Unauthorized Stock Withdrawal and Embezzlement of 70 Billion Won in Deposit... The Full Story of Woori Bank Embezzlement

Financial Supervisory Service Announces Results of 'Woori Bank Embezzlement Incident'
Total Embezzled Company Funds: 69.73 Billion KRW
430,000 Company Shares Embezzled in 2012
Methods Included Document Forgery, False Reporting, and OTP Theft
"Accident Could Not Be Prevented Due to Inadequate Internal Controls"

[Image source=Yonhap News]

[Asia Economy Reporter Song Seung-seop] On the 26th, the Financial Supervisory Service (FSS) disclosed the results of an on-site inspection related to the embezzlement incident that occurred at Woori Bank. The scale of the embezzlement reached 70 billion KRW, and it was revealed that the background enabling the crime was Woori Bank’s inadequate internal control system. Based on the findings, the FSS plans to take necessary measures such as sanctions against executives and employees.

On the same day, Lee Joon-su, Deputy Governor of the FSS, held a briefing at the FSS press room in Yeongdeungpo-gu, Seoul, announcing that Jeon, an employee of the Corporate Improvement Department at Woori Bank’s headquarters, embezzled a total of 69.73 billion KRW. The embezzlement occurred eight times over eight years, from June 2012 to June 2020.

The Beginning of the Embezzlement: Misappropriation of 430,000 Shares Held by Woori Bank

The first crime was the unauthorized withdrawal of 429,493 convertible shares of Company A held by Woori Bank. At that time, Jeon was responsible for managing the convertible shares. He requested the Korea Securities Depository (KSD) to release the shares of Company A from the deposit management system. During this process, Jeon used a one-time password (OTP) without authorization while his team leader was away, thereby approving the transaction illegally. The stolen shares were worth 2.35 billion KRW at market value.

The embezzled funds were collected in physical form by visiting the Korea Securities Depository directly. The funds were then deposited into Jeon’s younger brother’s securities account. Subsequently, to cover up the crime, Jeon repurchased the same amount of shares sold on November 9 and re-deposited them.

When repurchasing the shares, Jeon embezzled additional funds from Woori Bank. From October 2012 to June 2018, Jeon misappropriated 61.45 billion KRW (contract deposit of 57.8 billion KRW plus interest of 3.65 billion KRW) from the sale contract funds of Daewoo Electronics, which Woori Bank managed as the representative of the creditors. During this time, Jeon forged official seals and public/private documents to obtain withdrawal approvals three times.

Additionally, Jeon embezzled forfeited deposits and various refunds during Daewoo Electronics’ efforts to sell its Incheon plant. He sent false official documents requesting withdrawals to financial institutions where funds were deposited, including asset trust companies, embezzling a total of 5.77 billion KRW. These funds included property tax refunds related to the Incheon plant (90 million KRW) and national land usage fee refunds for the factory site (80 million KRW). The embezzlement was carried out by distributing the sold funds to major creditors and transferring the remaining small creditor shares to a company under his brother’s name.

The FSS received a report on the embezzlement incident from Woori Bank on April 27 and immediately launched an inspection, focusing on understanding the overall circumstances and the possibility of additional embezzlement. After uncovering five additional embezzlement cases, a rigorous on-site inspection lasting 43 business days was conducted, concentrating on identifying the cause of the incident and evaluating the adequacy of the bank’s internal controls. Although a direct inspection of Jeon was not possible, the FSS supplemented the investigation through visits to the detention center and interviews with executives and employees.

FSS: "Embezzlement Could Not Be Prevented Due to Woori Bank’s Poor Internal Controls"

The FSS judged that while Jeon’s personal misconduct was the main cause of the embezzlement, Woori Bank’s internal control functions also failed to operate properly. This conclusion was drawn because a large sum of money was embezzled over eight years in a major commercial bank’s headquarters department, and Woori Bank remained unaware of the situation for a long time.

The FSS pointed out eight problems in Woori Bank’s internal control system. First is the personnel management system. Jeon worked in the same department and handled the same company for 10 years. Typically, banks implement a rotation system to prevent financial accidents and moral hazard. During this period, Jeon was never selected for mandatory leave. It was also found that from October 2019 to November 2020, during a secondment period, he falsely reported and was absent without leave.

Furthermore, the system for opening and registering official documents exchanged by the bank was not properly implemented, making concealment and forgery easy (document management). Also, the bankbook and official seal managers were not separated, allowing Jeon to embezzle deposits without formal approval (bankbook and seal management).

Other issues included document management (manual approvals, lack of post-inspection), official seal management (seal affixed despite discrepancies between withdrawal slips and official documents), convertible share management (failure to separate withdrawal applicants and OTP managers), branch audits (lack of audits on bankbook balance changes and existence), and abnormal transaction monitoring (failure to include relevant targets, resulting in delayed detection).

Based on the facts confirmed during the inspection, the FSS will conduct a thorough legal review and take necessary actions against the perpetrator and related executives and employees for illegal and improper conduct. Additionally, together with the Financial Services Commission, the FSS will form a joint task force (TF) to develop effective internal control improvement measures to prevent recurrence of large-scale financial accidents.

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