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Rampant Moral Hazard of Public Firms

Posted July. 25, 2008 08:53,   


A head of a department at Korea Expressway Corporation was arrested on charges of receiving entertainment including lavish gifts as well as golf and sex trips from a businessman in return for helping him win orders (The Busan District Prosecutors` Office).

A civil servant at the Seongnam branch of Korea Workers’ Compensation and Welfare Service Industrial Complex Trade Union was indicted on charges of embezzling 1.5 billion won over the past three years for stock investment and gambling (the Seongnam District Prosecutors` Office).

These are a few of irregularities charges brought by the Supreme Prosecutors’ Office against state-owned firms yesterday.

The prosecution announced that since April it has probed into 40 public corporations regarding their wrongdoings. It found 21 of them were involved in irregularities, and is seeking criminal charges against a total 104 officials, 37 of whom are indicted.

▽ Bribery charges against officials of state-run firms

Choi Jae-gyeong, an investigator at the Supreme Prosecutor’s Office, said, “There are no worse structural irregularity than a public servant receiving bribes.” What he meant was a civil servant accepting a bribe in relation to his or her duty is a typical example of irregularities at public firms.

The Suwon District Prosecutors` Office arrested an executive of Gyeonggi Urban Innovation Corporation who took bribes of 95 million won from 11 real estate appraisal firms in return for selecting them as official appraisal institutions for Gwanggyo New Town in Gyeonggi Province.

A former chief director of Busan Metropolitan City Facility Management Authority was found to have received bribes when promoting or hiring employees in exchange for giving them higher interview scores, as well as embezzling employment fund (The Busan District Prosecutors` Office).

Meanwhile, six incumbent and former researchers of the Korea Institute of Machinery and Material were arrested or booked without detention on charges of embezzling 2.2 billion won by manipulating documents, and five officials at Korea Securities Depository were indicted for manipulating scores when hiring new employees.

▽ 44 billion won of state subsidies illegally claimed

Prosecutors said they launched the investigation in March this year, found 62 cases of irregularities and arrested 49 out of 183 suspects.

Included are a case where an owner of a gas station, a businessman of a truck firm and a truck driver conspired to embezzle 100 million won in oil subsidy, and another case where a fraudster embezzled state subsidy for the modernization project of traditional markets, which have been losing ground to large-scale discount stores.

The Gwangju District Prosecutors` Office found that a disinfection supplier for fishing farms at Muan and Shinan counties colluded with shrimp farmers to misappropriate 120 million won in subsidy.

Prosecutor Choi said, “Using their monopolistic status, public firms rake huge profits from services directly related to the people’s livelihood. However, they seldom receive audit despite their enormous discretionary disposition.” He added, “The investigation into state firms will continue until the end of August.”