[Editorial] Hotbeds of malfeasance

Are domestic banks’ branches in Tokyo hotbeds of misconduct?

Financial regulators who have been investigating the Tokyo branches of Woori Bank and the Industrial Bank of Korea have reportedly detected evidence of malfeasance committed by branch staff.

Korea’s Financial Supervisory Service probed the Tokyo branches of the two banks following the massive illegal lending scandal at Kookmin Bank’s branch in the Japanese capital.

Last year, it was disclosed that two managers of Kookmin’s Tokyo branch had extended a total of 500 billion won in illegal loans for six years from 2007. They brought into Korea slush funds amounting to several billions of won they had amassed from client kickbacks.

The scandal at Kookmin prompted Woori and IBK to launch internal inspections of their Tokyo branches. To their dismay, they found that similar irregularities had been committed. Woori found that some 60 billion won had been provided to unqualified borrowers, while at IBK, the amount of illegal lending was estimated at 10 billion won.

The two banks then asked the FSS to conduct a more thorough investigation into the branches. The regulator reportedly found that some branch employees had remitted funds to Korea far exceeding their salaries. The total amount of money they had sent back to Korea was estimated at 6 billion won.

These officials are suspected of having created slush funds with kickbacks from their corporate clients.

The findings of the FSS investigations suggest that the corrupt practice of taking kickbacks in return for extending illegal loans is widespread at bank branches in Tokyo and other Japanese cities. The regulator should expand its investigation to cover all Japanese branches and offices of domestic financial companies.

The regulator may also need to see if similar irregularities were committed by financial companies’ branches and offices in other countries.

It is a shame that leading domestic banks are found to have committed misconduct in Japan. These banks have been seeking to expand their overseas operations. They first need to clean up their acts. Otherwise they would disgrace not just themselves but the country.

The banks’ malfeasance indicates that their internal audit systems did not work properly. It is hardly surprising in light of their lax management under government-appointed CEOs with questionable credentials. Corporate governance remains a serious problem at domestic banks.

Furthermore, FSS inspectors do not keep a close watch on banks and other financial companies, as has been proven by numerous financial scandals. They want to maintain cozy relations with financial institutions as they seek employment at them after retirement.