[Song Seungseop's Financial Light] 60 Billion Won Woori Bank Embezzlement Incident... How Was It Possible?

Head Office Employee Embezzled 61.4 Billion Won Three Times Over Six Years
Forged Contract Documents to Divert Funds to Desired Accounts
Financial Authorities Inspect Woori Bank and Audit Accounting Firm

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[Image source=Yonhap News]

[Asia Economy Reporter Song Seungseop] Woori Bank has experienced an embezzlement incident involving approximately 60 billion KRW. Money was siphoned off over several years, but Woori Bank did not notice this. How was this possible? We break down the somewhat complex circumstances and background of the incident into three questions.

The Woori Bank embezzlement began in 2012. Over six years, money was withdrawn three times, totaling 61.4 billion KRW. The person who embezzled the funds was Mr. A, a deputy manager in Woori Bank’s Corporate Improvement Department. The Corporate Improvement Department handles corporate sales and restructuring. The embezzled funds were contract deposits generated during work.

What is the source of the 60 billion KRW embezzled funds?

To understand the source of the contract deposit, we need to go back to 2010. An Iranian home appliance company called ‘Entech Hap’ decided to acquire a Korean company named ‘Daewoo Electronics.’ The largest shareholder of Daewoo Electronics was the Korea Asset Management Corporation (KAMCO), holding 57.4% of shares.

Briefly explaining the acquisition process: to buy a company, a contract deposit is required. It is a kind of deposit paid in advance as proof of intent to acquire the company. The contract deposit is held by the financial institution managing the sale between companies. Then, an ‘Investment Commitment Letter (LOC)’ is drafted, documenting the investment amount and conditions. At that time, the contract deposit was about 57.8 billion KRW, and the financial institution holding it was Woori Bank.

If the acquisition had proceeded normally, Entech Hap would have paid the additional amount along with the held contract deposit to acquire Daewoo Electronics. However, a problem arose here. The creditors, including KAMCO, judged that the investment commitment letter sent by Entech Hap was insufficient. Therefore, they notified Entech Hap of contract termination and did not return the contract deposit.

How was the contract deposit embezzled?

Woori Bank employee entering the detention hearing courtroom [Photo by Yonhap News]

The contract deposit that was not returned was reportedly managed in a separate account by Woori Bank. Considering interest, the contract deposit amounted to about 61.4 billion KRW. The person responsible for managing this separate account within Woori Bank was Mr. A. In other words, Mr. A embezzled the contract deposit that the creditors decided not to return to Entech Hap.

But how could an individual employee at a major bank embezzle money? The method used when the last embezzlement occurred in 2018 was document forgery. Mr. A forged documents to make it appear as if the contract deposit management was being transferred to KAMCO, the largest shareholder of Daewoo Electronics. The forged documents showed that money was being transferred to KAMCO, but in reality, it was diverted to an account of Mr. A’s choosing. After the crime, the original Woori Bank account was closed.

How was the embezzlement discovered?

This fact remained unknown and buried for about 10 years. Woori Bank became aware of the embezzlement due to a lawsuit between Korea and Iran. The major shareholder of Entech Hap, which lost the contract deposit, filed a lawsuit against the Korean government in 2015. The claim was to return the contract deposit and interest totaling 73 billion KRW. In 2019, the Korean government ultimately lost the case and had to return the money.

However, the schedule was disrupted by the U.S. sanctions against Iran. Foreign exchange and financial transactions with Iran were restricted, so the contract deposit could not be returned. Then, earlier this year, the U.S. granted remittance permission. While Woori Bank was checking the account to return the money to Entech Hap, it discovered the embezzlement. It became a financial accident where the bank had to return money to Entech Hap, but the money had disappeared.

Woori Bank Employee Involved in Embezzlement of 61.4 Billion KRW and Accomplice Brother Appears for Detention Hearing
Photo by Yonhap News

After understanding the circumstances, Woori Bank filed a complaint with the police against Mr. A on the afternoon of the 27th of last month. Mr. A went into hiding for several hours but surrendered to the police around 10:30 p.m. the same day. The police urgently arrested Mr. A on charges of embezzlement under the Act on the Aggravated Punishment of Specific Economic Crimes. The employee was detained, and a detention warrant has also been requested for Mr. A’s brother, who is suspected of using the embezzled funds together. The embezzled funds are reported to have been used for a golf course development project in New Zealand and derivative product investments.

Meanwhile, financial authorities have also begun investigating the situation. The Financial Supervisory Service is examining whether there were any internal control weaknesses related to the Woori Bank embezzlement incident. They have also decided to start an audit of the corporation that audited Woori Bank’s accounting.

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