Improper Loans of 88.2 Billion KRW Involving Current and Former IBK Executives Detected
Bithumb Provided High-Value Company Housing to Current and Former Executives Without Internal Controls
FSS: "Financial Companies' Internal Controls Still Weak, Strict Sanctions Planned"
Sehun Lee, Senior Deputy Governor of the Financial Supervisory Service. Photo by Jinhyung Kang aymsdream@
The state-run bank IBK Industrial Bank of Korea was found by the Financial Supervisory Service (FSS) to have improper loans amounting to 88.2 billion KRW involving current and former executives and employees. Virtual asset exchange Bithumb was found to have provided company housing worth 11.6 billion KRW to four current and former executives without internal control procedures. The FSS pointed out that financial companies knew about employee misconduct but tolerated it and failed to properly report related incidents, indicating that internal controls were not functioning, and warned of strict sanctions.
Improper Loans of 88.2 Billion KRW Involving Current and Former IBK Executives Detected
On the morning of the 25th, the Financial Supervisory Service held a briefing at its headquarters in Yeouido, Seoul, disclosing 'Recent FSS Inspection Cases on Improper Transactions with Interested Parties.'
A representative case disclosed by the FSS involved a retired IBK employee, Mr. A, who conspired with his spouse (a loan officer currently employed at IBK) and colleagues who joined the bank at the same time (a loan center head and a branch manager) to receive or arrange improper loans totaling approximately 78.5 billion KRW over about seven years from 2017 to last year.
Mr. A, who worked at IBK for 14 years before retiring, engaged in real estate development and conspired with current executives including his spouse to falsify loan-related documents and self-funding capacity. The involved parties colluded and tolerated these actions, resulting in a total of 51 cases of improper loans amounting to 78.5 billion KRW.
Misconduct by other employees was also uncovered. Mr. B, head of the IBK loan center, conspired with a corporate client while serving as a branch manager to handle improper loans totaling 2.7 billion KRW in five instances. He is also accused of receiving 98 million KRW over two and a half years through his sister-in-law’s salary account. Mr. E, a branch team leader, handled improper loans totaling 7 billion KRW twice without verifying the purpose of funds or loan documentation at the request of retired employee Mr. F.
Sehoon Lee, Senior Deputy Governor of the FSS, explained, "As of the end of last month, the total improper loan balance at this bank was 88.2 billion KRW (58 cases), with an outstanding loan balance of 53.5 billion KRW, of which 9.5 billion KRW (17.8%) has become non-performing." He added, "Following the detection of these improper loans, it has become difficult to roll over loans, so defaults are expected to increase in the future."
The FSS viewed as a major problem that the department responsible for investigating misconduct within IBK attempted to conceal and downplay incidents despite receiving reports of improper conduct by executives and employees, indicating a failure of internal controls. An FSS official emphasized, "The department in charge confirmed the misconduct but submitted false, reduced, and delayed reports to the FSS. During the FSS inspection period, six employees deleted 271 files and internal messenger records under the department head’s instructions, obstructing the inspection in an organized manner."
Senior Deputy Governor Lee said, "Considering the circumstances of multiple record deletions and conversations among related parties, we judged that there were signs of organized concealment at the bank level. Obstructing or deleting data during inspections is regarded as a very serious legal violation."
Kim Sung-tae, President of IBK Industrial Bank of Korea, stated, "We sincerely apologize for causing concern to our customers and the public due to this incident. We will take the FSS audit results as an opportunity for thorough reflection and do our best to implement flawless follow-up measures and prepare prevention plans." He explained that IBK plans to soon announce strong reform measures covering business processes, internal controls, and organizational culture.
Bithumb Provided High-Value Company Housing to Current and Former Executives Without Internal Controls
The FSS also disclosed a case of improper company housing lease contracts at virtual asset operator Bithumb. Bithumb is accused of providing high-value company housing with a total lease deposit of 11.6 billion KRW to four current and former executives without internal regulations or internal control procedures related to support limits, duration, or deposit recovery while operating a leased housing system.
Mr. K, a current executive at Bithumb, decided on his own to provide high-value company housing (lease deposit of 3 billion KRW) for his personal use despite a conflict of interest. It was also revealed that Mr. L, a former executive and current advisor, personally purchased a house and disguised it as company housing for lease, with Bithumb paying him a deposit of 1.1 billion KRW. Mr. L used this to pay the remaining balance on the personal property and later rented the house to a third party without providing it as company housing, collecting a deposit of 2.8 billion KRW.
Senior Deputy Governor Lee explained, "Virtual asset operators are not yet incorporated into the financial sector and thus are not regulated by financial laws. However, as joint-stock companies, some level of internal control should be in place, but the inspection found that this was very laxly operated." He added, "This was exploited for personal gain, contrary to the original purpose of the system."
The impact of this allegation on the renewal application of virtual asset operators is expected to be limited. Senior Deputy Governor Lee said, "This case could be seen as a personal deviation and is unlikely to be viewed as a systemic organizational collapse at the company level. Since this was not cited as a violation or disqualification in the application or review process, it is unlikely to have an impact."
Additionally, at C Nonghyup Cooperative, improper loans totaling 108.3 billion KRW occurred over 392 instances. Mr. M, a legal affairs office manager responsible for C Cooperative’s corporate affairs for over 10 years, brokered improper loans amounting to a tentative 108.3 billion KRW over five years by manipulating housing sales contracts and other documents through his long-established personal network with cooperative executives and employees. Despite multiple suspicious signs in sales contracts and registries, the cooperative neglected to properly verify original contracts, deposit receipts, and actual transaction prices during loan screening.
Senior Deputy Governor Lee emphasized, "We will strictly sanction violations such as improper loans confirmed through inspections according to relevant laws and procedures. Suspected criminal acts by related executives and employees will be reported to investigative authorities, and we will actively cooperate with investigations to clearly establish facts regarding violations and involved parties."
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