South Korea’s financial authority confirmed on Wednesday that the amount embezzled by an employee in charge of real estate project financing (PF) at BNK Kyongnam Bank was almost 300 billion won ($225.18 million), far exceeding the initially reported amount of 56 billion won. The Financial Supervisory Service (FSS) plans to hold both Kyongnam Bank and BNK Financial Group responsible for the largest embezzlement case in the country’s financial sector to date, citing failures of internal control.

The FSS on Wednesday announced the preliminary results of the on-site inspection it conducted upon receiving a report of embezzlement of project financing (PF) loans at Kyongnam Bank in July. “We have confirmed that the individual responsible for PF loans at the bank embezzled a total of 298.8 billion won,” the FSS said. The individual in question oversaw PF loan operations at the investment banking department for 15 years and stole the funds from May 2009 to July 2022, according to the financial authority.

The embezzlement amount confirmed by the FSS is significantly higher than the 53.3 billion won (excluding the 2.9 billion won already reimbursed) figure Kyongnam Bank provided at the beginning of the incident. It is also much higher than the 138.7 billion won mentioned in the indictment when the Seoul Central District Prosecutors’ Office arrested the individual on September 8, with the additional embezzlement uncovered by the FSS via account tracking.

According to the FSS, the individual repeatedly diverted funds, including loans and principal repayment funds from other PF businesses that he headed, to cover up his initial embezzlement, and diverted 102.3 billion won by handling fraudulent loans and a further 196.5 billion won by falsifying documents for principal repayment funds.

The individual’s modus operandi was forging loan documents, such as fund withdrawal requests, even when they were not required by the PF loan borrowers, to handle the loans, and then transferring the loan amount to the accounts of his family members, acquaintances, and related companies.

The FSS believes that BNK Financial Group’s lack of internal control over Kyongnam Bank contributed to the incident. There has been no record of the holding company conducting inspections on the handling and management of PF loans at Kyongnam Bank since the bank was incorporated into the group in October 2014.

“Kyongnam Bank has seen a sharp increase in PF loans since 2020, but even in the holding company’s own inspections, there was no record of any accident prevention inspections conducted at the bank’s head office other than spot checks,” an FSS official said.

By Chae Jong-won and Yoon Yeon-hae

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