Largest embezzlement case in Korean history exposed at BNK Kyongnam Bank

A customer enters a branch of BNK Kyongnam Bank in Seoul, Aug. 2. Yonhap

By Lee Yeon-woo

The Financial Supervisory Service (FSS) has confirmed that the extent of embezzlement in the recent real estate project financing (PF) scandal at BNK Kyongnam Bank is significantly larger than initially thought, with the total amounting to 298.8 billion won ($224 million). This stands as the largest embezzlement case ever recorded in the Korean financial market.

According to the FSS on Wednesday, an employee identified only by his surname, Lee, embezzled 298.8 billion won while working in the PF department from 2009 to July 2022. He fabricated documents for loan transactions for real estate developers that had never actually requested loans, totaling 102.3 billion won. He also unlawfully diverted loan repayments from developers, amounting to 196.5 billion won.

Lee then transferred the embezzled funds to accounts belonging to his family, acquaintances or accounts he had opened without authorization. It is known that he used the embezzled amount to buy real estate and gold bars, finance his children's overseas education and invest in stocks.

The net loss of BNK Kyongnam Bank due to the embezzlement was tallied at 59.5 billion won.

“This massive embezzlement happened because the overall internal control systems of BNK Financial Group and BNK Kyongnam Bank have failed to operate properly,” FSS noted.

Since BNK Financial Group acquired the bank in 2014, it has not conducted any internal investigations in PF departments, despite the high-risk nature of the business.

The fact that the bank's internal audits were either conducted without specific reasons or executed poorly, leading to the long-term failure to detect the embezzlement, exacerbated the extent of the incident.

Furthermore, both the group and the bank intentionally delayed reporting to the financial regulator, even though they became aware of the embezzlement case in April. Consequently, the employee remained and continued to work in the same department until July. No mandatory leave was enforced for the employee during that period.

“We will further verify where the embezzled funds were used. Based on the investigation results, strict actions will be taken against the individuals involved in illegal and unfair practices,” FSS said.