Officials at the trough

The results of an inspection of the Korea Securities Depository by the Board of Audit and Inspection of Korea are shocking. Above all, the massive flow of money into and out of the public company is more than surprising.

The depository earns commissions of 0.0055 percent of total stock transactions at securities firms. As stock transactions exploded in recent years, the company earned 338.4 billion won ($335.5 million) in commissions since 2003, without doing much in particular. A sizable portion of the earnings went to labor costs.

This is the secret behind the fact that the average annual salary of company workers, totaling only 510, hover around 100 million won. If the depository had been run normally, stock investors could have saved a large amount in transaction commission fees.

The details of the KSD’s spending are hard to believe. Its workers spent 34 million won on entertainment between 2005 and 2007, either paying for Finance Ministry officials who ate and drank at bars and restaurants or lending them corporate credit cards.

The Finance Ministry oversees this public company. KSD also paid 4.7 million won for a year-end party at a bar in southern Seoul late last year for Finance Ministry officials. That means they were bribed, and KSD could wield influence through such expenditures.

KSD staff spent 8.52 million won at a room salon (a bar where hostesses entertain drinkers) and disguised the expenditure as a corporate affair. They were found to have played golf 36 times, which cost 22.15 million won, paid with a corporate credit card, and backed by a fake document justifying the expenses as occasions for explaining company policies to representatives of securities firms.

Public companies exist for a social cause. They require much higher morals than are expected of private companies. This is the case for KSD, which holds exclusive authority to control the nation’s securities market. On its home page, it boasts of establishing ethical principles and has implemented a “clean credit card use system.”

Its chief executive said, “For Korea’s securities market to advance into a global level, ethical management is crucial.” But the company has merely been taking care of its own and its officials’ interests.