Identifier
Created
Classification
Origin
06SEOUL2917
2006-08-25 09:28:00
UNCLASSIFIED
Embassy Seoul
Cable title:  

THE "GAMBLING REPUBLIC": CAUGHT IN THE NET OF

Tags:  PGOV KS 
pdf how-to read a cable
VZCZCXYZ0007
PP RUEHWEB

DE RUEHUL #2917/01 2370928
ZNR UUUUU ZZH
P 250928Z AUG 06
FM AMEMBASSY SEOUL
TO RUEHC/SECSTATE WASHDC PRIORITY 9911
INFO RUEHBJ/AMEMBASSY BEIJING 1135
RUEHKO/AMEMBASSY TOKYO 1215
RUEAIIA/CIA WASHINGTON DC
RHMFIUU/COMUSKOREA J5 SEOUL KOR
RHMFIUU/COMUSKOREA SCJS SEOUL KOR
RUEKDIA/DIA WASHINGTON DC
RHEHNSC/NSC WASHDC
RUEKJCS/SECDEF WASHINGTON DC//OSD/ISA/EAP//
RHHMUNA/USCINCPAC HONOLULU HI
UNCLAS SEOUL 002917 

SIPDIS

SIPDIS

E.O. 12958: N/A
TAGS: PGOV KS
SUBJECT: THE "GAMBLING REPUBLIC": CAUGHT IN THE NET OF
SEA-GATE

SUMMARY
-------

UNCLAS SEOUL 002917

SIPDIS

SIPDIS

E.O. 12958: N/A
TAGS: PGOV KS
SUBJECT: THE "GAMBLING REPUBLIC": CAUGHT IN THE NET OF
SEA-GATE

SUMMARY
--------------


1. (SBU) A scandal surrounding a video gambling craze is
sweeping the nation and on August 25 has captured the front
page of Seoul newspapers for the fifth straight day. The
scandal centers on suspicion of bribes and kickbacks related
to the approval of a new type of digital slot machine and its
accompanying compensation scheme that has recently exploded
onto the scene of gaming centers throughout the nation. With
speculation of involvement by President Roh Moo-hyun's
nephew, the issue involves the Chong Wa Dae (President's
office) as well as the ruling Uri Party and opposition Grand
National Party (GNP). Beyond the high-level political
attention to this scandal, many Koreans are also crying foul
about the broader social impact of the gambling boom that has
seized the country.

POLITICAL IMPLICATIONS
--------------


2. (SBU) Over the weekend of August 19-20, the Korean media
launched an attack against the president's nephew, Roh
Ji-won. The press implicated nephew Roh as having been a key
player in the illegal business deals related to the promotion
of the gambling craze. Initially, Roh Ji-won claimed that he
turned down a sales position at Woojyun Systec, the company
that received a nearly $2,700 government grant and was later
acquired by the distributor of "Sea Story," the largest chain
of video gambling stores. However, it has been discovered
that Roh Ji-won did in fact work as a sales executive at
Woojyun. President Roh quickly spoke out in support of his
nephew and assured the public that his nephew was innocent.
By the time this story broke, President Roh had already
stated on August 13 that, "the only problem occurring during
my presidency was the gift certificates used in adult video
arcades". Many took this admission as an attempt by Roh to
draw attention away from his nephew and direct investigators
to focus more on who is responsible for regulating the
issuance of the prize certificates. Roh's tactic may have
worked as the current focus has shifted away from Roh to
government regulators involved in the gaming industry.

THE GAMBLING REPUBLIC
--------------


3. (SBU) As the frequency of the highly visible gaming
centers or video shops increases, the public's awareness and
concern over the large amounts of money trading hands is also
rising dramatically. Many in the press are using the term

"Gambling Republic" to express the pervasive nature of the
gambling halls. (NOTE: The most common chain of game
centers is "Sea Story" whose storefronts are decorated in
bright blue and orange colors with a sea-themed backdrop.
There are currently 15,000 video shops throughout the country
with more opening every day. END NOTE.). Also bringing
attention to the issue were the suicides of two people
financially overextended as a result of a gambling addiction.


4. (SBU) On August 13, a man by the surname Son hung himself
from a tree because he could not pay back a nearly $100,000
debt due to his addiction to game parlors. On June 16, a
housewife committed suicide by slitting her wrists because
she could not pay back a credit card debt of nearly $90,000
accrued from gambling services in Internet PC parlors. Such
suicides have led to an increasingly public outcry to address
gambling as a pervasive and growing social problem. The
Christian Ethics Movement (CEM),a civic group, has become a
leading voice in a campaign against addictive arcade games
and is calling for legal measures to abolish them. The CEM
estimates that 3.8 percent of the Korean population, or 1.3
million adults, are severely addicted to gambling. The
addiction is more prominent among lower-income workers who
wish an easy route to hit it big.

HOW THE GAME IS PLAYED
--------------


5. (SBU) While gambling is officially illegal in Korea, the
latest way to get around the law is for the slot machines to
issue paper certificates to winners instead of cash, thereby
avoiding the letter of the anti-gambling law. The maximum
limit on prize money from video arcades is roughly $21, but

several game rooms have also been accused of altering the
computer chip in the machines to allow payouts as high as
$2,550. The paper certificates are promptly taken outside of
the gaming establishment and exchanged for cash, minus a 10
percent service fee. While arcade owners cannot operate
exchange booths inside the arcade, anyone who registers with
the appropriate agency can operate an exchange booth. As a
result, arcade owners acquire the exchange booths by
registering under someone else's name and reap the benefits
from the gift voucher commissions.


6. (SBU) When the Korea Game Development and Promotion
Institute approved the issuance of gift certificates for 19
companies in December 2004, the original notion was that the
certificates would be exchanged for "cultural items" such as
books. The reality is that the vast majority (approximately
98 percent) of the coupons are exchanged for cash with the
total value of certificates issued in the past year estimated
at over $25 billion dollars. (NOTE: Put into context, the
amount of winnings issued in the past year exceeds the
national defense budget, which is $23 billion dollars. END
NOTE.). According to the Financial Supervisory Service,
around $40 billion dollars worth of gift certificates are
currently in circulation.

OPPORTUNITY OR THREAT?
--------------


7. (SBU) Bang Hwa-seop, Chief of Staff for policy for Rep.
Song, Young Gil (Uri),opined that Sea Story was not a
crisis, but actually an opportunity. He told poloff that the
government has been considering legalizing some forms of
gambling in a few cities (Jeju, Incheon, Busan) for years, to
create profitable, legal gaming areas like Las Vegas or
Macau. "Sea Story" was now forcing the government to focus
on the issue such that it may spawn some actual reform. In
an editorial on August 16 in the "JoongAng Ilbo," the author
suggested that Korea adopt a similar model to Japan's
approach to the pachinko issue. Pachinko developers
willingly inserted tracking chips into the machines to allow
tax auditors to both collect taxes and monitor payouts to
remove any illegal aspects of the industry. This action
legitimized the industry and forced out organized crime while
also allowing pachinko businesses to be listed on the Tokyo
Stock Exchange.

COMMENT
--------------


8. (SBU) Opposition and ruling party members alike such as
Uri Party floor leader, Kim Han-gill, have criticized
President Roh for his preoccupation with asserting his lack
of involvement in the scandal by framing the issue as an
administrative error. Rather, the core issue is whether
politicians used their influence to create a loophole that
legitimized and promoted illegal gambling and inadvertently
contributed to a growing social and economic problem. The
Media Rating Board, which reviews games for consumer release,
and the Korea Game Development and Promotion Institute, the
agency in charge of issuing the "cultural" gift certificates,
are clearly implicated, but it has yet to be determined who
is responsible for the policy and how close they are to the
Blue House. Records from National Election Commission, which
tracks political contributions that exceed $2,100 dollars,
indicate that at least three prominent lawmakers, including
Kang Jae-sup, the Chairman of the opposition Grand National
Party (GNP),received contributions from Sammi Corporation,
one of the companies that issue the gift certificates.
Freshman National Assembly representative Chae Su-chan of the
Uri Party told poloff on August 23 that although there is
probably no real substance to the scandal, the main
opposition GNP and the media will fan the flame to a "big
wave" long in coming.
STANTON