This is possible. I'm pretty sure, they do some superduper mega Bump-Mapping for these holes.
http://ixbtlabs.com/articles3/video/vantage2-p6.html
I think they try to avoid flat holes, that we can see in FEAR: When you look at holes on walls, they look deep, but if you look on them from a side, so you see, that they are flat.
So it's some kind of "2D Ray Tracing"?
But you know: It's enough to say, that they are using a little bit Ray Tracing in KZ2, and 95% of all mankind think everythin is ray-traced in KillZone 2.