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(LEAD) Kookmin Bank given warning for internal corruption

All News 17:58 August 28, 2014

(ATTN: RECASTS headline, lead; ADDS more info, background throughout)
By Kim Boram

SEOUL, Aug. 28 (Yonhap) -- The South Korean financial watchdog on Thursday took punitive action against the country's second-biggest lender, Kookmin Bank, for a slew of irregularities ranging from lack of supervision of its employees to massive embezzlement and illegal loans.

The bank was also given a four-month suspension by Japanese financial authorities for improper loans at its branches in Tokyo. Tokyo said it was imposing a blanket punishment on all Japanese branches starting Sept. 4, forbidding new transactions.

The reprimand, the second-to-lowest level in a five-tier punishment system, came after an investigation of two separate corruption cases -- the embezzlement of housing bond money at home branches and loans arranged through bribes at the Japanese office. The punishment will effectively restrict the bank from opening new overseas branches.

The Financial Supervisory Service (FSS) reprimanded 68 Kookmin Bank officials involved in the scandals.

Announcing the results of its probes, the watchdog said 51 employees of the bank had pocketed a combined 11.2 billion won (US$11 million) through fake transactions of national housing bonds between March 2010 and November 2013.

The other 18, including an official punished in the housing bond case, at the bank's Tokyo branch were accused of having extended an estimated 530 billion won worth of loans to Japan-based Korean businesspeople with lower credit ratings by inflating collateral, according to the FSS.

They allegedly took bribes in exchange for the loans.

"For an extended period of time, Kookmin Bank failed to monitor or evaluate the loan decisions of its branch heads and failed to provide effective internal rules and policies to prevent misconduct," the FSS said.

The bank will be banned from becoming the largest shareholder in a new firm for three years, the watchdog said. KB Financial Group Inc., the bank's holding company, is seeking government approval to acquire LIG Insurance Co.

The watchdog said the prosecution, at the request of the FSS, has launched an investigation into officials at the bank's Tokyo branch who are suspected of receiving bribes and conducting illegal foreign exchange trades.

"The officials have violated laws, including the foreign exchange law. They have to face criminal charges," said Park Sae-chun, a deputy governor in charge of banking and non-banking examination affairs at the FSS.

"Kookmin Bank failed to maintain its internal controls, which led to law violations."

Kookmin Bank's internal corruption hit the headlines last year after an official was found dead in Tokyo in an apparent suicide. He was being investigated in both countries over the illegal loans and other irregular activities.

The watchdog's latest action came a week after it slapped a relatively lighter punishment on Kookmin Bank President Lee Kun-ho and Lim Young-rok, chairman of KB Financial, for lax management over the handling of the bank's high-cost computation system change.

A clash between the two leaders brought the issue to the surface, and the FSS intervened in the matter in May.

Lee filed a complaint with the prosecution on Tuesday against three executives of Kookmin Bank and KB Financial, rekindling the conflict between the holding company and its subsidiary.

brk@yna.co.kr
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