KB Group internal feud continues

By Choi Kyong-ae

Lee Kun-ho Kookmin Bank president

Internal conflicts at KB Financial Group are not likely to subside soon despite recent penalties imposed by the financial authorities on the group’s executives for business malpractices.

KB Kookmin Bank, a flagship unit of the country’s biggest financial company by assets, on Tuesday reported three executives at KB Kookmin and KB Financial to the Seoul Central Prosecutors’ Office on charges of “obstruction of business within the group,” a bank official said Wednesday.

Among them are Chief Information Officer and Senior Managing Director Kim Jae-youl and IT Planning Department General Manager Moon Yoon-ho from KB Financial Group and KB Kookmin Bank IT Managing Director Cho Geun-cheul, said the group and the bank.

If found guilty by prosecutors, they could face a jail sentence of up to five years or up to 15 million won ($14,800) in fines for their alleged involvement in forcible obstruction of business within the group, according to KB Kookmin Bank.

KB Kookmin said the three executives misled the bank’s board of directors by failing to include potential risks from using a Unix-based online banking system in a report submitted to the directors. In April, the board approved the changeover to the Unix-based system from an International Business Machines (IBM) Main Frame system for reasons of cost.

In a disciplinary sanction review held at the Financial Supervisory Service (FSS) last Thursday, the three executives were slapped with a reprimand warning for failing to report the risk factors associated with the Unix system.

There are five steps of disciplinary measures that the FSS could take against executives: a warning, a cautionary warning, a reprimand warning, suspension of duties, and recommendation of dismissal.

But KB Kookmin was not satisfied with the FSS ruling. The bank looks determined to get down to the bedrock of the case with the help of prosecutors.

“If the computing system of KB Kookmin Bank, the country’s biggest bank, breaks down, it could cause major problems to the national economy. It is not acceptable that they intentionally dropped the (Unix system’s) potential shortcomings,” KB Kookmin Bank President Lee Kun-ho said in a telephone interview with a local newswires services on Tuesday, according to the bank.

Lee also said that it is obstruction of business if the executives didn’t include the Unix system’s potential risks. “It does not stop with a wage cut of up to three months. The executives should be thoroughly investigated for their wrongdoings,” the bank said.

In an indictment submitted to the prosecutors’ office, KB Kookmin argued that the Unix system went down many times and failed to pass the test.

On Tuesday, Lee fired the bank’s IT chief Cho Geun-cheul for his involvement in the “intentional” failure caused by the Unix system. Separately from the prosecutors’ investigation, the bank is planning to seek outside help to establish the full truth of what occurred, if necessary, the bank said.

KB Kookmin President Lee and KB Financial Group Chairman Lim Young-rok have been at odds over the changeover of the computing system used by the financial group since May, a month after the board’s changeover decision.

KB Kookmin’s board members push for the system’s change into the Unix system from the IBM’s Main Frame because local banks are increasingly adopting the Unix due to its improved operational stability and lower costs. KB Financial Chairman Lim is also widely believed to stand for the Unix.

The state-run Korea Development Bank said on Wednesday that it changed the Main Frame into the Unix 10 years ago without any major problems. Banks such as KB, Woori Bank and Standard Chartered Bank Korea still use the Main Frame.

Lee said his disagreements with Lim over the changeover issue were not included in a report submitted to prosecutors.

KB Financial also said Wednesday that the selective reporting has nothing to do with internal disputes between the two chiefs but didn’t elaborate further.

Meanwhile, Lim and Lee were also given a cautionary warning last week for their disagreement over the system change and mismanagement of a massive leakage of customer information and illegal loans at KB Kookmin’s Tokyo branch.