The nation’s top financial watchdog is under fire after several charges of corruption and power abuse were revealed this week.

Three former and current officials from the Financial Supervisory Service were booked on Monday on charges of extorting money out of debt-ridden companies trying to get an approval for capital increases. Another two auditors were also arrested on charges of receiving bribes from Busan Savings Bank and Bohae Savings Bank, who sought to avoid the watchdog’s inspection.

“It is a shame but their wrongdoings were punished by the prosecutors. The FSS auditor who received kickbacks from Bohae Savings Banks is being investigated this week and he has yet to face a trial,” a senior FSS official said.

Criticism of civil servants at the watchdog intensified after it was added to allegations that it did not prevent its internal information from being leaked. Several VIP customers of Busan Savings Bank withdrew a total of 18.5 billion won ($17 million) after the bank closed for the day on Feb. 16, one day before the FSS suspended the operations of the cash-strapped lender.

“The FSS admitted that it leaked rumors about the bank suspensions, but I cannot confirm that prosecutors are probing our Busan staffers,” the senior official said.

The case has been slammed by opposition lawmakers who claimed that several financial regulatory officials also withdrew their deposits from savings banks right before their operations were suspended in February.

The FSS suspended operations of eight saving banks since January after their capital strength deteriorated due to their reckless lending to builders. The government is at the brainstorming stage to restructure the secondary banking sector where one option is to allow commercial players to buy toxic assets held by the eight banks.

Park Jie-won, floor leader for the main opposition Democratic Party, visited the FSS Tuesday along with other party members to protest “misconduct” the watchdog’s misconduct.

“We will request thorough investigation of the case and ask for stern punishments on those responsible for the leakage,” Park said.

President Lee Myung-bak on Tuesday ordered a thorough investigation into allegations that employees of an ailing savings bank tipped off their relatives and big customers about the institution’s impending suspension so that they could withdraw their money in advance.

“We have to thoroughly investigate and deal sternly with this,” Lee said at a cabinet meeting, according to presidential spokeswoman Kim Hee-jung. “In addition, we have to make everything known to the people.”

The watchdog’s ethical troubles are also apparent with practices of its retirees moving to private financial institutions. Retirees of the agency have often been taking top posts at banks, which often gives the private lenders networks to lobby the watchdog.

“In principle, it is unlawful for retirees of public agencies to move to the private sector but they can do so if they get approval from the chief of the agency or the ethics committee,” Jeon Seong-in, a professor at Hongik University was quoted as saying.

“But those exceptions have become a norm in the industry and this has to be prevented to avoid ethical problems.”

(cynthiak@heraldcorp.com)