Curbing rampant financial scams

A U.S. court once sentenced a hedge fund tycoon to 11 years in prison on charges that he raked in more than $50 million by taking advantage of insider information. In ordering the tycoon to forfeit his ill-gotten gains and pay a fine of $10 million, the judge said his ruling would “hopefully serve as a strong deterrent against similar crimes in the future.”

A Korean court’s decision on a similar financial scam was totally different. The judge ruled that a chaebol executive’s grandson - who was accused of having made a huge profit of 16.5 billion won ($14.3 million) by rigging stock prices based on “undisclosed” information - serve three years in prison with four years probation. Immediately after the sentencing, the defendant was freed. That’s why financial crimes involving stock price manipulation or insider trading are widely accepted as an offense leading to long prison sentences in the United States, while similar crimes are seen as profitable even if the perpetrator is caught.

The sharp increase in financial crimes in Korea can be attributed to the outstanding discrepancy in the punishments issued relative to the crimes. The number of financial crimes soared to 34 last year from seven in 2008, and there was a surge in “politically themed” stocks ahead of the legislative and presidential elections this year.

Detecting malpractice is not easy, and the punishment too light, but the Financial Supervisory Service’s announcement that it will fully activate its investigative unit is no help at all. Kim Dong-won, a former executive member of the FSS and currently a visiting professor at Yonsei University, spoke of this issue in a report revealing that only a fraction - less than 10 percent - of all financial crimes here are detected by the authorities. Even when detected, only about 5 percent of the crimes are referred to the prosecution. And when prosecuted, the probability of receiving a prison sentence is merely 11 percent, while the possibility of a release on probation tops 50 percent. This means that nine out of 10 criminals are safe after committing financial crimes, and even if their corruption is laid bare, it is extremely unlikely they will face tough penalties.

Financial crimes shake the foundation of a market economy, not to speak of the harm to the public. For that reason, the U.S. decided to deal with the issue by launching a special investigative arm comprised of 21 agencies. We, too, must reinforce our ability to detect and penalize those who commit these crimes to stamp out the idea that financial scams are a profitable business.