Financial regulatory official asked for illicit loans from bank

A senior official of the Financial Supervisory Service, who monitored illegal lending by savings banks, asked Busan Savings Bank to make illicit loans to his relative, prosecutors said Monday.

The official is known to have not monitored the bank and instead sent a questionnaire asking to prepare a fake answer sheet marked “normal loans,” even if the borrower was a special purpose company set up by the bank`s major stakeholders for development projects.

The Supreme Prosecutors’ Office said Lee Ja-geuk, 52, was arrested on the charge of taking 439 million won (410,000 U.S. dollars) in bribes in return for glossing over illegal lending by Busan Savings Bank Group. Of this amount, 321 million won (300,000 dollars) comprised an unsecured loan Lee asked the bank’s auditor Kang Seong-woo to give to Lee’s relative.

Lee is known to have told Kang, “My nephew-in-law is doing business, so please give him unsecured credit loans and I`ll grant you favors in oversight by the Financial Supervisory Service in the future.”

Kang had the bank lend 299 million won (278,000 dollars) to Choi without conducting a credit review or assessment of business feasibility. Kang also is found to have given favorable interest on the loans as well.

Lee also received “rice cake gifts” of 2 million won (1,900 dollars) in cash per occasion for a combined 18 million won (16,600 dollars) ahead of major Korean holidays from 2006 to last year. He also took 100 million won (93,000 dollars) from the bank after claiming “financial difficulties.”

Through his graft, Lee concealed corruption by majority stakeholders in a partial probe into the savings bank conducted between February and March in 2009. He also smuggled out all of the questions on the bank during an onsite survey by the Board of Audit and Inspection between January and April last year and handed them over to the bank’s majority stakeholders.

ceric@donga.com