It appears that the Financial Supervisory Service and state-run Korea Development Bank are gearing up for a power struggle.

The FSS is not happy with the fact that the bank is denying having had a role in the alleged accounting fraud committed by Daewoo Engineering & Construction before the regulator has even wrapped up its investigation.

The financial watchdog continues to suspect that KDB Financial Group, the largest shareholder in Daewoo E&C, may be seeking to conceal irregularities committed by Daewoo.

KDB, on the other hand, is accusing the FSS of being too “rash,” as its suspicions are based on “unconfirmed” documents.

“We presume that the disputed Daewoo documents were not official accounting records, but a hypothesis of a worst-case scenario,” KDB head Hong Ky-ttack said in a press briefing on Tuesday.

He cautiously added that this was also an assumption and nothing more, as the state regulator is in the midst of an investigation into the case.

The FSS, upon kicking off the probe late last year, had hinted that former or incumbent officials of KDB may have been involved in the suspected accounting forgery as the state-run bank is currently the largest shareholder in the builder.

“It was unusual for the KDB chairman to explicitly deny the possibility of the bank’s role in Daewoo E&C’s irregularities,” said an FSS official, displaying uneasiness and anger over KDB’s moves.

Later on, KDB hastened to appease the FSS, saying that the chairman had not meant to question the FSS probe or the regulator’s authority.

Some observers suggest that Hong’s words may have been a reflection of the views at the presidential office. Cheong Wa Dae made it clear that it was not willing to subject Daewoo to irreversible financial damages. Hong served as a member of the presidential transition committee as a close aide to President Park Geun-hye.

Late last year, the FSS said it detected evidence that the builder concealed deficits amounting to 1 trillion won ($938 million) by tampering with its accounting records.

The builder’s annual sales had fallen by 1.4 percent from the previous year and its operating deficit reached 445 billion won, a result that would affect the performance of its shareholder KDB.

By Bae Hyun-jung (tellme@heraldcorp.com)