- Fighting trade-based financial crime hidden behind the numbers of trade
In 2013, a company marked its 10th anniversary by crossing 1 trillion won ($749 million) in annual sales, with 80 percent of that revenue coming from overseas. A customs investigation the following year told a very different story.
The company had been filing export declarations for home appliances that had never actually changed hands, listing prices of several million won per unit, then using the fabricated export documents to obtain more than 3 trillion won in fraudulent loans from commercial banks. Of that amount, roughly 540 billion won was never repaid — a burden that fell on the financial sector and the public, leaving a lasting stain on South Korea's economic history. The scandal is known today as the Monuel incident.
In its wake, Korea Customs Service, the Korea Federation of Banks, and Korea Trade Insurance Corporation (K-SURE) worked closely together to prevent a repeat. They built a framework for sharing customs export-import data with bank loan-screening systems and achieved early detection of anomalies in trade receivables to block fraudulent lending.
The Monuel case is a textbook example of trade-based financial crime (TBFC) — the exploitation of trade to defraud public finances or destabilize financial markets. More recently, such crimes have spread well beyond bank lending into capital markets, government subsidies, public procurement, and national health insurance funds.
Recent customs enforcement cases illustrate the severity of the problem. One company was caught repeatedly importing and exporting cheap telecommunications components at inflated prices to manufacture a track record of strong sales, then exploiting that record to secure a stock market listing while also fraudulently collecting government subsidies.
In another case, a supplier imported inexpensive Chinese fire-department lanterns, stripped off the country-of-origin labels, and passed the products off as domestically made before delivering them to fire stations nationwide. A separate company inflated the declared import prices of adult walkers — a category covered by long-term care benefits — to pocket excess reimbursements, adding to the financial burden on vulnerable members of society.
Detecting these crimes accurately requires cross-referencing Korea Customs Service's export-import and foreign-exchange data against information held by the agencies that administer the relevant programs and systems. Those agencies have records on the companies they screen and support, but they face practical limits in independently verifying whether a company's declared export-import figures, transaction prices, and country of origin match actual trade activity.
Korea Customs Service can analyze export-import and foreign-exchange transaction data to examine the substance of trade — real performance figures, prices, and counterparties — but it has limited visibility into which government support programs or public procurement contracts a given company may be involved in. What is needed, ultimately, is a collaborative framework in which each agency connects the information it holds to compensate for the blind spots of the others.
That is precisely why Korea Customs Service launched a special TBFC investigation unit at Seoul Customs in early September. Under the arrangement, agencies including the Ministry of SMEs and Startups, the Public Procurement Service, and Korea Financial Intelligence Unit (KoFIU) supply company and transaction data to Korea Customs Service, which integrates it with export-import and foreign-exchange records for use in foreign-exchange inspections and investigations.
The findings are passed back to the relevant agencies, which then impose necessary sanctions — recovering subsidies and restricting bidding rights — and close the regulatory gaps that allowed the abuse. In this way, the TBFC unit is dismantling the information silos between agencies and building an integrated, joint monitoring and enforcement system that spans data sharing, analysis, investigation, sanctions, and regulatory reform.
At the center of the analytical work sits the TBFC Information Analysis Center, which operates under the special unit. The center consolidates information shared by partner agencies — covering capital markets, public procurement, government subsidy programs, and policy finance — and combines it with Korea Customs Service's own export-import and foreign-exchange data to identify suspect companies. Investigation and enforcement teams then act on those findings, opening criminal investigations or conducting foreign-exchange inspections depending on the nature of each case. Korea Customs Service is also considering signing MOUs with partner agencies to expand the network of collaborators and further develop the integrated joint monitoring and enforcement framework.
The figures on trade documents serve as the basis for valuing companies, determining eligibility for government support and policy financing, and shaping investor decisions. When those figures are manipulated, the damage falls on honest businesses and investors, and public finances spring a leak.
Korea Customs Service is committed to accurately identifying manipulation of performance records, prices, and country of origin hidden within export-import transactions, and to ensuring that its findings lead all the way through to recovery, sanctions, and regulatory reform. We will fulfill our responsibilities at the economic border so that the benefits of public policy flow in full to the citizens and businesses that genuinely deserve them.
kwonhl@heraldcorp.com
