The Supreme Prosecutors’ Office yesterday indicted 21 executives, major shareholders, their family members and auditors of Busan Savings Bank on charges of illegally taking out a total of 4.59 trillion won ($4.3 billion) in loans from its six affiliated banks to invest in construction and real estate projects.
The indicted executives include Chairman Park Yeon-ho, Vice Chairman Kim Yang, and an auditor surnamed Choi, who is a former official of the Financial Supervisory Service, the government’s financial regulator.
The 21 face charges of obtaining illegal loans, accounting fraud and embezzlement, according to prosecutors.
Woo Byung-woo, a prosecutor from the central investigation unit of the Supreme Prosecutors’ Office, said in a press briefing yesterday that “the bank’s suspension was inevitable” as a probe showed that bank executives were allegedly using customers’ deposits as their personal piggy banks for real estate investments and construction projects.
Woo said Busan Savings Bank hired a former Financial Supervisory Service official as its auditor to cook the books to make sure the financial watchdog would not find out about the wrongdoings.
Busan Savings Bank, the country’s biggest savings bank, was suspended on Feb. 17 due to capital shortages.
Woo said Park and executives took out 4.59 trillion won in illegal loans to set up 120 special purpose companies under fake names since May 2006.
Although savings banks are prohibited from investing directly in real estate and construction, the bank established 120 special purpose companies to invest in real estate, golf resorts, apartment construction and shipbuilding projects.
“Sixteen employees of Busan Savings Bank managed 120 special purpose companies,” Woo said. Of the 120 business projects, only 21 projects are going forward, he said.
Prosecutors said four executives, including Park, received a total of 32.9 billion won in dividends and 19.1 billion won in bonuses from 2005 to 2010 after manipulating accounts in Busan Savings Bank and Busan II Savings Bank.
Prosecutors said the two banks paid a total of 64 billion won in dividends to their major shareholders, including executives, from 2005 to 2010. Investigators said the four executives took 51.4 percent of the dividends.
They said the executives cooked the books to make it look like the banks were doing much better than they actually were.
To avoid the financial watchdog’s attention, Busan Savings Bank reported a false solvency ratio. Prosecutors said the false ratio persuaded many customers to deposit money in the bank and buy its subordinated bonds.
Prosecutors also found that Chairman Park allegedly withdrew a total of 171 million won in deposits kept under his wife’s name on Feb. 10 from Busan Savings Bank and Jungang Busan Savings Bank, seven days before the bank’s suspension.
Meanwhile, the central investigation unit of the Supreme Prosecutors’ Office, which is investigating the massive illegal withdrawals from Busan Savings Bank before its suspension, dispatched 40 investigators to Busan and Daejeon, where Busan Savings Bank, Busan II Savings Bank and Daejeon Savings Bank are located.
Prosecutors found that a total of 107.7 billion won was withdrawn from Busan Savings Bank and six affiliated banks the day before the suspension.
Prosecutors already obtained the list of customers who withdrew money the day before the financial watchdog suspended the bank.
They are currently scrutinizing CCTV footage from the seven banks to figure out whether bank employees withdrew clients’ money.
Prosecutors said they have identified 22 VIP clients of Busan Savings Bank suspected of withdrawing money.
According to prosecutors, 27,196 customers may lose deposits above the government-insured limit, amounting to 175 billion won. They said 2,947 customers who purchased the banks’ bonds won’t get their money back, totaling 113.2 billion won.
By Im Hyun-ju, Kim Mi-ju [mijukim@joongang.co.kr]
