FSS Requests Investigation of Loan Company CEO Embezzling 2.8 Billion Won of Company Funds

The Financial Supervisory Service (FSS) announced on the 29th that during a special inspection targeting loan companies, it identified allegations of embezzlement and breach of trust by CEO B of loan company A, who diverted approximately 2.8 billion KRW of company funds under the name of temporary payments, and has requested an investigation.

The FSS became aware of this case while conducting a special inspection of 10 loan companies (5 money lending companies and 5 debt collection companies) as a follow-up measure to the "Illegal Private Financing Livelihood Field Meeting" presided over by President Yoon Seok-yeol last year.

CEO B, who is also the representative and major shareholder holding 100% of the shares of loan company A registered with the Financial Services Commission, diverted about 2.8 billion KRW of company funds under the name of temporary payments from 2011 until the end of last year. B used these funds for investments in overseas corporations he owns, as well as for leasing fees of foreign cars for family and acquaintances.

Additionally, B arranged for company A to provide a loan of about 400 million KRW to company C, which he wholly owns, but did not make efforts to recover the loan until the statute of limitations for the claim expired. As a result, company A lost the right to collect the loan from company C, causing losses to company A.

The FSS reported the case for investigation, considering that B’s withdrawal and use of large sums of company funds under the name of temporary payments without interest or repayment agreements and for purposes other than company expenses may constitute embezzlement under the Act on the Aggravated Punishment of Specific Economic Crimes, and breach of trust under criminal law for failing to take reasonable measures to collect the loan after it was issued.

The FSS plans to conduct a written inspection of transactions with related parties such as major shareholders and CEOs for 963 loan companies registered with the Financial Services Commission (with assets of 10 billion KRW or more) as of the first half of last year, considering the possibility of additional cases similar to company A. For loan companies where transactions with related parties have continued for a long time or where the proportion of such transactions relative to total assets is significant, the FSS intends to strictly verify illegal activities through on-site inspections. A special inspection will also be conducted on the details and recovery status of temporary payments to related parties.

The FSS stated, "We will promptly request investigations for illegal activities identified during inspections, while raising industry awareness and promoting compliance consciousness." It also announced plans to recommend institutional improvements to the Financial Services Commission, including amendments to the Loan Business Act, to include embezzlement and breach of trust as disqualifying factors for major shareholders in order to systemically block illegal activities by major shareholders of loan companies.