The Korea Herald


Former top financial regulator indicted over savings bank scandal


Published : Nov. 2, 2011 - 17:11

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SEOUL, Nov. 2 (Yonhap) -- Prosecutors indicted a former chief financial regulator Wednesday for a breach of ethics law, wrapping up a months-long investigation into a corruption scandal engulfing the troubled Busan Savings Bank.

Kim Jong-chang, who in March ended his three-year term as chairman of the Financial Supervisory Service (FSS), was charged with violating Public Servant's Ethics by holding an equity stake in a trust company which invested in the suspended lender.

The Supreme Prosecutors' Office said Kim owned 40,000 shares in Asia Trust Co. under a friend's name, and the company invested 9 billion won (US$8 million) in Busan Savings Bank in June of last year.

The FSS, which has been criticized for failing to better monitor the financial health of savings banks, suspended the operations of Busan Savings Bank in February of this year due to inadequate liquidity.

Ethics law required that Kim offload such a stake before taking office, or put it in an anonymous trust so he could not influence management of the assets while in his public post.

Kim's investment, worth some 400 million won (US$357,462), represented a 4 percent stake in Asia Trust.

Prosecutors also looked into allegations that Kim peddled his influence as a top official in order to help the troubled savings bank, once the biggest player in the sector, avoid regulatory scrutiny. Kim was cleared of the influence peddling charge.

In March, prosecutors launched an in-depth investigation into allegations that Busan Savings Bank executives lobbied politicians and regulatory officials in order to cover up their wrongdoing and avoid suspension.

The business suspension of the savings bank group put up to 20,000 depositors and bond holders, most of them elderly, in danger of losing their life savings.

Wrapping up eight months of what the Supreme Prosecutors' Office said was its biggest-ever financial irregularities case, prosecutors said a total of 76 bank officials, politicians and government employees were indicted in the scandal.

Indicted bigwigs also include Park Yeon-ho, chairman of the bank, on charges of being involved in the bank's 6 trillion won illegal loan issuance; and Kim Du-woo, a former senior secretary for President Lee Myung-bak, on charges of receiving 100 million won from a lobbyist for the bank. 

Eun Jin-soo, a former vice-ministerial level auditor of the national audit agency, was also indicted on charges of bribe taking, as was Kim Gwang-soo, the head of the financial intelligence unit of the financial regulator Financial Service Commission.

The investigation found the bank used its lobbying network to bypass regulations on its illegal lending of more than 6 trillion won, fraudulent accounting and illegal dividend payments.

"Investigations unveiled Busan Savings' Bank's lobbying of high-rank government officials to block the suspension or ease supervision," the Supreme Prosecutors' Office said in a statement. "Financial supervisory authorities were also found to have applied insufficient scrutiny and to have protected (the bank)."

Busan Savings Bank was the biggest savings bank in the country before the suspension, with total assets of 9.9 trillion won.