[Invest&Law] Revising the ‘Gapjil’ of PF Fees in the Financial Sector

Published 21 Aug.2024 11:26(KST)

Illegal Insider Information Use for Private Gain
Comprehensive Investigation into Trust Company Misconduct
"Should Have Also Filtered Out Poor PF Project Sites"

Financial Supervisory Service Commissioner Lee Bok-hyun speaking at the "Real Estate Project Financing (PF) Soft Landing Meeting" held by the Financial Supervisory Service last May.
[Image source=Yonhap News]

The prosecution and the Financial Supervisory Service (FSS) have taken action against financial companies that have been charging high interest rates and fees from real estate project financing (PF) sites. Amid the downturn in the real estate market and the resulting difficulties in the real estate PF market, they have vowed to strictly respond to unfair practices such as financial companies charging excessive PF loan interest under the guise of fees. Meanwhile, voices from the real estate industry argue that fundamental management of insolvent PF projects should be conducted in parallel.

According to the legal community on the 21st, the Tax Crime Investigation Division of the Seoul Central District Prosecutors' Office (Chief Prosecutor Lee Jin-yong) last month indicted former Meritz Securities executive Park on charges of bribery and embezzlement under the Act on the Aggravated Punishment of Specific Economic Crimes, and former employees Kim and Lee on charges of bribery under the same law, all without detention.

Park is accused of acquiring and leasing real estate through a personal company using real estate project financing (PF) information obtained during work from October 2014 to September 2017 for the purpose of making trading profits, and of handing over approximately 840 million won to Kim and Lee, who were his subordinates at Meritz Securities, as a brokerage fee for loans obtained to finance the real estate purchase.

Earlier, the FSS conducted a planned inspection of five securities firms including Meritz Securities in the second half of last year, uncovering such acts of employees pursuing private interests and reported them to the prosecution. The FSS also inspected trust companies for similar illegal private interest pursuits and requested investigations into Korea Land Trust and Korea Asset Trust, among others. In response, the prosecution is investigating internal corruption within the trust companies. The Anti-Corruption Investigation Division 3 of the Seoul Central District Prosecutors' Office (Chief Prosecutor Lee Seung-hak) is investigating Cha Jeong-hoon, chairman of Korea Land Trust, on charges of bribery and breach of trust under the Act on the Aggravated Punishment of Specific Economic Crimes. The prosecution is investigating allegations of personal corruption by Chairman Cha based on materials received from the FSS, including suspicions that he received money and goods from a trust company’s service provider. It is reported that the prosecution is currently analyzing the account details of Chairman Cha and others.

Within the real estate industry, there is an analysis that as the real estate PF market has recently tightened, financial authorities and investigative agencies are strictly responding to unfair PF fee practices in the financial sector. This follows a history of financial companies charging excessive fees when providing PF loans to construction companies, or employees personally embezzling fees, continuing a pattern of ‘gapjil’ (abuse of power).

However, there are also voices saying that it is time for financial authorities to manage insolvent PF projects as well as conduct investigations. A real estate lawyer said, “The practice of financial companies charging high interest rates under the name of fees is somewhat natural in real estate projects with high business risks,” adding, “Fundamentally, insolvent PFs must be filtered out. It is time for proper market restructuring before investigations.”