Bank Employees Stealing Customers' Money... 40 Years of Bank Embezzlement History [Song Seungseop's Financial Light]

Embezzlement Incidents in the Banking Sector Highlighted Since the 1990s
Regulators Repeatedly Call for "Strengthening Internal Controls"
Banks Promise "Recurrence Prevention" but to No Avail
Assemblyman Kang Ming-guk: "Financial Services Commission and Financial Supervisory Service Lack Functionality"

Finance is difficult. It is entangled with confusing terms and complex backstories. Sometimes, you need to learn dozens of concepts just to understand a single word. Yet, finance is important. To understand the philosophy of fund management and consistently follow the flow of money, a foundation of financial knowledge is essential. Accordingly, Asia Economy selects one financial issue each week and explains it in very simple terms. Even those who know nothing about finance can immediately understand these ‘light’ stories that turn on the bright ‘light’ of finance.

[Image source=Yonhap News]

[Asia Economy Reporter Song Seung-seop] Recently, embezzlement incidents have been repeatedly uncovered in the financial sector. In the financial industry, which manages customers' money and receives compensation, cases of funds being siphoned off without detection continue to occur. These embezzlement incidents in the financial sector are not new. They have been repeated for decades, and the Financial Supervisory Service’s monitoring and checks, as well as banks’ internal control systems, have been ineffective.

When did bank embezzlement incidents start to attract attention in Korea? The media began to seriously spotlight bank embezzlement in the 1990s. A representative case is the 1993 ‘Ahn Young-mo Bank President Embezzlement Incident.’ Ahn, the president of Donghwa Bank, was caught pocketing 2.5 billion won of company funds. He shared slush funds with 11 executives and squandered 800 million won on living expenses.

Just four years later, another incident occurred at the same bank where a deputy-level employee took bank money and disappeared. At the Chorim Station branch in Bundang, Seongnam City, Gyeonggi Province, the employee stole 500 million won withheld from employees’ salaries. The money, which was in the form of a checking account, was deposited into his own savings account and then withdrawn multiple times in cash. After resigning from the bank, he tried to flee abroad but was stopped by an exit ban and was even wanted by the police.

There were also malicious incidents where customers’ money was withdrawn without authorization. In 1998, a manager-level employee named Lee at Jeonbuk Bank’s Seoul branch embezzled 1.3 billion won and fled overseas. The funds were taken from the checking account of a corporation that was a client of Jeonbuk Bank at the time. After illegally withdrawing the money, he escaped to Hong Kong with his family.

Large banks were no exception. In 1998, at Shinhan Bank, employees took advantage of sharp fluctuations in exchange rates to pocket money. Including four branch managers, a total of 12 people embezzled funds by manipulating foreign exchange transaction statements. They pocketed amounts ranging from a few million won to several tens of millions. At the time, employees at Jeil Bank and Korea Exchange Bank also embezzled company funds using similar methods. As the scandal grew, the Financial Supervisory Service received self-audit reports from banks and promised to strengthen internal control systems.

However, the Financial Supervisory Service’s promises were ineffective. Even during the early 2000s IMF crisis, when the national economy was shaken and citizens suffered, bank employees continued to steal customers’ money, and these incidents were not prevented. On the contrary, embezzlement methods became bolder and the scale grew larger. In 2000, at Bucheon Central Credit Union, an employee embezzled 6.4 billion won. Despite similar embezzlement incidents at Jungang Securities and Peace Bank around the same time, embezzlement recurred. Banks then ordered management of corporate loans.

Bank Embezzlement Incidents Repeated for Decades... When Will They Be Eradicated?

In November 2000, a branch manager at Choheung Bank’s Hwajeong-dong branch embezzled 7 billion won. A local mutual credit union had deposited 7 billion won with the bank, but when the account was checked, only 12 million won remained. The branch manager fled to the Philippines. In the same year, another branch manager at Choheung Bank was arrested for embezzling 2.1 billion won worth of government bonds, which were bank collateral, to invest in stocks.

There were also crimes where consumers, not corporate clients, were deceived and money was embezzled. In 2007, a financial consumer named A deposited 3 billion won in a fixed deposit, but a team leader in the VIP room at Kookmin Bank fabricated a fake product and coaxed the customer by saying, “I will switch you to a product with higher pension returns.” The employee used this method to freely use 1.3 billion won of customer funds for stock investments. Later, the bereaved family filed a damages lawsuit against the company, but Kookmin Bank resisted in court, claiming “this is unrelated to Kookmin Bank’s business execution,” rather than taking responsibility.

Embezzlement incidents are still ongoing. According to data submitted by the Financial Supervisory Service to Kang Min-guk, a member of the People Power Party, from 2017 to May 2022, the amount embezzled by financial sector employees reached 109.1826 billion won. The embezzled amount was 8.9887 billion won in 2017 and increased to 68.7976 billion won this year.

Regarding the 61.4 billion won embezzlement incident at Woori Bank, the Financial Supervisory Service promised strict punishment, and Woori Bank pledged thorough measures to prevent recurrence, but doubts remain. Embezzlement has occurred for over 30 years, and every time banks and financial supervisory authorities have announced recurrence prevention measures and strengthened internal controls, but nothing has changed so far.

Kang Min-guk also evaluated the recent incident as follows.

“The fact that the embezzled amount confirmed over five years in the financial sector exceeds 100 billion won and that the scale of embezzlement is increasing recently shows the absence of functions of the Financial Services Commission and the Financial Supervisory Service.”