Embezzelment, Tax Evasion and Bribery easier in Korea?

The Wall Street Journal has an interesting article on why so few KRW 50,000 bank notes are trickling back to the banks.  KRW 50,000 bank note was introduced in 2009.  Prior to the introduction of note, the highest note was KRW 10,000.  KRW 50,000 is equal to around USD 45.

The article notes, in part, that:

One of the original concerns about the notes was that high-denomination currency could be more easily stashed away by politicians and businessmen for use in slush funds, to pay for kickbacks or other dubious purposes.

Two recent incidents have added some credence to that theory.

Last week, local media reported that tax officers raided the house of a medical doctor and found 2.4 billion won in hidden cash–all in bunches of 50,000-won notes. The tax office said the money was part of 4.5 billion won in illegal gains the doctor earned via dodging taxes.

Meanwhile, last month prosecutors who were looking into accusations that the prime minister’s office illegally investigated civilians found that a government official received 50 million won in mint-condition 50,000-won bills from his co-workers in a suspicious deal.

In an incident last year, police found around 11 billion won in cash tied to a sports betting operation, mostly in 50,000 won notes, buried in a garlic field.

The Bank of Korea has issued 43.47 trillion won worth of 50,000 won notes since June 2009, but had only recovered 17.51 trillion won’s worth at the end of 2011. Put another way, only four out of each 10 notes issued have returned to the central bank after being used.

That’s unusually low. Last year alone, the recovery-to-issuance ratio for the 50,000-won note was around the same level of 60%, while that for the most widely used 10,000-won bill was 108%, according to BOK data released last week.

The central bank says it could be that the notes have been a success.
“A relatively low recovery rate doesn’t necessarily mean the money is stashed away and isn’t circulating well. That could mean the money is more in demand,” says a BOK official.

The BOK began issuing the bills in the hope that they would help cut the cost of issuing bank checks and boost consumer spending by reducing the need to carry thick wads of notes.

That’s certainly true. It just depends on what the thinner wads are going to be used for.

What do you think, are more people stashing away money from the eyes of tax man?  No, we don’t receive the majority of our funds in
The article may be found at: The Puzzle of Korea’s Highest-Value Bank Note
Sean Hayes, IPG’s Co-Chair of the Korea Practice Team, may be contacted at: SeanHayes@ipglegal.com

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