UNCLAS SECTION 01 OF 02 OSAKA KOBE 000526

SIPDIS

DEPT OF TREASURY FOR AMIT SHARMA
DEPT OF TREASURY FOR BILL MURDEN
DEPT OF TREASURY FOR IVY KOSIMIDES

SENSITIVE

SIPDIS

E.O. 12958: N/A
TAGS: ETRD EFIN EFIS PREL KN JA
SUBJECT: NORTH KOREAN SUPERNOTES SEIZED IN WESTERN
JAPAN



1. (SBU) On September 23, Kobe Customs officials and
Tottori Prefectural Police raided the DPRK-flagged Kum
Gang 1 freighter, which had entered the port of
Sakaiminato in Tottori on the Japan Sea coast on
September 19. The Japanese authorities took this
unusual measure after two counterfeit super-K 100 USD
notes were discovered among the cash paid by the Kum
Gang 1's captain to a ROK-passport-holding Japanese
broker on board the vessel. Since the July 5 DPRK
launch of missiles into the Sea of Japan (SOJ), North
Korean ship crew have been confined to their ships when
making port calls to Japan.


2. (SBU) The forged money was found among a total of
300 USD 100 bills used to reportedly pay the broker,
either for the cargo of seafood and seasonal delicacy
"matsutake" mushrooms or, as the broker claimed, for
previously rendered services. The broker had failed to
declare the payment after disembarking from the ship,
raising the suspicion of the Kobe Customs officials,
who have jurisdiction over the port. After discovering
that two of the bills in the broker's bag were fakes,
the Japanese searched the ship and its hold for an hour,
finding no other contraband.


3. (SBU) Sakaiminato Port Authority officials told
econoff that given the number of the bills, they
discounted the possibility that this was a case of
deliberate money laundering. In contrast, last year 11
forged USD 100 bills were found in Sakaiminato among
6,500 bills used by a different North Korean freight
vessel. Additional information from local Japanese
authorities will be reported as it arises.


4. (SBU) This seizure draws into sharp focus the
peculiarities arising from the current Japan-DPRK ad
hoc trading system, even after the GOJ imposed economic
sanctions against the North Korean regime. Through
2005, Sakaiminato's port had the second-largest volume
of DPRK ship visits in Japan and a 1.3 billion yen (USD
11.8 million) trade deficit with the North. Nearby
Maizuru Port, in northern Kyoto Prefecture, was top in
terms of vessels and volume of trade.


5. (SBU) Notwithstanding nominal GOJ control over
Japanese ports, in cities like Maizuru and Sakaiminato
local port councils and businesses exert more influence
over specific port policies than do governmental
agencies, even in the current hostile environment
across the SOJ. There is anecdotal evidence that local
governments do not even have the authority to deny
entry to certain ships. The volume of North Korean
vessels visiting Maizuru has plummeted since July, not
because of official fiat, but because the local loading
companies, fearing damage to their reputations, have
refused to service the ships. As a result, more North
Korean ships are diverting to Sakaiminato, whose
economy is more dependent on trade with the North. The
city is host to many canning and seafood processing
plants, which need the cheap North Korean imports more
than Maizuru, whose economy is more robust and
diversified.

RUSSEL


UNCLASSIFIED 2

SIPDIS

UNCLASSIFIED

OSAKA KOBE 00000526 002 OF 002



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