Woori hit for repeated employee embezzlement amid internal control failure concerns

Woori Bank headquarters in Seoul / Courtesy of Woori Bank

The Financial Supervisory Service (FSS) fined Woori Financial Group 100 million won ($76,254) after an employee of the group’s savings bank subsidiary was found to have embezzled over 200 million won, in yet another indication of internal control failures, according to market watchers, Thursday.

The fine adds to criticisms of the group still reeling from last year's unprecedented embezzlement of 70 billion won at Woori Bank. Also damning is Wednesday’s report of the bank’s loss of 96.2 billion from miscalculated values of its derivatives products in the second quarter.

Market watchers say the financial group's credibility – the most important value of a financial service provider – will be severely undermined, unless the internal controls including heavy penalties are fortified to prevent repeated offenses.

According to the FSS, the employee embezzled 234 million won between Feb. 2, 2015, and Oct. 27, 2020. The employee falsified records to generate unwarranted costs to pay certain fees, wire money to borrowers and cover other costs needed in the process of credit financing.

The FSS said a day earlier that Woori Bank's books recorded 96.2 billion won in additional losses for the second quarter.

The bank’s trading department, the financial authority said, was made aware that its derivative products tied to the performance of equity-linked securities (ELS) reported losses due to market price fluctuations. A dealer at the department attempted to hedge the losses by increasing holdings of long-term options positions, but the sustained market volatility only ended up extending the losses. Woori Bank suspended trading of the derivative products in July after revising what was later found to be a “miscalculated estimate.”

Woori Bank maintains that the 96.2 billion won loss has no bearing on the bank customers, adding the matter is a negative factor for its corporate financials only.

“The incident did not impact consumers financially. The loss was found during our internal risk management review. We found the problem and solved it and the employee was put under a review for disciplinary action,” a Woori official said.

But the seemingly confident response is barely an explanation, since a loss of that scale should have been detected far earlier, according to an industry official.

“The mindset of ‘no harm, no foul’ seems all too brazen, since everybody knows that risk management is all about prevention and early detection,” the official said.

“The 70 billion won embezzlement case from last year has left a permanent stain on the financial group. Similar cases of this sort only go to show how neglectful the group is in instituting necessary measures.”