TV maker probed for loan fraud
OnCorp, a company that was once recognized by the Korean government for its export achievements, recently filed for bankruptcy without paying out 150 billion won in loans it borrowed from financial institutions including KEB Hana Bank, the Industrial Bank of Korea and NH Nonghyup Bank. The loans were guaranteed by the Korea Trade Insurance Corporation.
The investigation into the loan fraud came at the request of the Ministry of Trade, Industry and Energy.
The watchdog’s investigation of the TV exporter is drawing comparisons to the Moneual scam two years ago, as the agency considers the sales methods and way in which the loans were borrowed as similar to the Moneual case.
Both companies manufactured its products overseas and generated revenue mainly through exports, while the guarantee on the loans both came from the state-run trade insurance agency.
The Korea Trade Insurance Corporation, however, has argued that the OnCorp case is different from Moneual. The agency believes OnCorp’s failure to pay out its debt was largely because of its deteriorating management situation rather than falsifying its performance as was the case in Moneual.
The Financial Supervisory Service remained adamant that it would look into every detail of the trade deals to see if there were any anomalies and whether every export made was legitimate.
Like OnCorp, Moneual, a home appliance company founded in 2004, received accolades as a leading “hidden champion” of Korea, especially after Microsoft founder Bill Gates mentioned the company during a keynote speech at the Consumer Electronics Show in 2007 and after it won numerous innovation awards.
Its Cinderella story came to an end when the company was found to have falsified its revenue in the process of exporting low-priced home theaters manufactured at the company’s plant in Hong Kong. Moneual then received loans from several commercial banks backed by guarantees from both the Korea Trade Insurance Corporation and Export-Import Bank of Korea using these false documents.
As a result, the commercial banks suffered a loss of 330 billion won on the loans they provided to the company based on the guarantees made by the two state-run financiers.
OnCorp was engaged in exporting liquid-crystal display televisions manufactured in China to the United States. The company took out loans from financial companies backed by guarantees made by the Korea Trade Insurance Corporation that amounted to roughly 200 billion won.
The OnCorp case is generating interest because two middle-management employees that worked at the trade insurance agency were reportedly also involved in the loans made out to Moneual. They were later found to be working at OnCorp’s U.S. office with annual income between $55,000 and $75,000.
The Korean banks that issued loans to OnCorp now face a combined loss of 150 billion won, which the Korea Trade Insurance Corporation has guaranteed to cover. Considering that it is a state-run financial institution, the money used to patch up the losses will inevitably come from taxpayers.
The case is once again raising questions about the lack of scrutiny over the Korea Trade Insurance Corporation’s guarantees on business loans.
According to a report by Park Jeong, a lawmaker from the opposition Minjoo Party, based on data provided by the Korea Trade Insurance Corporation, the accumulated loans that it failed to collect amounted to nearly 1.3 trillion won as of July this year.
During that same period, it was only able to collect 38.3 billion won, accounting for a mere 2.9 percent of the loans it had guaranteed.
“There is a need for a bold measure as the data shows the public’s taxes are failing to be recollected,” Park said.
The high trade loan guarantees issued by the agency are also fueling competition with another state-run financial institution, the Export-Import Bank of Korea, which is under the Ministry of Strategy and Finance.
As the two agencies operate separately, some have raised issue with problems regarding communication and management of trade loan guarantees. The fierce competition between the two agencies has resulted in failure to properly separate companies actually in need of loans from those speculated of fraud.
“There is a need to merge the Export-Import Bank of Korea with the Korea Trade Insurance Corporation, an issue that was raised when the Park Geun-hye administration began,” said Oh Jeong-geun, a finance professor at Konkuk University.
Lee Sang-bin, a business management professor at Hanyang University, said that under the current system, loan evaluation or post-management after the loan has been delivered is vulnerable to lack of scrutiny because commercial banks blindly trust the guarantees made by the Korea Trade Insurance Corporation.
“There is a need to reduce the role of the public agency while increasing the rights and responsibilities of the commercial banks,” Lee said.
BY LEE TAE-KYUNG, LEE HO-JEONG [email@example.com]