Gyeongnam Bank Employee Embezzles a Total of 298.8 Billion Won Through 'Round-Robin' to Conceal Accident (Comprehensive)

Announcement of Financial Supervisory Service's Emergency On-Site Investigation Results on the 20th
Overall Internal Control Functions Not Operating Properly

A real estate project financing embezzlement incident involving approximately 56 billion KRW occurred at BNK Gyeongnam Bank. The photo shows a BNK Gyeongnam Bank branch in downtown Seoul on the 3rd. Photo by Jinhyung Kang aymsdream@

The Financial Supervisory Service (FSS) recently announced on the 20th that the amount embezzled in the project financing (PF) loan fraud incident at Gyeongnam Bank reached 298.8 billion KRW. This is more than double the initially reported 138.7 billion KRW. The FSS explained that this fact was confirmed following an emergency on-site inspection conducted since July 21.

The sharp increase in the embezzled amount was due to the perpetrator's "rolling over" scheme. An FSS official stated, "For example, after embezzling 5 billion KRW, the perpetrator concealed the embezzlement by embezzling another 6 billion KRW from a different project, keeping 1 billion KRW and covering 5 billion KRW," adding, "In this way, a total of 298.8 billion KRW was embezzled from May 2009 to July 2022, and the bank's net loss amounted to 59.5 billion KRW."

BNK Financial Group and Gyeongnam Bank Both Neglected Internal Controls

The FSS explained that this large-scale embezzlement incident was caused by the failure of the overall internal control functions for preventing financial accidents at BNK Financial Group and Gyeongnam Bank. According to the FSS, the perpetrator, who was in charge of PF loan operations in the Investment Finance Department for 15 years, embezzled a total of 298.8 billion KRW from 17 PF projects under their management from May 2009 to July 2022.

The FSS viewed that BNK Financial Group's negligence in risk management and operational status inspections of its subsidiaries, including Gyeongnam Bank, led to the failure of internal control functions, which caused the incident. Although BNK Financial Group conducted written inspections related to internal controls at Gyeongnam Bank, it never conducted inspections on the handling and management of high-risk PF loans after Gyeongnam Bank became a subsidiary. Furthermore, even during BNK Financial Group’s own inspections of Gyeongnam Bank, aside from physical inspections, there were no records of head office accident prevention inspections.

Gyeongnam Bank’s internal control procedures were generally inadequate regarding credit management such as loan disbursement related to PF loans and personnel management including segregation of duties. There was no procedure to control loan disbursements to ensure that loans were paid only through legitimate accounts specified in the loan agreements. Procedures for handling loan repayments were not established, and borrowers were not notified of loan execution or repayment details.

Additionally, the perpetrator was assigned to the same department handling PF loans for 15 years and also performed post-management duties for the PF loans they handled, indicating a lack of proper segregation of duties. No mandatory leave was ever taken for the high-risk tasks of handling and post-managing PF loans.

Delayed Response Despite Knowing About the Embezzlement

The FSS pointed out that the response after discovering the embezzlement was also delayed. Both BNK Financial Group and Gyeongnam Bank recognized signs of financial misconduct related to the perpetrator in early April but delayed reporting, citing the need for internal investigations to verify facts. BNK Financial Group only began its own inspection of Gyeongnam Bank around late July, resulting in a slow initial response to the incident.

An FSS official stated, "We plan to strictly take measures against the perpetrator and related executives and employees for illegal and improper acts identified through the inspection results, in accordance with relevant laws and procedures, after further confirming the use of the embezzled funds." The official added, "Once the embezzlement and on-site inspection are completed, we will actively cooperate with investigative authorities by sharing related information to clarify the facts."