Kim Chan-kyung

By Yi Whan-woo

The prosecution is expanding its investigation of banking irregularities after arresting Kim Chan-kyung, chief of one of four suspended savings banks on charges of embezzling 13 billion won ($11.5 million) on Wednesday.

Investigators at the Supreme Prosecutors’ Office will look into allegations that Kim, chairman of the troubled Mirae Savings Bank, raised a 5.6-billion-won slush fund, and illegally lobbied politicians for business favors.

Kim was caught by the Korea Coast Guard on May 2 in an apparent attempt to smuggle himself out of the country to China on a boat.

Lim Suk

The incident occurred before his bank was suspended Sunday along with Solomon, Korea and Hanju savings banks by the Financial Supervisory Service (FSS).

The four ailing institutions failed to meet the capital adequacy ratio recommended by the Bank for International Settlements (BIS) standards. Savings banks are small-sized community banks formerly known as credit unions.

Prosecutors suspect that Kim tried to escape from the country with 13 billion won in company funds. The investigators believe the money was amassed through illegal loans.

Countering the slush fund allegations, Kim reportedly claimed that the money was to be used for his bank to meet the BIS standards.

Prosecutors, however, don’t believe his claim as Kim transported the money in cash divided into 10 boxes on a truck. They suspect that it was to bribe politicians, bureaucrats and regulators to avoid disciplinary action.

Kim allegedly has ties with President Lee Myung-bak and his brother, Rep. Lee Sang-deuk of the ruling Saenuri Party.

Kim took academic courses at Korea University with the then-strong presidential candidate Lee in April 2007. The students were a number of Lee’s acquaintances and Kim built connections with influential political figures at the school, investigators said.

In a related case, prosecutors are also looking into Lim Suk, chairman of Solomon Savings Bank, for lobbying politicians using a slush fund of 10 billion won.

Lim, who is also allegedly involved in the provision of illegal loans and embezzlement, has ties with the politicians. Since the founding the bank in 2002, his financial institution saw rapid growth.

The bank might have been suspended last year due to its shaky financial status since it suffered huge losses from reckless financing for building projects amid the prolonged economic slump.

But it held out until Sunday, mainly thanks to Lim’s ties with the politicians who allegedly exercised influence peddling for the moribund bank in return for cash. He is also suspected of bribing financial regulators into overlooking his bank’s violations of prudential regulations, and other irregularities.