IBK under scrutiny over internal controls after major fraud case at China unit

The Industrial Bank of Korea (IBK) is currently under investigation for its internal control practices following a major financial fraud case at its Chinese subsidiary. According to IBK and the Financial Supervisory Service (FSS), the subsidiary lost an estimated 83.4 billion won ($60.3 million) as a result of fraudulent activities that went unnoticed for several months.

The Chinese subsidiary reportedly provided non-face-to-face loans to local borrowers through a partnership with a non-bank financial institution. This institution utilized an online lending platform to attract borrowers and collect loan repayments. The borrowers were required to send their repayments to an account designated by the platform, which was intended to transfer the funds to IBK.

However, it has been alleged that the platform failed to authorize the alteration of the repayment account and instead diverted the money to its own account. Additionally, the platform allegedly falsified records, making it appear as though the borrowers had successfully repaid their loans. Consequently, some borrowers were erroneously flagged as delinquent, even when they had made their payments. This ultimately resulted in IBK failing to receive the funds it was owed.

The fraudulent activities were first detected in December.