The Board of Audit and Inspection on Monday released a damning report on the 2003 sale of Korea Exchange Bank to the offshore investment firm Lone Star, describing it as “a flawed decision made improperly.” It said in principle there were enough grounds to annul the sale.

But since the BAI's decision is not legally binding, the Financial Supervisory Commission will have the final say whether to strip Lone Star of its status as majority stakeholder. A criminal case against former KEB President Lee Kang-won and former director-general of the Finance Ministry's Financial Policy Bureau Byeon Yang-ho is still pending in court, auditors said, and the FSC needs to take everything into consideration before making a decision.

The state audit body also told the CEO of the Export-Import Bank of Korea to sue for damages against officials of Morgan Stanley who underestimated the value of KEB when the U.S. bank was an advisor on the bank's sale. Export-Import Bank of Korea sold its stake to Lone Star in the 2003 deal. In an interim report last year, the BAI said some officials at the Finance and Economy Ministry and the financial supervisory body exaggerated KEB’s troubles by underestimating the bank's BIS capital adequacy ratio, thus allowing the sale to Lone Star, which would not otherwise have qualified to take over a Korean bank.

But controversy will likely continue over the audit report, which says the decision on the W1.4 trillion sale ($1=W1,176 at the time) was made by the KEB president and a mid-level bureaucrat at the Finance Ministry. Already there are complaints that the BAI failed to find concrete evidence whether there was any illegal lobbying on the part of Lone Star. State auditors said the questions will be answered during the court proceedings.

(englishnews@chosun.com )