Corruption widespread at credit ratings agencies

By Kim Jae-won

Corruption is widespread at the nation’s three credit ratings agencies as they accept financial resources from companies they evaluate, then suspend filing public notice of their negative ratings for more than one year, an opposition party lawmaker said Tuesday.

Rep. Kim Hae-young of the Minjoo Party of Korea said that all of Korea Ratings, Korea Investors Service and Nice Investors Service were cautioned by the Financial Supervisory Service in May 2015 for violating the Credit Information Law and related regulations. The one-term legislator for Busan’s Yeonje District obtained the documents from the FSS.

Two directors of Korea Ratings accepted financial resources, such as money, goods and services, from companies they evaluated in 2011 and 2012, according to the regulator, though they are prohibited from doing so by the law and regulations. The FSS declined to unveil how much they were given.

And such bribery worked. The agency suspended filing public notice of six companies’ credit ratings for up to 13 months on the request of the corporations which worried that negative ratings may increase their funding costs. Banks charge interest rates on loans based on a corporation’s credit rating.

Executives and employees at Korea Investors Service, a Moody’s affiliate, also received financial resources from the companies they rate. The agency paid part of the directors’ bonuses based on the number of companies they evaluate, pressuring them to make favorable ratings for them.

Nice Investors Service was not an exception. Four directors of the agency accepted financial resources from three companies they assess, hurting its reputation seriously.

Corruption at credit rating agencies is being made known to the public amid an anti-corruption law titled the Kim Young-ran Act, which is expected to be effective from Sept. 28 after a year-and-a-half grace period.

According to the act, civil servants, journalists and teachers are prohibited from being served meals worth more than 30,000 won ($27) from people related to their business and work. They are also banned from receiving gifts of more than 50,000 won and gift money for weddings and funerals worth 100,000 won.