[Viewpoint] ‘Geumfias’ imperil finance industry

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[Viewpoint] ‘Geumfias’ imperil finance industry

If yesterday was the era of “Mofia,” today is called the era of “Geumfia.” Mofia is what Koreans call past officials of the former Ministry of Finance. It’s a word coined from the acronym of the Ministry of Finance and Mafia.

The term was created because the Mofias dominate high-ranking government jobs and key posts of financial companies. Mofias will probably feel uncomfortable about their nickname, but they probably deserve it. There was a widely repeated story in the financial industry about how a bank president had to wait an hour in silence until he was given a chance to speak to a mid-ranking official in the Ministry of Finance.

When the government had control over the financial industry about 10 years ago, a vice finance minister was given about nine years of guaranteed employment after government retirement. He could have worked for three years as a state-run company president, another three years as the president of a private financial company and then three years as an adviser for a financial firm. Not bad.

A director-level official in the ministry enjoyed about six years of post-ministry guaranteed employment.

Today, the “Geumfia” is challenging the privileges of the Mofias. “Geumfia” is another new word, created by the Financial Supervisory Service (in Korean, service starts with the syllable geum) and Mafia.

Because the FSS has the authority to approve and monitor financial products, financial companies are more afraid of the FSS than they were of the Mofias. The situation is similar to that of the military, where a soldier is often more afraid of his direct senior than a general.

After the 1997 foreign exchange crisis, finance officials were criticized for a lack of oversight, and Mofias were unable to gain influence as the financial industry preferred those who had no ties with the government. During the period, the Geumfias emerged. Although the FSS is a state entity, its members are not 100 percent public servants, and the Geumfias took good advantage of the situation.

Starting this year, the FSS is no longer a state office. With the change, more and more former FSS officials began joining financial companies.

The only obstacle for Geumfias is the public servants’ ethics law. Article 17 of the law bars for two years a public servant from taking a private company job that was linked to duties he or she performed during the three years before government retirement.

Geumfias, however, have found an easy way to skirt the law. Before their retirement, they tend to be relocated to departments that have nothing to do with finance. Often, they find refuge in the human resources development department. The department is located in the training institute of the FSS in Tongui-dong, Jongno District, and seven or eight senior officials are always working there.

“They are mostly those who are preparing to leave the FSS for financial companies because they are about to retire,” a financial industry source said. “When there are too many of them, sometimes it’s hard to find a position in the office.”

While Mofias were after high posts, Geumfias focus on financial company auditor positions. The jobs guarantee at least hundreds of millions of won (hundreds of thousands of dollars). They have two-year contracts that are extendable. This appears to be a perfect post, and financial companies, which are in desperate need to establish contacts with the FSS, often hire the Geumfias as their auditors.

With the symbiotic relationship, it’s only natural that audits will not proceed properly. The possibility of a disastrous consequence is high.

At National Assembly audits, the problems associated with Geumfias are often pointed out. At the Assembly’s National Policy Committee’s audit over the weekend, Grand National Party Representative Lee Hahn-koo and an independent lawmaker, Shin Kuhn, reviewed the situation. What they found wasn’t pretty.

Of the 40 officials who retired from the FSS through August of this year, 21 landed new jobs as auditors at financial companies. Last year, the number stood at a mere 13.

The committee also focused on the Hwang Young-key scandal. Hwang, the former Woori Finance Holdings chairman who fell from grace because of the bank’s losses in derivative investments, claimed he neither directed the investments nor knew they had been made.

Lawmakers criticized him for having not known that the bank recorded 1.6 trillion won of losses, but their debate came down to a key question.

What’s worse - recording a loss or learning that no one had warned about the danger while the bank was hemorrhaging money?

The conclusion was the latter.

Who should have sounded the warnings? That duty fell on officials both inside and outside the bank. Outside the bank, the Korea Deposit Insurance Corporation and the FSS are the responsible parties. Inside the bank, the board of directors and auditors should have raised red flags.

If any of them had done their jobs properly, the loss would have been mitigated.

This is why we should be worried about the Geumfias’ domination of auditor jobs at financial companies.


*The writer is business news editor of the JoongAng Sunday.

by Lee Jung-jae

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