[Exclusive] Police Target 'Policy Fund Corruption'... Financial Sector on High Alert

Police to Scrutinize Loan Structures Including Undue Intervention in Policy Funds
Plan to Examine Execution Systems Involving Guarantee Agencies and Financial Institutions
Investigation Likely to Expand to Loan Screening and Internal Management Systems of Financial Firms

The police have launched a comprehensive intelligence-gathering operation in line with the Lee Jaemyung administration's determination to root out corruption related to national finances. As investigations expand across the entire spectrum of fiscal discipline, including the execution of policy funds, there is talk that not only financial institutions involved in the disbursement of funds but also the subsequent use of those funds by companies may become subjects of investigation.

According to a compilation of reports by The Asia Business Daily on March 12, the National Investigation Headquarters of the Korean National Police Agency issued a notice to all provincial and metropolitan police agencies earlier this month, instructing them to "intensively collect key criminal intelligence." Intelligence is to be gathered primarily on issues significant enough to warrant direct investigation by higher-level investigative departments; depending on the case, the National Investigation Headquarters may directly oversee the investigation. This marks a shift in police investigative priorities, expanding their focus from the management of consumer prices to the overall fiscal and financial order.

A police official explained, "The agency is also considering switching to a system in which the main headquarters' Criminal Intelligence Division continuously collects crime-related information linked to the financial sector." Rather than setting a separate period as in a special crackdown, the aim is to eradicate problems related to policy funds and subsidies through ongoing intelligence collection. It is also reported that there is a shared commitment to eliminate broker-mediated arrangements for policy funds and illicit loan conversion schemes.

Initially, the police have designated "undue third-party intervention in policy funds" as a primary target of scrutiny. Policy funds are supplied based on government resources, and loans are typically executed by commercial banks or savings banks, backed by guarantees from the Korea Credit Guarantee Fund or Korea Technology Finance Corporation. Repeated violations have been detected in this process, such as brokers promising to facilitate access to policy funds while forcing buyers to purchase insurance, or the fabrication of business plans or sales data to pass loan screenings. There have also been frequent cases where loans intended for facility investment or research and development (R&D) purposes are diverted to real estate investment or the repayment of existing debt, contrary to their original purpose.

The police plan to focus their intelligence-gathering efforts on unregistered loan brokerage disguised as policy fund loans and the use of false documents for applications to the Korea Credit Guarantee Fund or for loans. They intend to scrutinize irregularities in the process where low-interest funds supplied by policy financial institutions are transferred to companies via private financial firms. If the police track the flow of funds, there is a prospect that the scope of investigation will extend to how the funds are used after the loans are disbursed.

Within the financial sector, there is particular attention to the possibility that following the flow of funds could lead the investigation to examine internal processes at financial institutions, such as screening procedures, internal approvals, or broker involvement during the execution of loans. There is concern that if issues are found in companies' financial documentation or during guarantee screenings, the police might also scrutinize the internal management systems of financial institutions.

A source from the financial sector commented, "Policy fund-related crimes often reveal connections among guarantee agencies, financial firms, brokers, and companies as investigators follow the money trail. There is a tense atmosphere, as a comprehensive review of all processes related to policy funds could uncover internal issues at financial companies during the investigation."

Seodaemun-gu, Seoul Police Agency, National Investigation Headquarters. Photo by Jin-Hyung Kang

In addition, the police are investigating the submission of false applications for subsidies, misuse of funds for unintended purposes, abuses of dominant market positions, unfair collusion such as price-fixing, and other violations of the Fair Trade Act.

President Lee Jaemyung recently described fraudulent receipt of government subsidies as "brazen tax theft" at a senior presidential aides' meeting and called for a strong response. President Lee stated, "Not only should all fraudulently received subsidies be fully recovered, but we should also consider imposing economic penalties several times greater than the amount fraudulently obtained." According to the Ministry of Planning and Budget, last year saw a record number of 992 detected cases of fraudulent government subsidy claims, amounting to 66.77 billion won.

A police official stated, "We regard this as a serious crime that undermines the fairness of national finances and erodes public trust." The official added, "While warrants will be issued in most cases, flexible cooperation with relevant agencies is also necessary."

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