Creditors cover up fraud at Saehan

Bank officials knew that the Saehan Group took out loans of $100 million (120 billion won) through a bogus overseas affiliate and by forging export and import documents, attempted to cover it up, it was discovered Wednesday.

Now the banks are under fire for their moral hazard problems and suspicions are also being raised that they are guilty of bribery.

An official of the Financial Supervisory Service (FSS) said Wednesday that five banks, Hana, Hanvit, Cho Hung, KorAm and Shinhan, opened letters of credit (L/Cs) for imports for Saehan from November last year until January this year. The L/Cs are worth $23 to 26 million.

According to the official, the banks had learned of the fraud by late July, when Saehan filed for a workout program and an accounting firm completed studies on the group. But he said they covered it up to ¡°save face¡± and helped the group get into a workout program.

Officials of Shinhan and Hanvit banks admitted that they became suspicious of Saehan's overseas affiliate while examining the group for possible entrance into a workout program. A Hana Bank official also said that Saehan notified the bank of its fabrication of L/Cs by late August, when its bank loans came due.