"Blocking the source of misappropriation of business loans"... "Financial, tax, and criminal 'triple risks'" in joint comprehensive investigation

As the misuse of business loans for purposes other than their intended purpose is rapidly emerging as a key risk in the financial sector, a comprehensive investigation is in full swing. In the past, it was only a sample inspection focusing on a few detected cases, but recently, the situation has changed with the financial authorities and the National Tax Service intervening simultaneously to track the entire process from loan execution to use of funds.

In addition, there is a trend of strengthening crackdowns by investigative agencies. The National Police Agency announced that it conducted a 'special crackdown on real estate crime' for about 5 months from October 17 last year to March 15 this year, cracking down on a total of 1,493 people and deporting 640, of which 7 were arrested on serious charges.

In particular, the Financial Supervisory Service and the National Tax Service are increasing the intensity of inspections as cases of real estate acquisition using business loans accumulate, viewing this as an act of disruption to financial order and the real estate market.

In relation to this, lawyer Shin Hye-jin of Daeryun Law Firm emphasized, "If business loans and real estate acquisition are combined, it can lead to tax investigations and criminal liability beyond financial sanctions, so early management through cooperation with experts is essential."

The following is a Q&A with Attorney Shin.

Q. How is this comprehensive real estate investigation conducted, and what are the key points that financial authorities look at first?

▲The key to the investigation is whether the purpose of the loan matches the actual use. This survey is not a simple sample check, but is conducted through comprehensive data analysis based on the financing plan. We collect all financing plans submitted when reporting home acquisition and classify them as business loans. Afterwards, financial institution loan data and National Tax Service reporting data are cross-verified, and account flows are analyzed to confirm whether the loan is connected to the real estate sale price, down payment, intermediate payment, or balance payment.

Q. In what cases will I be caught?

▲The purchase of a home itself does not immediately lead to illegality, but it may lead to investigation in cases where business loans are used directly as sales proceeds, when loan interest is treated as business expenses, or when real estate is acquired by lending corporate funds to individuals. In particular, if the loan flows through a personal account to the seller's account, or if the funds are transferred to a real estate transaction in a short period of time unrelated to the business, it may be judged as a loan for the purpose of acquiring real estate. In this case, additional corporate tax and additional taxes may be imposed due to denial of existing expense treatment.

Q. What should I do if I have already purchased real estate using a loan or if a problem is discovered during a thorough inspection?

▲Even if you have already acquired real estate using a loan, there is room for response. If you report corrections for evasion or voluntarily suggest a repayment plan before the financial institution's official notification of investigation, you can reduce the loss of overdue profits, reduction of additional taxes, and lower criminal risk. However, the timing of the revised report, method of explanation, submitted materials, and negotiation strategy vary greatly depending on the case. The National Tax Service can broadly look into whether sales are omitted across the entire business, processing of processing expenses, misappropriation of corporate funds, and mixing of personal and business funds, so it is important to review the law from the early stage.

Q. If caught, what are the sanctions at the financial institution level?

▲Financial companies must check the suitability of business loans exceeding 100 million won within 3 months after execution. If misuse other than the intended purpose is confirmed, the financial institution immediately recovers the loan, and the borrower's information is registered with the Korea Credit Information Service and shared with five financial industries, including banks, insurance, mutual finance, and credit-specialized financial institutions. If detected once, new loans may be restricted for 1 year, and if detected twice, new loans may be restricted for up to 5 years, which may affect overall business operations.

Q. In what cases does this lead to criminal issues such as fraud?

▲The key is intentional deception and defrauding at the loan application stage. If you stated that it was for business purposes but actually raised funds with the intention of purchasing real estate, you may be charged with fraud. In addition, if false business plans, sales data, tax invoices, or concealment of the use of funds are confirmed, this may lead to criminal charges. In particular, in the case of a corporation, if the representative used company funds to acquire a personal home, separate from fraud, the crime of business embezzlement under Article 356 of the Criminal Act may be raised. Because embezzlement at work is subject to aggravated punishment, the scope of criminal liability and level of punishment can be significantly heavier than for individuals.

Q. How should I respond if I am notified of an investigation or if it leads to criminal proceedings?

▲It is most important to organize the initial statement and direction of data submission consistently. At the Financial Supervisory Service investigation stage, statements must be systematized focusing on the purpose of the loan and how funds were used, and at the National Tax Service response stage, all materials to prove the source of funds or business relevance must be prepared. At the criminal stage, the deceptive acts and intent to defraud, which are the requirements for establishing a crime of fraud, must be disputed in detail for each item, but a defense logic must be established in that criminal liability is not immediately established simply through simple violation of contract or change of use after the fact. In the end, depending on what and how this issue is explained, it could be the difference between whether it ends up as a tax risk, whether it escalates into financial sanctions, or whether it leads to criminal liability. Getting the initial response axis right actually determines the outcome.

Eunhye Lee (zhses3@joseilbo.com)

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"Blocking the source of misappropriation of business loans"... "Triple risks in finance, taxation, and criminal affairs" in joint comprehensive investigation (Shortcut)