Shinhan Bank Suspected of Embezzling Shareholders’ Funds

The managerial fiasco at Shinhan Financial Group could result in criminal action against former and current executives and staff members, going beyond lawsuits against top managers.

Ethnic Korean shareholders in Japan who initially founded the group say Shinhan Bank misappropriated money belonging to shareholder clients.

Prosecutors and financial authorities are reportedly probing if the shareholders’ accusations are related to bank accounts under borrowed names at the bank. Political wrangling will also likely ensue as civil complaints over the case have been filed with the main opposition Democratic Party ahead of the annual parliamentary inspection of financial authorities, including that for the Financial Services Commission scheduled for Monday.

The bank had been extremely cautious about commenting on the management of assets of ethnic Korean shareholders in Japan. Attention is shifting, however, to whether a “Pandora’s box” will be opened in the wake of the group’s fiasco.

○ Suspicious financial transactions of deceased shareholders

The bereaved family of Bae Hong-do, one of 431 shareholders who invested capital at the time of Shinhan Bank’s establishment in 1982, recently told The Dong-A Ilbo that they will sue both the bank and others to seek return of their deposits.

“A person who was once chief secretary when Shinhan Financial Group Chairman Ra Eung-chan was the bank president withdrew deposits by fabricating official seals and opened bank accounts under the borrowed names of Bae`s relatives, and embezzled the wealth of my father (Bae),” one of the family members said.

The Bae family has unsuccessfully filed two criminal complaints against the former chief secretary since 2004. After the Seoul High Court ordered a reinvestigation into one of the suits, however, the Seoul Central District Public Prosecutors` Office has reportedly reopened the case.

According to financial transaction slips presented as evidence by the family, 359 million won (320,000 U.S. dollars) of Bae`s money was withdrawn from Shinhan Bank and 1.1 billion won (1 million dollars) from his account at Shinhan Securities (now Shinhan Investment Corp) on Oct. 30, 2000. Bae, however, had died of liver cancer on Oct. 28.

So this means someone else used Bae`s seal and withdrew his money. The bereaved family also said the former chief secretary pocketed 900 million won (800,000 dollars) by opening an account at Shinhan Bank under the name of Bae’s wife then closed the account.

Shinhan Bank said in its defense, “Since the chief secretary quit in 1999, the transaction at the time was merely a matter between him and Bae’s bereaved family.”

A Dong-A investigation, however, found that the secretariat of the bank’s president kept records of his asset management until seven years after Bae’s death.

Another suspicion is that the former chief secretary used a corporate account at the bank in the course of trading assets of Bae and his bereaved family with bank accounts under borrowed names. Dong-A attempted to contact the former chief secretary more than 10 times but failed to get a response.

○ Abnormal transactions to be uncovered?

Shinhan Bank has had prior disputes over management of assets of its ethnic Korean shareholders in Japan. Park Il-hwan, a founding shareholder, also is taking legal action to recover his deposits in Japan against the bank. He said the secretariat of the bank president embezzled his money through transactions via bank accounts under borrowed names.

Park also claimed that several officials at the secretariat and the bank’s Tokyo branch opened more than 60 accounts by using his name and used them to embezzle funds.

The bank denied Park’s allegations, saying, “We have all the evidence to prove that Park’s claims are false,” adding, “We planned to file a libel suit against Park last year, but shelved it because he voluntarily withdrew his suit in Korea.”

The Financial Services Commission blames the practice of abnormal transactions between the bank and its shareholders for the ruckus. It says the bank as a corporate entity is required to manage the assets of ethnic Koreans, but its management method changed into one in which individuals within the bank managed the wealth based on ties with bank staff, further fueling suspicion.

Accordingly, the Financial Supervisory Service will investigate the management of assets held by ethnic Korean shareholders in Japan in its regular probe of the Shinhan group and bank next month.

An official at the financial watchdog said, “Many of the suspicions raised over the recent Shinhan Financial Group fiasco seem to involve the secretariat of the Shinhan Bank president,” adding, “We will thoroughly investigate this case.”

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