Embezzlement at BNK Kyongnam Bank may exceed $151mn, probe shows

BNK Kyongnam Bank Seoul branch. [Photo by Yonhap]

The embezzlement at BNK Kyongnam Bank Co. exposed last month may scale up to double the amount of what was initially known, according to a prosecutorial investigation.

An executive at BNK Kyongnam Bank, surnamed Lee, is accused of embezzling 56.2 billion won ($42.4 million), according to sources. The prosecution’s investigation, however, showed additional embezzlement charges, raising the actual amount to more than 100 billion won.

Banking industry sources see that the amount of embezzlement from real estate project financing (PF) at BNK Kyongnam Bank may reach up to 200 billion won.

In the case of regular deposits and withdrawals, the business process is standardized and the bank’s internal computer network can filter out abnormal deposits and withdrawals in real time, allowing bank inspectors to check them without delay to prevent accidents.

The PF business, on the other hand, is non-standardized, and it is hard for anyone other than the person in charge of the business to determine whether the deposit or withdrawal of funds is legitimate.

The Seoul Central District Court, in the meantime, issued an arrest warrant on Thursday to an employee of a securities company suspected of conspiring to embezzle money with Lee.

The Financial Supervisory Service (FSS) has assigned an inspection team at BNK Kyongnam Bank to fully examine the status of PF loan handling and the details of fund deposits and withdrawals.

The FSS had ordered banks to improve internal control to prevent similar accidents after an embezzlement incident took place at Woori Bank last year. It has been guiding and supervising system improvements to keep out blind spots for internal control of the PF business, among others.

Yet, criticisms abound that BNK Kyongnam Bank ignored the instructions by neglecting the principle of personnel rotation for long-term employees and separation of duties for high-risk tasks.

“If internal control failures are confirmed, we will take decisive measures against the responsible employees at BNK Kyongnam Bank,” said an official from the FSS.

Some also condemn the bank’s parent company, BNK Financial Group, for not stepping up as a control tower to improve internal control.