DPRK FLAGS OF CONVENIENCE

S E C R E T SECTION 01 OF 03 TOKYO 001446

SIPDIS

SIPDIS

DEPARTMENT PLEASE PASS TO EAP/FO, ISN/FO AND ISN/WMDT

E.O. 12958: DECL: 03/16/2016
TAGS: PARM PREL MNUC KNNP EWWT PHSA KN JA
SUBJECT: DPRK FLAGS OF CONVENIENCE

REF: A. STATE 22855

B. STATE 204250

C. TOKYO 006357

D. WELLINGTON 000900

E. TOKYO 000800

Classified By: Acting Political Minister Counselor Carol T. Reynolds.
Reason: 1.4 (b),(d)


1. (S) Following up on questions raised by MOFA in February
2006 (reftel),Bureau of International Security and
Nonproliferation officials Anthony Ruggiero and Jae Jo met
with MOFA Northeast Asia Division Director Naoki Ito in Tokyo
on March 10, 2006 to deliver a non-paper on DPRK flags of
convenience and the insurance of DPRK vessels seeking to make
port calls in Japan (at para 5). Director Ito expressed the
Japanese government's appreciation for the additional
information and promised to provide a formal response on
possible actions Japan may take after carefully consider it.
In the meantime, Ito stated that the Ministry of Foreign
Affairs would:

-- provide the USG with a list of all DPRK vessels currently
authorized to visit Japan;

-- share the new information provided with appropriate
Japanese law enforcement agencies; and

-- discuss SEPIA's claim to be a registered Liechtenstein
entity for the sale of maritime P&I insurance with
appropriate authorities in Liechtenstein.


2. (S) Ito explained there is high-level interest in Japan
in finding ways to strengthen existing law enforcement
measures on various fronts to address DPRK illicit
activities, but cautioned that under existing Japanese law,
the Ministry of Land, Transportation and Infrastructure
(MLIT) must accept "Certificate of Insurance or Other
Financial Guarantee Regarding Civil Liability for Oil
Pollution Damage (CLC)" issued by CLC signatory countries.
Ruggiero noted that one of the certificates that Ito had
passed to ISN A/PDAS Record in February listed Vaduz,
Liechtenstein as SEPIA's place of business. Liechtenstein
authorities, however, have told the U.S. Government that this
claim is false. Ito emphasized that Japanese authorities
viewed the certificate as valid because it was issued by a
CLC signatory (Panama). Ruggiero responded that we would
approach Panama with our concerns about SEPIA in general, and
this particular certificate in particular, and would share
the results of that consultation with Japan.


3. (S) Ruggiero asked about the Japanese boarding of the
DPRK freighter Kwang Kum San the week of March 6. In
particular, the U.S. Government was interested in why Japan
boarded the ship, which agencies were involved, whether the
vessel was insured by SEPIA or MMIA, and what Japan found
aboard the ship. Ito confirmed that officials from MLIT, the
Japanese Coast Guard, Ministry of Finance, Ministry of
Justice, and National Policy Agency had conducted an
inspection of the ship, but had found nothing suspicious.
Ito and Ruggiero speculated the ship probably was insured by
MMIA or SEPIA in accordance with Japan's P&I law. Ito agreed
to check with the relevant ministries for further details and
report back to the U.S. Government.


4. (S) Begin nonpaper delivered to MOFA on March 10, 2006

-- The United States continues to research the insurance of
North Korean flagged vessels. Our goal is use all legal
means to combat North Korean proliferation and illicit
activities and Pyongyang's efforts to hide such activities

TOKYO 00001446 002 OF 003


within legitimate commerce.

-- The United States appreciates our joint efforts in
reviewing attempts by North Korean-flagged ships to
circumvent full compliance with Japanese insurance
requirements for ships entering Japanese ports.

-- We want to share with you additional information regarding
SEPIA.

-- In the past, North Korea used two suspect insurance
companies (MMIA and SEPIA) in response to the Japanese law on
P&I insurance.

-- It is now clear that MMIA will no longer insure DPRK
flagged vessels and we learned additional information on why
MMIA decided to end its insurance of DPRK-flagged vessels.

-- We have learned that MMIA and North Korea were engaged in
a claims dispute following what MMIA considered to be the
intentional grounding of a North Korean vessel. In addition,
MMIA believed its reputation was damaged from negative
publicity within the maritime insurance industry over the
company's connection with North Korea.

-- DPRK-flagged vessels have now turned to SEPIA, also a
questionable insurer, rather than raising its standards to
get legitimate insurance coverage.

-- SEPIA insures vessels engaged in proliferation and other
illicit activities and may not have sufficient financial
resources to provide insurance.

-- Our concerns about SEPIA remain and have increased as we
receive additional information on SEPIA's insurance of DPRK
flagged vessels.

-- Your government passed us a "Certificate of Insurance or
Other Financial Guarantee Regarding Civil Liability for Oil
Pollution Damage (CLC)" listing SEPIA as the insurer of a
DPRK flagged vessel and claiming its address as Vaduz,
Liechtenstein.

-- We know SEPIA in its brochure claims to be a registered
Liechtenstein entity that manages its insurance business.
However, the Government of Liechtenstein has told us that
SEPIA is not authorized to sell insurance out of
Liechtenstein. This is another example of SEPIA's
questionable practices.

-- We would encourage Japan to reach out to Liechtenstein
directly to confirm that SEPIA is not authorized to sell
insurance from its Vaduz office.

-- We believe that SEPIA continues to confuse prospective
clients and investigators by cashing in on the good name of
the reputable North of England Protection and Indemnity
Association.

-- We are also concerned that SEPIA will not cover damages
caused by North Korean ships. Standard P&I policies do not
cover damages arising from illegal activities, and if a North
Korean ship causes damage to Japan's waters while conducting
illegal activities, the insurer may deny compensation.

-- In addition to questions about SEPIA's legitimacy, we know
DPRK ships insured by SEPIA have engaged in dangerous and
illicit activities. These ships are also controlled by DPRK
military and intelligence organizations.

-- Several of these ships are owned by Kangsong General

TOKYO 00001446 003 OF 003


Trading Company, which in turn belongs to the North Korean
People's Armed Forces. Kangsong also owns the merchant
vessel Chang Dok, which has shipped arms to customers in
Africa and missile components to Yemen.

-- Additional ships are owned by the North Korea's Operations
Department, which is the intelligence organization
responsible for conducting sea-borne infiltrations to
facilitate intelligence and illicit activities such as drug
smuggling, infiltrating operatives, and conducting abductions
and assassinations.

-- At least two of the ships are also owned by the North
Korean military's Reconnaissance Bureau, which is responsible
for conducting infiltration, intelligence collection, and
sabotage operations.

-- Several of the ships are owned by Office 39, which is
responsible for both legal and illegal foreign currency
earning operations to earn hard currency for Kim Jong-il's
regime.

-- We also have information that the North Korean passenger
ship Mangyongbong 92, insured by SEPIA, has been used by
North Korean intelligence services Office 35, External
Liaison Department (ELD),and the Unification Front
Department (UFD) as a safehouse to facilitate agent meetings
while docked in Niigata, Japan.

-- We would also appreciate any additional information that
your government has on the numbers and names of North Korean
ships insured by SEPIA.

-- We are aware that Japan boarded the Hwang Kum San earlier
this week and we know this ship has been engaged in
proliferation related activities. We would welcome further
information on this ship including whether it is insured by
MMIA or SEPIA.

End Nonpaper.


5. (U) This message has been cleared by ISN Anthony Ruggiero.
SCHIEFFER