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By Kim Hyun-bin

Embezzlement has emerged as an increasingly prominent corporate risk in recent months as more and more employees have been found to have stolen company money, dealing severe blows to corporate image and also scaring off potential investors, according to industry officials, Tuesday. Experts also say embezzlement cases tend to increase during difficult economic times, especially under recent conditions of high inflation and high interest rates that have deteriorated the value of stocks and virtual currencies.

In the first half of this year, large-scale embezzlement cases emerged from all industries with particular focus on cases at Osstem Implant, and Woori Bank. In each case, it is known that employees inside the company stole company money several times to invest in stocks or crypto assets or to use for gambling and entertainment. The amount of embezzlement was estimated at 221.5 billion won for Osstem Implant, and 69.7 billion won ($53.5 million) Woori Bank.

In the second half of the year, suspicions were raised that an employee of Hyundai Steel set up a shell company and embezzled about 10 billion won. They are said to have obtained unfair profits by inflating the unit price of parts for operation and paying a false order price. Hyundai Steel plans to carry out an internal investigation and decide whether to hand the case over to the police.

The number of embezzlement cases has risen steadily over the past 10 years. According to statistics released by the National Police Agency, 58,889 embezzlement cases were reported in 2020, up by 120 percent from 26,767 in 2011.

Some attribute the increasing number of embezzlement cases to the lenient punishments handed out. According to the Criminal Act, the level of punishment for business embezzlement of less than 500 million won is limited to 10 years in prison or a fine of not more than 30 million won. When the amount of embezzlement rises to 500 million won or more, the Aggravated Punishment Act for Specific Economic Crimes applies.

"Above all, the individual deviation is a problem, and the organization that allows such thinking to occur is also a problem. It is necessary to prepare a legal mechanism to hold the CEO legally responsible to better prevent violations," said Ko Dong-won, a professor at Sungkyunkwan University.

In the investment industry, it is highly likely that embezzlement will lead to a decline in the credibility of Korean companies and result in a 'Korea discount,' a phenomenon of undervaluation in the domestic stock market. Considering that many foreign investors care about corporate value, it is argued that the Korean market is not a reliable investment destination.

Although embezzlement must be eradicated in order to restore confidence in the domestic stock market, experts believe that the number of cases is likely to increase considering the recent economic downturn.

"It is not that each company does not have an internal control mechanism, but embezzlement cases continue to rise steadily, even though companies have been reinforcing preventive measures through employee ethics education, as well as supplementing loopholes in the control system, including strengthening internal auditing," an industry official said.