Watching the WatchdogSoul-searching Introspection Necessary for Renewal
The government has decided for now to give only first-aid treatment to the Financial Supervisory Service, whose reputation took an almost lethal blow following the disclosure of its top officials'' involvement in illegal loans and bribe-taking in return for overlooking irregularities at financial firms under their supervision. The government decided that it could not afford to concentrate on the time-consuming task of restoring the financial watchdog''s status, since it could delay the more urgent task of pursuing the second round of corporate and financial restructuring.
The FSS now resembles a badly battered patient getting ready to run in a 100-meter race with an IV tube stuck in its arm.
The watchdog''s entire 116 former and incumbent executives and employees are reportedly being investigated. Although the scope of the investigations is surprising, we cannot help wondering whether the public will have any confidence in the corruption-riddled FSS''s selection process of the companies and financial institutions to be liquidated. Compared with Japan where the prosecutors confiscated all the documents of the Ministry of Finance for thorough investigation when the employees became implicated in corruption, our government measures up poorly as it appears to be resorting to stopgap measures once more.
The Public Notification Act and Insider Trading Act have served as two pillars to safeguard the capitalist market economy during the past 70 years of its development. In the United States, the two laws were enacted in 1929 when the Securities and Exchange Commission was established in the wake of the Great Crash of its stock markets. At the time, enactors of the law called for "truth in securities" to secure the market''s credibility.
This is why it is difficult to imagine the employees of the FSS ?supposedly keepers of truth ?being systematically involved in illegal acts, as it virtually signifies the collapse of the capitalist system.
The greatest problem with the FSS is its indifference to illegal acts.
Actually, corruption in financial and securities supervision is nothing new in Korea. It continued to remain widespread, because it goes hand in hand with a structural problem relating to the status and prestige of institutions, and with the corruption rampant in every sector of society. It is practically impossible for the FSS to stand free of corruption by itself when it was created with funds collected from financial institutions, and when the reality surrounding it is filled with corruption and amorality.
We must take this opportunity to turn the FSS into a quasi-legal institution to promote its status and to search for ways to make it financially independent of the private sector.
Every economic act begins by weighing the cost and profit. An immoral act is chosen if it cuts down the cost but increases the profit. Prevention of unethical acts, therefore, must begin by forcing the offenders to pay dearly for their illegal acts. We need to apply economic logic to prevent people from engaging in immoral acts, out of fear of the subsequent great costs. Several conditions must be met if the costs of an immoral act are to rise.
First, systems must be in place to allow easy detection when immoral acts are committed. Second, the law must be managed in such a way so that the discovery can be easily, and quickly, proven. And finally, the illegal act must be subject to harsh punishment.
If we were to apply this prescription to the FSS, there must be guidelines that spell out what the employees are prohibited from doing. The guidelines must be detailed and specific. The hastily contrived unconditional ban on employees from investing in any kind of securities is somewhat barbaric. It is unreasonable to treat all employees as potential criminals and prohibit them from investing in all types of stocks. This is depriving them of their rights to make bona fide investments, a right every citizen should be able to enjoy.
Instead, we must establish information and organizational systems to supervise the financial watchdog''s acts and decisions. As many people as possible should have access to an open information system to share the decisions of the FSS.
At the same time, there must be an information system managed by professionals to track down patterns in illegal acts.
Moreover, there must be an internal system to monitor employees professionally. For now, we could consider sending incumbent prosecutors to the financial watchdog to bring to light as much corruption as possible.
Once an illegal act is detected, firm investigations must follow. Since there is the danger of data destruction, suspects must be arrested speedily. And the legal system should be changed so that the suspect is declared innocent only when he or she can prove innocence.
Finally, the level of punishment for illegal or immoral acts by employees must be stepped up greatly.
In order for the FSS to fulfill its role as the vanguard of restructuring and the keeper of truth in financial and capital markets, it must undergo a soul-searching introspection and excruciatingly painful efforts leading to its renewal.
The writer is a professor of business management at Hongik University.
by Sonu Sok-ho