For those who remember the long-held criticism of the (alleged) close relationship between the government and banks in Korea and a series of disputes emanating from it, recent developments certainly raise a red flag. What is presumably unfolding threatens to undermine the effort Korea has made for the past decade.
Interestingly, the names of the Korean banks and financial watchdogs are relatively well known in other countries, partly due to the seven-year legal disputes between Korea and the United
States, Korea and the EU, and finally Korea and Japan concerning the relationship between the Korean financial regulatory authorities and the financial institutions. It is only recently ― April 2009 ― that these disputes were finally wrapped up with some victories and some losses. In case one wonders, these decisions are all public documents and thus readily available.
These controversial disputes related to the assertion, based on various pieces of circumstantial evidence, that the banks in Korea (both commercial and policy banks) were under the influence of the financial authorities. One of the key pieces of evidence cited against Korea here was the authorities’ alleged intervention in the selection and appointment of the CEOs of major banks.
In particular, the other countries pointed out that former government officials were appointed to lead the banks in a certain direction. Thousands of materials and reports were submitted by these countries to substantiate the alleged relationship, and, unfortunately, core elements of such arguments were generally accepted, though the details of each dispute somewhat vary.
It is now June 2013 and here is a surreal sense of dj vu. For reasons known and unknown, presidents and other high-ranking officials of key financial institutions are being reshuffled ― some are silently leaving and others with traces of a muffled protest. Preferred candidates are then almost openly being discussed. It turns out that many of the new candidates are former government officials.
It is undisputable that these officials possess the necessary expertise in the relevant field. But it misses the point. These selections may revive the unsavory impression that the government still attempts to exert influence, albeit indirectly, in the financial sector. What is being suggested at the moment bears striking resemblance with what forced Korea to participate in the seven-year legal ordeal. It seems that perhaps what we have learned has already sunk into oblivion in just four years.
Experiences tell us that developments like this tend to be monitored and followed by foreign governments and entities. These examples may be formulated in a way that produces a rationale to put Korea in an awkward and difficult position when another wave of “government-controlled financial sector” claims arises. It may not come for a year or two, but the possibility is always there as financial sector regulation has become one of the critical topics for many countries: Note that recent developments were timed to coincide with the just-released announcement that Korea has decided to participate in the 21-country Trade in Services Agreement, aiming to further liberalize services trade among the participating countries. Believing that these developments will not be flagged by others is arguably complacent, if not self-deceptive.
Yet again, the real concern here is that it is not the financial regulatory authorities or the financial institutions that may end up paying the price at the end of the day. It is those manufacturers and service providers that use or participate in the financial sector because of possible regulation and trade restrictions. Korea has learned this the hard way. These recent lessons should be digested and reflected on, to avoid a future trap.
By Lee Jae-min
Lee Jae-min is a professor of law at the School of Law, Hanyang University, in Seoul. Formerly he practiced law as an associate attorney with Willkie Farr & Gallagher LLP. ― Ed.