Prosecutors have launched an investigation into corruption scandals at Korea’s Kookmin Bank at the request of the Financial Supervisory Service (FSS)

2013-11-27 16:10

Prosecutors start probe of Kookmin

CEO apologizes for corruption scandals
By Kim Rahn

KB Kookmin Bank CEO Lee Kun-ho bows during a media briefing at the bank’s building in central Seoul, Wednesday, while apologizing for allegations of corruption made against the lender

Prosecutors have launched an investigation into corruption scandals at KB Kookmin Bank at the request of the Financial Supervisory Service (FSS).
Former and incumbent CEOs of the lender and its parent company, KB Financial Group, will be subject to questioning.Officials of the Seoul Central District Prosecutors’ Office said Wednesday that they are examining documents related to several allegations surrounding bank staff, including embezzlement at the bank’s headquarters and the creation of a slush fund at its Tokyo branch.
“The FSS asked us Monday to investigate alleged corruption by some employees. It was a request for probes into the individual staff in question, but we’ll look into the case more thoroughly to see if the corruption involved only those individuals or more people,” a prosecutor said.
Although the prosecution did not disclose who they will question, it is believed that executives who headed the bank and the group at the time of the alleged illegalities will be included ― former KB Financial Chairman Euh Yoon-dae and former Kookmin CEO Min Byong-deok.
Current KB Chairman Lim Young-rok may also be subject to the probe as he was president of the group under Euh.
Kookmin Bank CEO Lee Kun-ho made a public apology for the scandals Wednesday, saying he will take full responsibility. He was appointed in July.
“The scandals should not have happened at a bank where customers’ trust is key. We’ll cooperate with the FSS to verify the cause of the incidents and undertake a strong, fundamental reform drive to prevent them from recurring,” he said in a media briefing.
Lee said the bank will take necessary measures to compensate customers for any damage, regarding the alleged embezzlement.
Apart from the prosecution’s probe, the FSS has been conducting special investigations into the lender with more than 10 inspectors ― the largest number ever assigned to look into allegations against a single financial company. But if prosecutors find additional irregularities during their probe, the FSS may expand its investigation.
It is alleged that some workers at the bank’s headquarters embezzled some 9 billion won by forging documents on housing loans. Another allegation is that employees at the lender’s Tokyo branch created a slush fund by receiving high commission fees in return for extending illegal loans.
However, FSS officials suspect the corruption may be more serious than initially suspected.
They said the amount embezzled could actually be more than 10 billion won. They also suspect more than 10 employees were directly or indirectly involved in the scheme, a larger number than initially suspected, three.
“Considering the number of involved staff, the amount of embezzlement may be larger than expected,” an FSS official said.
It is said one of the staffers used to work at the bank’s inspection department, suggesting there were lax internal controls.
As for the slush fund allegation, it is said some 50 million won was brought to Korea and spent to buy department store vouchers ― a larger amount than the 30 million won originally suspected.
The authorities have not found out yet for what purpose the bank bought the vouchers, but suspicions are that they were used to bribe executives of Kookmin or KB Financial, or even policymakers.
Following the snowballing allegations, the FSS recently summoned Lee on Monday and demanded the lender revamp its internal monitoring system.
“We demanded changes in both hardware and software ― changes in every aspect,” the official said.
In response, the lender set up a management reform committee of 18 executives that will analyze the bank’s problems and come up with reformative measures in four sectors ― customer protection, employee ethics, communications and internal monitoring.
In the meantime, former bank chief Min said he was willing to return incentives he received recently after retirement, saying it was inappropriate to receive the money while investigation was ongoing.