Cover-up by Financial Supervisory Service in Dongbang scandal confirmed

A cover-up attempt by the Financial Supervisory Service(FSS) in the Dongbang Mutual Savings and Finance Co. illegal loan case has been confirmed with the discovery of certain documents. Prior to the launch of the investigation by special prosecutors on Nov. 14, the FSS was well aware of all the facts surrounding the Dongbang scandal. However, an investigation was not launched at the time of discovery due to the influence of high-ranking members of the FSS, including former director Chang Lae-Chang. Regarding Daeshin Mutual Savings & Finance, the 6-month management guidance period was shortened to 2 months and the management reform was put on hold.

These facts came to light through documents and other articles of evidence handed to Rep. Cho Jae-Hwan on Sunday in connection with the prosecutors' investigation of the Dongbang and Daeshin scandal.

The investigative plans, which were drawn up by the FSS in August 2000, also included Dongbang Mutual as one of the companies to be targeted. At the time, certain inexplicable indicators such as massive credit and stock-guaranteed loans, as well as a sudden surplus of funds, were discovered. As has been revealed, the stock-guaranteed loans included a loan of 60.7 billion won to the president of Korea Digital Line, Chung Hyun-Joon, with Pyongchang Information and Communication stocks held as collateral.

Prior to being targeted in August for inspection, Dongbang was also put on the list this February for investigations of irregularities by the FSS.

However, an order by FSS director Chang prevented the launch of an investigation targeting Dongbang.

In December last year, the 4-member prosecution investigation team led by prosecutor Oh Se-Woong that handled the investigation of Daeshin recommended that Dongbang also be targeted for a special probe, but the proposal was ignored.

On Dec. 23, 1999, the FSS ordered a 6-month management guidance period for Daeshin, but rescinded the order on February 19th, 2000. The revoking of the order predates the reduction of sanctions against then managing director Lee Soo-Won from dismissal to a 2-month suspension on Mar. 30, 2000.

On Aug. 24 last year, the FSS ordered Daeshin to submit a self-restructuring plan as its BIS rate stood at a mere 1.58%. As of the launch of the special prosecution investigation, the management restructuring proposal had been postponed. The decision was based on the 500 million won increase in funds and another scheduled increase of 500 million won on Jun. 30.

While the reduction of sanctions on then managing director Lee Soo-Won (currently president of Dongbang) was connected to an order by FSS director Chang, suspicions remain that other high-ranking members may be involved. Director Chang dictated the reduction of sanctions on Mar. 7 and was then re-appointed as the director of the Grievance Settlement branch. As such, at the actual reduction of sanctions on Mar. 30 by the committee for the deliberation of sanctions, director Chang was not present.

Hong Chan-Sun hcs@donga.com