The Financial Supervisory Service recently announced that 77 scammers were arrested in collaboration with police. The scammers pocketed approximately 150 billion won ($133.6 million) by cheating individual investors with the promise of high returns -- as much as 230 percent. Most fraud victims were housewives or retirees in their 60s or 70s. They pursued relatively higher interest rates in a low interest rate environment. Lured by the scammers, they ended up losing considerable amounts of money they had saved. When it comes to financial fraud, promising high returns such as in fundraising without permission, the FSS discovered 3.4 times more cases in the first half of this year compared to the same period last year. In particular, 64 fraud cases are under investigation. When it comes to voice phishing, scammers pretended to be officials from legislative authorities or the police. These days, however, voice phishing scams have become increasingly sophisticated, and scammers deceive people by posing as loan brokers and requiring money in the name of a guarantee fee or credit level adjustment. In this circumstance, damage caused by voice phishing is soaring again, ending a period of continuous declines.

Amid concerns over low interest rates and economic downturns, a number of people want to borrow money for an emergency and investors are eager to invest in high-return quality assets. Financial scammers have taken advantage of this situation and illegally siphoned off money by beguiling them. This kind of financial fraud has been increasing, and Korea is not alone regarding this issue. In China, two voice phishing groups were arrested in Guangzhou and Qingdao, and a total 41 suspects were apprehended. The Japanese government also declared war on voice phishing and has mobilized a special police squad to arrest con artists. With damage amounting to an estimated 11 trillion won, illegal financial activities have undermined a financial order and destabilized people’s lives. In addition, the activities are major obstacles to financial reform efforts the Korean government has made.

The FSS has cooperated with the National Police Agency and other financial entities to develop multifaceted strategies and implement them for eradicating illicit activities. Having announced measures to combat “five financial evils” last year, the FSS also came up with special measures to tackle six major illegal financial activities in April this year. The five financial evils and six major illegal financial activities indicate typical unlawful practices, including voice phishing, unauthorized fundraising and illegal loan sharking. Based on the measures the FSS has announced over the last two years, various practical methods for financial consumer protection were developed and have been implemented in two ways: one is to improve relevant financial systems and the other is to raise awareness through promotional activities.

When it comes to financial system improvements, the FSS and NPA signed a memorandum of understanding on cooperation with focus on tackling financial crime, and established a system for reporting to police and onsite prevention/arrest to prevent damage caused by voice phishing. Voice phishing scammers deceive people into withdrawing money from banks, and the system is to prevent people from being lured. Since the system was put in place, police have successfully prevented 217 cases of voice phishing with total prospective damage estimated at 4.9 billion won and arrested 54 criminals involved in the scams in 75 days. Regarding organized illegal financial practices, the financial regulators also shared information and carried out a joint crackdown with the judicial authorities and police on a consistent basis. Furthermore, the Prime Minister’s Office, the FSS and other relevant institutions established a strong connection for cooperation to eradicate unlawful activities. As part of this effort, a special report period for illicit financial activities was operated from June to July.

With these multifaceted systemic approaches, the FSS is also stepping up promotional efforts in various ways in order to raise awareness of the importance of financial crime prevention. Above all, the FSS took part in the production of TV programs for financial crime prevention. Furthermore, representatives from 10 civic groups, including the Korean National Council of Women, gathered together last June, building up a cooperative system to tackle illegal financial activities. The representatives also agreed to spread relevant promotional materials to members of civic groups when illegal activities occur and cause new types of damage that could have negative impacts on many. In addition, they built consensus on adding relevant education courses to their own educational programs to help each member prevent the damage caused by illegal finance. Indeed, 21 educational sessions were provided in the first half of the year, with around 3,700 participants attending. Such efforts for education will be continued.

Japan has also spared no effort to promote relevant education. Japan’s local governments are taking the lead in preventing the damage resulting from voice phishing and other illegal practices. For example, three prefectures, including Kumamoto Prefecture, enacted ordinances regarding voice phishing prevention. Under the ordinances, the local governments have regularly offered relevant educational sessions and supported various activities, such as idea contests. Moreover, they have offered not only legal services, but also medical services in order for fraud victims to overcome actual and psychological difficulties.

As stated above, the FSS is actively responding to illegal finance with various measures. However, it will prove tough to eradicate deep-rooted illegal practices as they seem to keep evolving and dragging people down. With close cooperation with relevant institutions, the FSS will respond to new types of financial fraud in an active and aggressive manner to minimize negative impacts on people.

There is no such thing as a free lunch. We have to be careful not to be blinded by the lure of promised high returns and make reasonable decisions based on common sense. If there is anything suspicious, it would be better to contact the FSS Call Center, which provides one-stop financial consulting and can be reached at 1332. In case of those who are in the urgent need of money, it is necessary to check whether lending companies are authorized or approved and whether lending brokers are registered by the government through websites of the FSS or financial institutions beforehand.

Illicit financial practices make people’s lives unstable. I am looking forward to the day when these unlawful practices totally disappear from the financial market and financial order is firmly established.

By Jung Sung-woong 

The writer is a senior director general of the Illegal Finance Monitoring Department at the Financial Supervisory Service. He can be reached at jsw@fss.or.kr. The views expressed here are his own. -- Ed.