Legal insider says Samsung kept $216 mln slush fund

Samsung denied the accusations, saying the allegations made by Kim Yong-cheol were "a repeat of false, distorted and exaggerated claims" he had previously made, adding it planned to bring legal action against him.

Kim, who used to run a legal division but now says he wants to blow the whistle on corruption, said he was taking a major risk by accusing Samsung of wrongdoing and called on law enforcement authorities to conduct a thorough investigation.

"Samsung has created a large-scale slush fund," Kim told a nationally-televised news conference, the second this month accusing his former employer of impropriety.

As Samsung legal counsel he saw secret documents which laid out intricate arrangements between affiliates to channel money to the illegal fund, he said. Some of the money was used to buy art, he said, but otherwise did not specify what it was used for.

Earlier this month, Kim accused Samsung of routinely bribing prosecutors and politicians to quash investigations concerning improper company management.

Last week, South Korea's parliament voted to allow an independent counsel to investigate the Samsung Group.

The bill also authorises an investigation into whether Samsung made improper payments during campaigning for the 2002 presidential election. President Roh Moo-hyun won that election.

Roh, who has about three months left in office, is considering vetoing the bill, his office has said. At the weekend, Roh denied receiving money from Samsung in the form of a congratulatory gift for winning the 2002 election.

Separately, prosecutors are putting together their own team of about 55 people that this week will start looking into the allegations Samsung kept a secret slush fund, an official said.

Samsung wields enormous power in South Korea by its sheer size. The group, with 58 affiliates as of late June, had combined sales of $159 billion in 2006, about one-sixth of the country's gross domestic product for that year.

Several top executives from the country's family-owned conglomerates, known as "chaebol", have been convicted of corruption over the years due to what critics say were cosy ties between politicians and business leaders.

(Additional reporting by Jessica Kim and Marie-France Han, writing by Jon Herskovitz, editing by Jonathan Thatcher and Sonya Hepinstall)