▲ Seoul Central District Prosecutors' Office
A ghost insurance company that pocketed billions of won in fees in exchange for issuing unauthorized, hollow guarantee policies has been caught by the prosecution.
The Seoul Central District Prosecutors' Office (led by Senior Prosecutor Go Eun-byeol) announced today (August 6) that it has indicted four executives and two employees of company K, an unauthorized guarantee insurance firm, on charges of violating the Insurance Business Act and fraud and embezzlement under the Act on the Aggravated Punishment, etc. of Specific Economic Crimes.
They are accused of issuing a total of 87 insurance policies worth 200.2 billion won without authorization from the Financial Services Commission between February 2019 and June of this year, and pocketing approximately 3 billion won in fees.
According to the prosecution, despite being unauthorized and undercapitalized, company K received fees from construction development companies and guaranteed various debts to local governments and public institutions, such as restoration costs for mountainous and agricultural land, road paving construction, public property rental fees, and taxes.
Three local governments that failed to receive insurance payouts from company K filed civil lawsuits and won, but were unable to execute claims totaling about 1.4 billion won because the company lacked the ability to pay its debts.
To Corporation A, a public institution, the firm even issued a performance guarantee policy worth 141.3 billion won, promising to guarantee the debt for the remaining balance of a land purchase contract signed with a mid-sized construction company.
Deceived by the guarantee policy, Corporation A handed over the ownership of the land, valued at 124.7 billion won, to the construction company without receiving the remaining balance.
Investigations showed that company K received 1.75 billion won from the construction company in exchange for issuing such hollow guarantee policies.
Company K had been punished seven times for violating the Insurance Business Act over the past decade, but continued its crimes by registering as if it had capital of 10 billion won and repeatedly changing its chief executive officer.
This was because the penalty level for unauthorized guarantee insurance business was relatively minor, while the fees were substantial at 1 to 3 percent of the guaranteed amount, and they could evade performance guarantee liabilities by shifting responsibility to the corporation.
The police, who received a request for investigation from the Board of Audit and Inspection in 2024, viewed the case as a simple unauthorized insurance business and forwarded it to the prosecution, applying only the charge of violating the Insurance Business Act to some executives and employees.
There was even a suspect who was not sent to the prosecution on the grounds that they could not be punished again because they had already been sentenced to a fine for the same crime after the offense.
However, suspecting that this was an organized and repetitive financial fraud crime in which they entered into insurance contracts by deceiving clients from the beginning despite having no ability to pay insurance claims, the prosecution conducted direct supplementary investigations and additionally uncovered 82 instances of unauthorized guarantee policy issuance.
Accordingly, the prosecution determined that charges of fraud against local governments and the embezzlement of fees were applicable.
Following a request to the Korea Communications Standards Commission on August 4 to shut down company K's website, the prosecution petitioned the court the next day for an order to dissolve the corporation.
(Photo: Yonhap News)
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