A series of previously unthinkable fraud and information leaks have hit the Korean financial community hard, showing how vulnerable our financial system is

2014-02-10 17:44

Biggest financial scam

A series of previously unthinkable fraud and information leaks have hit the financial community hard, showing how vulnerable our financial system is.
The Financial Supervisory Service (FSS) last week revealed that the nation’s leading commercial and savings banks were unaware ― for more than five years ― of a massive loan fraud case in which an employee of KT ENS, a network operating subsidiary of KT Corp., embezzled nearly 300 billion won in loans allegedly in collusion with a number of subcontractors. The employee, surnamed Kim, is suspected of having issued fake bonds using an official stamp stolen from the company to the subcontractors, which were then used as collateral to take out loans from the banks.    
The fraudulent activity began in May 2008 and was perpetrated nearly 100 times through to last month, when the FSS finally discovered the scam during its inspection of a savings bank. Of the 300 billion won in loans, about 220 billion won was from Hana, NH NongHyup and KB Kookmin banks, while the rest came from 14 savings banks.
KT ENS and the banks are busy shifting the blame onto each other in the biggest loan scam, raising the possibility of massive legal disputes.
KT ENS denies its responsibility, saying it was perpetrated by an individual worker and had nothing to do with the company. The affiliate of KT, the nation’s second-largest mobile carrier, argues that the banks should have been more prudent in screening the loan applications.
The banks claim that KT ENS should pay back the loans, noting that Kim, a company official, spearheaded the scam and that the official company stamp was on the documents submitted to the banks. Brokerage houses, which had provided payment guarantees to the bonds, also hint at lawsuits against KT ENS, saying the collateral was bogus.
Whatever the results of the lawsuits may be, our concern is that banks habitually pass on such losses to customers by, for example, raising lending rates down the road.
The financial authorities have launched an intensive audit into all financial companies, including banks, to find similar irregularities in lending, but this is the time for them to plunge a scalpel into the “predatory’’ financial system across the board.
In fact, the latest loan fraud case has laid bare the two faces of our financial firms, which give confidence to large companies blindly while being too picky toward households and smaller firms. The result is that more than 1 million middle-class people have seen their credit ratings downgraded since 2008.
Given that financial companies should play a role in allocating resources efficiently by managing customer credit elaborately and providing best customer services, the flawed financial system must be rectified as soon as possible.