Busan's $8 Billion Fiasco
Wrapping up an eight month investigation into the fall of Busan Savings Bank that started in March, prosecutors last week charged over 100 people in the most costly financial scandal in Korean history. The total amount of the fraud eclipsed $8 billion.
BUSAN, South Korea -- Imagine waking up to your morning cup of coffee and the newspaper and reading that your entire life savings had just vanished over night. This nightmare is a reality for thousands of Busan residents who put their faith, trust and, most importantly, their money into the Busan Savings Bank Group.
While the money is gone, there was some, albeit a minor, semblance of justice served up last week as investigators wrapped up the eight-month investigation that began back in March. The Central Investigation division at the Supreme Prosecutor’s office said Wednesday that bank officials, executives and government regulators have been found guilty of doling out $5.6 billion in illegal loans, committing accounting fraud of $2.7 billion and, to add insult to injury, paying out personal dividends of $8.9 million.
Busan Savings Bank was the highest ranking financial institution in terms of total assets among the nation's savings banks in 2010. But the investigation found that the bank illegally used customer’s private savings to run a series of speculative businesses, including construction of apartments and resorts, which affected more than 20-thousand customers.
Prosecutors have indicted over 100 people involved in the fraudulent operations with 20 of those being major shareholders and members of the board of directors directly responsible for overseeing the bank’s lending procedures.
One of the biggest fish hauled in by the prosecution was the Financial Supervisory Service (FSS) Governor, Kim Jong Chang, who illegally held a stake in Busan Savings Bank --a direct violation of Korean ethics laws. Kim is suspected of having violated rules on the ethics of public servants by having 40,000 shares worth $360 million of a real estate firm that invested in the bank last year.
According to Korean law, Kim was required to dispose of the stock or place it in a blind trust before being appointed to the post in March 2008. He instead transferred it to his wife’s name according to the prosecution.
It is also speculated that Kim used his influence to exert pressure on the real estate firm, Asia Trust, to invest nearly $9 million in Busan Savings Bank to keep them afloat as losses due to failed property investments both in Korean and abroad began snowballing last year. However, the prosecution was unable to sufficiently prove that there was influence-peddling on the part of Kim.
Executives from Samhwa Mutual Savings Bank, Busan Mutual Savings Bank and Bohae Mutual Savings & Finance Co. were also charged.
Other FSS officials were also indicted for dereliction of duty including nsufficient inspections, according to the prosecutors’ statement. The far-reaching net also includes a former presidential public relations secretary and a former national auditor who were both accused of taking bribes to cover up the financial irregularities.
Read more from Tory Mock