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Task force set up to reform FSS as scandal spreads

Senior watchdog official indicted for bribery


The Prime Minister’s Office launched a task force on Monday to revamp the Financial Supervisory Service, under fire for poor oversight of seven troubled savings banks and corruption among its staff.

Rim Chae-min, chief of staff to Prime Minister Kim Hwang-sik, and Kim Jun-kyung, professor of the Korea Development Institute School of Public Policy and Management, will jointly chair the task force, the office said.

“The government organized the task force of civilians and government officials under the wing of the Prime Minister’s Office because we need to address problems with the nation’s financial regulatory system,” Rim said in a news briefing.

The 13-member team will meet once a week to draw out measures by June to reform the financial watchdog, he added.

Officials of the Financial Supervisory Service are excluded from the task force. Rim said the task force will gather opinions from its FSS officials.

Meanwhile, the prosecution indicted and detained a senior FSS official for allegedly taking tens of millions of won in bribes to help a real estate developer receive illicit loans from Busan Savings Bank.

The Central Investigation Unit of the Supreme Prosecutors’ Office said that it had arrested an official of the Busan affiliate of the financial watchdog, surnamed Choi, on charges of taking bribes for facilitating the loans. Choi allegedly received 80 million won from a property developer who got loans from the bank with his help. He also allegedly facilitated the process of his application to another savings bank, the CIU claimed. The investigation unit is currently probing allegations about illegal and preferential loans from the bank.

The developer surnamed Song has also been charged with allegedly bribing Choi. He was arrested on April 20 amid the prosecution investigation into Busan Savings Bank.

Prosecutors plan to call in around 30 employees of the financial watchdog this week to determine whether they intentionally relaxed their inspections of savings banks in return for bribes.

The prosecution said that Choi was asked by Song, his high school alumnus, to help get a loan from Busan Savings Bank in connection with his apartment construction project. Choi called Kang Sung-woo, the bank’s auditor, about the loan and was allegedly rewarded 60 million won by Song. Choi got acquainted with Kang while auditing Busan Savings Bank from 2005 to 2007 when he belonged to the savings bank bureau of the FSS.

Aware of Choi’s authority to inspect and punish savings banks, Busan Savings Bank allegedly decided to extend 22 billion won to Song even though the security value of the project site was not enough, prosecutors said.

Choi is also alleged to have received 20 million won from Song for asking a Korea Deposit Insurance Corp. official to check the progress of Song’s application to Jeonil Savings Bank in North Jeolla Province in December, 2009. The corporation was a trustee in the bankruptcy for Jeonil Savings Bank at that time.

The top prosecutor has been widening its probe after the chief and other major shareholders at the suspended Busan Savings Bank were thought to have taken out illegal loans to lobby politicians and officials and engaged in other financial irregularities involving around 7 trillion won ($6.4 billion).

FSS officials, who face summons this week, worked for savings bank bureau, and are known to have conducted around 20 inspections on the regional savings bank and its affiliates between 2009 and 2010, prosecutors said.

The move comes after President Lee Myung-bak made an unannounced visit to the country’s top financial regulator and berated the agency for failing to exercise proper oversight over the suspended savings banks.

A total of eight savings banks, including Busan Savings Bank, have been suspended this year for their insufficient capital bases stemming from soured project-financing loans.

By Chun Sung-woo  (swchun@heraldcorp.com)
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