Controversy Over Bank Responsibility in the 'Osstem Implant' Embezzlement Scandal (Comprehensive)

Banks Review Ostem's 'Credit Rating Reassessment' Process
Authorities Monitor Possible Financial Statement Revisions

"Corporate Internal Control" vs "Pre-Transaction Detection"

[Asia Economy Reporter Lee Kwang-ho] Controversy is brewing over the responsibility of banks surrounding Ostem Implants, where a massive embezzlement case amounting to 188 billion KRW has occurred. Criticism has been raised that banks failed to detect suspicious transactions in advance during the process of large sums of money being transferred from the company to personal accounts. The financial sector holds the view that it is excessive to blame the banks, stating it is a matter of "corporate internal control issues."

On the 5th, posts criticizing Ostem Implants for negligence in management and condemning the banks for their complacent response have been appearing on internet portal site cafes and stock forums.

User win***** posted on a portal site’s Ostem Implants stock board, "Could the bank officer not have known about the suspicious fund movements?" and pointed out, "It makes no sense that the bank was unaware."

A member of a community related to Ostem Implants also stated, "If banks failed to suspect anything during the process of large sums of money being deposited and withdrawn, that is also a problem," and added, "Banks bear responsibility as well."

In response, banks maintain that they cannot intervene in corporate fund transfers. A representative from a creditor bank explained, "Unlike individuals, corporate accounts do not have limit restrictions or warning systems for large transactions," and "Since large payments occur frequently and the company itself has credibility, banks cannot intervene in fund transfers that have gone through appropriate procedures."

Another bank official said, "Corporations operate bank accounts with funds ranging from hundreds of billions to trillions of KRW, so it is difficult to detect if a large amount is withdrawn all at once," and claimed, "This incident is an issue of corporate internal control and unrelated to the banks."

Eunbo Jeong, Governor of the Financial Supervisory Service

Jung Eun-bo, Director: "Will Investigate as Needed After Monitoring"

The Korea Financial Telecommunications & Clearings Institute (KFTC) and the Financial Intelligence Unit (FIU) expressed similar positions to the banks. A KFTC official said, "The network KFTC holds is an interbank transfer network, so if the remittance was made to another bank, a record remains, but if it was within the same bank, it cannot be known," and added, "Monitoring or supervising suspicious transactions or large transactions occurring regardless of whether they are personal or corporate is not KFTC’s duty."

An FIU official stated, "According to the Act on Reporting and Using Specified Financial Transaction Information (Special Financial Information Act), if there are suspicious or large transactions in transfers or other financial dealings, the financial company must report to the FIU," and "Once reported, the analysis office reviews the related information, but we cannot confirm whether a financial company has made a report." Article 5, Paragraph 1 of the Special Financial Information Act stipulates that when reporting or attempting to report, the fact must not be disclosed to others, including the counterparties of the related financial transactions. Violation of this is subject to criminal penalties.

The financial authorities have begun monitoring whether Ostem Implants will revise its financial statements. However, they have stated that they have not decided to review the cancellation of the registration of Induk Accounting Corporation, the designated auditor of Ostem Implants, nor to initiate an investigation into allegations of false submission of the third-quarter financial statements last year.

On the same day, after a meeting with heads of research institutions, Jung Eun-bo, Director of the Financial Supervisory Service, told reporters, "Currently, the judicial authorities are conducting an investigation," and added, "We will monitor closely and conduct investigations at the necessary time if there is anything the Financial Supervisory Service needs to do."

Meanwhile, it is known that banks are considering re-evaluating the credit rating of Ostem Implants. Credit rating re-evaluations are conducted when a company’s situation has significantly improved or worsened, and also when a major incident occurs that could impact the stock price.

According to the Financial Supervisory Service’s electronic disclosure system, as of the end of the third quarter last year, Ostem Implants had borrowed around 300 billion KRW from banks. Among this, short-term borrowings due within one year amount to about 100 billion KRW, and the bank that lent the most short-term funds to Ostem Implants is KDB Industrial Bank (28 billion KRW).

This content was produced with the assistance of AI translation services.