The structural vulnerability of rental and factoring finance—which relies on document reviews rather than physical verification—has been exposed. (Factoring refers to borrowing money using a company's accounts receivable as collateral.) Prosecutors have indicted and detained the head of a rental company and others who defrauded four financial firms, including capital companies, of 14.1 billion won through "phantom rental" and "back-rental" schemes that draw on financiers' money using contracts alone, without any actual goods.
The Changwon District Prosecutors' Office Criminal Division 4 (headed by Chief Prosecutor Lee Jae-won) said it had indicted and detained B, a rental company operator in his 50s who heads Rental Company A, and C, a director, on charges including fraud under the Act on the Aggravated Punishment of Specific Economic Crimes. Prosecutors also indicted without detention E, 43, an employee of Capital Company D, on charges of taking bribes in breach of trust for receiving money and valuables in return for granting favors in financial screening.
According to prosecutors, Rental Company A is suspected of entering into false rental contracts with users through so-called "back-rental" and "phantom rental" schemes, and of using them as a basis to deceive four specialized credit finance companies out of about 14.1 billion won. B and C took an 11% commission (1.6 billion won) as profit before handing over the remaining funds to individual business operators.
"Back-rental" is a method in which a rental company nominally purchases goods already owned by a contractor and then makes it appear as if it is lending them back. "Phantom rental" is a scheme that disguises a transaction as a normal rental even when no rental goods exist at all. The company was found to have recruited business operators facing funding shortages—including hospitals, factories, hotels, and restaurants—and then entered into such false contracts on the condition of providing them financing.
Rental Company A was found to have applied for factoring, installment, and lease financing based on the false contracts, while drawing up and submitting false goods installation confirmation documents as if the goods had actually been delivered and installed. Prosecutors determined that the company took about 11% of the funds it received from the financial firms as a commission before passing the remainder to users, effectively running a lending business using financial companies' capital.
In this process, B was found to have provided E, the Capital Company D employee, with about 205 million won worth of benefits over four years in return for screening favors, including about 162 million won in cash and about 43 million won in rental costs for a luxury passenger car. Prosecutors have applied for a pre-indictment preservation order for confiscation targeting real estate owned by E, covering the roughly 205 million won in criminal proceeds he obtained.
The case was initially referred by police covering only a fraud charge of about 30 million won involving a false rental user. However, even after prosecutors requested a supplementary investigation, it was re-referred without the collusive relationship with Rental Company A being clarified. Prosecutors launched their own supplementary investigation and, through five rounds of account tracing and two searches and seizures, uncovered a nationwide organized financial fraud structure.
The prosecutors' investigation found that the total funds the victim financial firms paid to Rental Company A reached 41.4 billion won, and prosecutors first indicted over the 14.1 billion won confirmed as fraud. The total damage is estimated to reach into the tens of billions of won. Of the loans related to this company, 596 out of a total 1,094 (54.5%) were found to carry a risk of default.
Observers say the case has exposed the structural vulnerability of rental and factoring finance, which relies on document reviews rather than physical verification. In particular, with signs confirmed that an internal capital company employee aided the crimes over four years by granting screening favors, a review of the specialized credit finance industry's own screening systems and internal controls appears inevitable.
"The scale of damage confirmed so far is estimated at 41.4 billion won nationwide, but only three people have been indicted in the first round," a prosecution official said. "We will continue additional supplementary investigations into Rental Company A's financial fraud and do our utmost in maintaining the prosecution so that the defendants receive punishment commensurate with their crimes."
