. End
Summary.

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Lee Myung-bak Cleared
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2. (C) The Seoul prosecutor's office announced today that
they found no evidence supporting allegations that Grand
National Party (GNP) candidate and presidential frontrunner
Lee Myung-bak co-owned the BBK asset management company with
Kim Kyung-joon (aka Christopher Kim). A senior prosecutor
said there was no proof that Lee rigged share prices in
collusion with Kim.

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No Hope for Other Candidates
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3. (C) The announcement is bad news for the other candidates
who counted on Lee's culpability to boost their own support
ratings. UNDP candidate Chung Dong-young's team has
repeatedly told poloffs that Chung was sure to attract some
of the 25 percent of undecided voters who seemed to be
waiting for the BBK announcement to commit. Conservative
independent candidate Lee Hoi-chang -- who had a strong hold
on second place until the latest KBS poll where he dropped to
third -- justified his late entrance into the race citing the
need for an alternative conservative candidate in the event
Lee Myung-bak was implicated in the scandal. Now that the
allegations have been dismissed, some Lee Hoi-chang
supporters will likely switch their support back to the GNP
candidate. A December 5 KBS poll showed some Lee Hoi-chang
supporters have already started to leave as he fell to third
place in that poll (Lee Myung-bak, 42.1 percent; Chung
Dong-young 18.9 percent; Lee Hoi-chang 18.2 percent) after
holding a firm grasp on second place for over a month.


4. (C) Since last weekend, the prosecutor's office had been
signaling Lee Myung-bak would be cleared of BBK-related
charges. The impending announcement spurred a flurry of
mergers with People's First Party candidate Shim Dae-pyoung
joining Lee Hoi-chang and Chung Mong-joon joining Lee
Myung-bak. Also various Democratic Party lawmakers and
officials split off and pledged support for either Lee
Hoi-chang or Lee Myung-bak. Also, Moon Kuk-hyun announced
his intention to merge with Chung Dong-young.

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Efforts to Keep BBK Alive
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5. (C) The other candidates, who seem to have pinned their
hopes on BBK, will try to keep the issue alive, but probably
without much impact. The UNDP announced that if the
prosecution does not reveal the full report of their
investigation because of "political considerations," the
party will push for the establishment of an independent
counsel. With the National Assembly in recess, it is
unlikely the party will be able to make good on that threat
before the election.


6. (C) Despite this, the pro-government UNDP put a bill
forward today requesting an independent counsel to
investigate further, but it is unlikely to affect the
December 19 election. For such a bill to pass, the National
Assembly must open a special session, which is virtually
impossible before the election. Also, the bill has almost no
chance to pass the Legislative and Judiciary Committee so the
bill would have to be brought directly to plenary by the
Speaker of the Assembly. While a special session is likely
to occur after the election to deal with the budget and other
pending bills, it would be difficult for it to pass the
plenary even if the Speaker brought it to a direct vote.


7. (C) Erica Kim, Kim Kyung-joon's sister, will hold a press
conference in the U.S. refuting the prosecutors' findings.
The family also released a hand-written note, written by Kim,
saying prosecutors agreed to commute his sentence if he
denied Lee's involvement in the scandal. The prosecutors
denied such a deal ever existed and said it was Kim who tried
to make a deal. The prosecutor's office also declared that
the contract "proving" Lee's ownership of BBK that Kim
Kyung-joon presented in his defense was forged. The Kim
siblings have cried wolf enough times that people are
unlikely to pay attention to further allegations by either
Kim.

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Comment
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8. (C) Now that Lee Myung-bak is clear of BBK-related
charges, it is hard to imagine a scenario in which he will
not be the next president of Korea. The mad scramble by
candidates and lawmakers to merge with each other emphasizes
many have conceded this election to Lee Myung-bak and now are
looking for the best way to set themselves up for the April
2008 National Assembly elections or even the next
presidential election in 2012.
VERSHBOW