Bureaucrats hit in savings bank probe

By Kim Tong-hyung

Just when it seemed like the corruption scandal engulfing financial authorities and secondary financial institutions couldn’t get any worse, a series of fresh allegations are cropping up as investigators probe deeper into supervisory failings.

Prosecutors in Seoul Friday filed for an arrest warrant for Kim Gwang-soo, commissioner of the Korea Financial Intelligence Unit (FIU), who they questioned for about 12 hours Thursday over his suspected influence-peddling on behalf of the troubled Busan Savings Bank Group.

Also caught up in the mess is former Financial Supervisory Service (FSS) Governor Kim Jong-chang, now accused of maneuvering illegal financing for the Busan Mutual Savings Bank that was nearly toppled in the recent crisis.

Investigators have so far arrested more than 10 retired or incumbent financial bureaucrats over their alleged corrupt connections with savings banks.

Meanwhile, unpleasant words are flying left and right between the ruling Grand National Party (GNP) and the opposition Democratic Party over a growing list of lawmakers linked to the scandal that is quickly expanding into a national row.

Presiding over a meeting of policymakers Friday, President Lee Myung-bak lashed out at financial authorities’ ineptitude to properly monitor the savings banks and said that the tradition of ``jeongwanyeu,’’ or public officials getting plush private jobs after retirement, has been breeding complacency.

``The `jeongwanyeu’ practice runs against our attempts to achieve a fair society. Unless we weed out this tradition, Korea could never become an advanced, first-class nation,’’ Lee said.

FIU’s Kim is accused of taking tens of millions of won in bribes from Busan Savings Bank last year, then as a GNP advisor, in exchange for providing favors and peddling influence to help the bank escape punishment for illegal business activities.

Kim also may have also helped the bank acquire two smaller savings banks in 2008, then as the chief of the FSC’s financial services division, prosecutors said.

The former FSS governor’s connections with the Busan Savings Bank also go deep. Kim claims he had divested his 4 percent stake in the bank, worth around 400 million won (about $370,000), when he took the helm at the financial regulator in 2008.

However, prosecutors now suspect that he had secretly held on to the shares through the Asia Trust Fund, a real estate investment company he founded, and an unidentified third person.

Kim’s shares in Asia Trust had been initially held in his wife’s name, and upon becoming FSS governor, the shares were entrusted to a person identified as Park, who is known to be Kim’s schoolmate.

However, since there is no record of Kim ever receiving money from Park over the transactions, investigators suspect that the shares were given in confidence, a practice that is normally considered unlawful as it could be used to evade taxes and conceal property ownership.

According to financial records, Asia Trust invested 1 billion won to acquire 0.52 percent of Busan Mutual during its rights offering in June last year. It was obviously massive spending for the real estate investment firm that had been reporting losses of 1.6 billion won up to that period, which adds to the suspicion concerning Kim’s relationship with the savings bank.

There are also allegations that Kim attempted to persuade Prime Minister Kim Hwang-shik to ease up on the investigation on Busan Mutual after the eruption of the banking crisis.

Busan Mutual and its affiliates were among the eight savings banks suspended by financial authorities since February after their finances were found to have deteriorated by soured construction loans.

Many of the country’s savings banks indulged in a lending spree over the past decade, principally funding construction companies and making real estate investments, to exploit the massive speculative demand spawned in the property market.

This all came tumbling down in the economic turmoil that erupted in 2008, which had banks running for cover and calling in loans. Borrowers unable to repay created a massive problem for a large number of savings banks before the FSS mercifully pushed them to the sidelines.

Busan Mutual has been garnering particular attention after it was found that the bank tipped off important customers, which included a number of government officials, about its impending suspension to allow them to withdraw their money in advance.

The bank was also found to have provided illegal loans and other unlawful benefits to some of its major shareholders to the tune of 7 trillion won (about $6.47 billion), and law enforcement officials are now seeking the prosecution of company chairman Park Yeon-ho.