Gyeonggi-Do Envoy Model: Rise of Financial Investigators

With a word from President Lee Jae-myung, the Financial Supervisory Service’s Special Judicial Police (Special Investigation Police) has reached the final stage of securing its investigative authority and expanding its investigative authority. According to the financial authorities on the 8th, the Financial Services Commission and the Financial Supervisory Service plan to submit a provisional agreement to the Prime Minister’s Office and the Ministry of Justice within this week to expand the scope of the investigation by granting recognition investigative authority to the capital special envoy in charge of cases of violations of the Capital Markets Act and at the same time establishing a new special envoy for people’s livelihood to be in charge of investigating illegal private financing.

About two weeks after President Lee publicly raised the issue at the Cabinet meeting on January 27, saying, “Why is the Financial Supervisory Service’s special envoy not allowed to conduct an investigation?”, the controversy over the authority to investigate, which had been controversial since the launch of the Financial Supervisory Service’s special envoy in 2019, was resolved once and for all. In the political world, there is an interpretation that the background of President Lee’s public remarks is his experience as a special envoy to Gyeonggi Province. This is because when President Lee was governor of Gyeonggi Province, he brought the special envoy to the forefront and conducted an intensive on-site investigation, which is evaluated to have led to the performance of provincial government and the strengthening of his political position.

In fact, the period from 2018 to 2022, when President Lee was the governor of Gyeonggi Province, is called the ‘golden age’ of provincial special envoys. Immediately after President Lee took office as governor in 2018, the Gyeonggi Province Special Envoy organization, which had previously been comprised of 101 people in 7 teams in the 1st division, was greatly expanded to 155 people in 11 teams in the 2nd division. The scope of the investigation was also expanded from 6 to 12 areas. The focus of the investigation was on all fronts, including the war against private loan sharks, crackdown on illegal breeding farms called ‘puppy mills’ and illegal euthanasia of abandoned dogs, illegal advertisements for prostitution, illegally occupied restaurants in the valley, and illegal real estate transactions. At the time, the Gyeonggi Province Special Envoy possessed investigative authority based on 108 laws and exercised the widest authority among the 14 metropolitan governments across the country.

What decided the trend was the COVID-19 incident. On February 25, 2020, then-Gyeonggi Province Governor Lee Jae-myung directly entered the Gwacheon Shincheonji Church General Assembly headquarters, which was the epicenter of a large-scale group infection, and the organization that supported the on-site response at the time was the Special Envoy. The provincial special envoy, along with an epidemiological investigator, conducted an epidemiological investigation at the Shincheonji headquarters, which was virtually equivalent to a search and seizure. The political world estimates that such a strong COVID-19 response process helped raise then-governor Lee Jae-myung’s approval rating and help him emerge as a presidential candidate. A ruling party official who was involved in Gyeonggi provincial government at the time said, “The special envoy was an area where the performance of the special envoy greatly varied depending on the will of the local government.” He added, “At the time, the special envoy played an important role in tax evasion and illegal private financing.” Another ruling party official said, “President Lee seems to believe that damage to financial consumers can be prevented only when the Financial Supervisory Service’s special envoy acts like the Gyeonggi Province special envoy regarding all financial crimes, such as voice phishing and money laundering.”

Panoramic view of the Financial Supervisory Service located in Yeouido, Seoul. JoongAng Photo

Once the discussion is finalized, the special envoy will be able to recognize and investigate illegal private financing focusing on the Loan Business Act and the Debt Collection Act, beyond cases that violate the Capital Markets Act such as ▶ market manipulation ▶ illegal short selling ▶ insider trading ▶ false disclosure. The most powerful special envoy of the Financial Supervisory Service since its launch is born. An official from the financial authorities said, “We believe that the granting of investigative authority will shorten the investigation period by up to 10 weeks, making it possible to quickly respond to financial crimes against people’s livelihood.” Although no agreement was reached in this discussion, the possibility of expanding the scope of the investigation to include insurance fraud, voice phishing, and virtual asset-related crimes cannot be ruled out, depending on the operational performance of the Financial Supervisory Service’s special envoy. The scope of investigative functions of the Gyeonggi Province Special Investigation Service, which was initially 87, increased to 108 over time, and there is speculation within and outside the financial sector that the Financial Supervisory Service is considering expanding the scope of the Special Investigation Investigation in the future.

However, unlike the Gyeonggi Province Special Investigations Office, which conducted the investigation virtually without external control, the Financial Supervisory Service Special Investigations Office has an institutional mechanism called the Investigation Review Committee. The Financial Services Commission and the Financial Supervisory Service discussed placing the Investigation and Review Committee under the Financial Supervisory Service, but due to concerns over abuse of investigative power, a consensus is being formed on a plan to use the Financial Services Commission’s Investigation Committee as is. Lee Chan-jin, head of the Financial Supervisory Service, also said at the general meeting of the National Assembly’s Political Affairs Committee on the 5th, “It is being discussed that the Financial Supervisory Service’s Investigation Committee will control (the Financial Supervisory Service’s special envoy), and a significant portion of the control mechanism will be operational.”

Market reaction is mixed. Yoon Myeong, Secretary General of Consumer Citizens’ Association, expressed his expectation, saying, “If the investigative power of the Financial Supervisory Service’s special envoy, which was limited by limited authority and manpower, is expanded, it will be a great help in relieving and preventing damage to financial consumers.” On the other hand, an official in the financial sector said, “If the right to investigate is secured, the risk of regular investigations may increase and the scope for management maneuver may decrease,” and “It is also a burden that the boundary between supervision and investigation may become blurred.”