[EDITORIALS]Suspicious money flowsThe investigation of suspicions that the U.S. private equity group Lone Star Funds purchased the Korea Exchange Bank at a price lower than market has entered a new phase. In their investigations, prosecutors discovered that an official at Korea Exchange Bank who was responsible for the practical aspects of the sale of the bank received a large sum of money from the consulting firm that provided advice to the bank on the sale. This person was also directly involved in the calculation of the Bank of International Settlements ratio of the bank, a measure of its solvency on which the sale of the bank was based.
In 2003, Financial Supervisory Service authorities and the management of Korea Exchange Bank claimed that the bank was unable to survive on its own because it was holding too many defaulted bonds. Its basis for that assertion was that the BIS ratio was far below the international standard. Therefore, the actual BIS ratio at the time of bank's sale is a key point in determining whether or not the sale was fair. If the BIS ratio was manipulated to make it seem lower than it actually was, there would have been no reason to sell the bank's shares in the first place, which would make Lone Star's takeover of the bank unjustified. Moreover, if such manipulation of the BIS ratio was instigated by outside forces or if bribes were involved, the sale of Korea Exchange Bank may become a fraud case unprecedented in the history of global finance.
Since prosecutors and the audit board are still conducting their investigations, it is difficult to conclude that the BIS ratio has been manipulated. But it is true that the suspicious monetary transactions between the consulting firm and the bank's senior executive are raising the chances that the suspicions are true. Prosecutors and auditors therefore must find out if the BIS ratio was manipulated and if so, who was behind it. If a person responsible in the Financial Supervisory Service was involved in this process, investigative officials must reveal in detail why and how that person became involved.
Prosecutors and the Board of Audit and Inspection must note, however, that they should handle the matter without bias.
There are financial people both in Korea and abroad who think that this investigation originated in Korean antipathy toward the problem the government has in collecting taxes on a foreign fund that made a large amount of money by buying and turning around the bank. Even if only to clear up those suspicions, prosecutors must sort out any illegal elements of the sale.