Identifier
Created
Classification
Origin
07TOKYO5020
2007-10-26 09:08:00
SECRET
Embassy Tokyo
Cable title:  

JAPAN'S SANCTIONS AGAINST NORTH KOREA

Tags:  PREL PGOV EFIN ETTC EFIS ETRD JA KN 
pdf how-to read a cable
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OO RUEHFK RUEHKSO RUEHNH
DE RUEHKO #5020/01 2990908
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FM AMEMBASSY TOKYO
TO RUEHC/SECSTATE WASHDC IMMEDIATE 8986
INFO RUEHBJ/AMEMBASSY BEIJING PRIORITY 9753
RUEHLO/AMEMBASSY LONDON PRIORITY 1872
RUEHMO/AMEMBASSY MOSCOW PRIORITY 1934
RUEHFR/AMEMBASSY PARIS PRIORITY 5798
RUEHUL/AMEMBASSY SEOUL PRIORITY 5807
RUEHSM/AMEMBASSY STOCKHOLM PRIORITY 0641
RUEHFK/AMCONSUL FUKUOKA PRIORITY 4002
RUEHNH/AMCONSUL NAHA PRIORITY 6413
RUEHOK/AMCONSUL OSAKA KOBE PRIORITY 7667
RUEHKSO/AMCONSUL SAPPORO PRIORITY 4699
RUEHSH/AMCONSUL SHENYANG PRIORITY 0542
RUEATRS/TREASURY DEPT WASHDC PRIORITY
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC PRIORITY
RHMFISS/USFJ PRIORITY
RHEFDIA/DIA WASHINGTON DC PRIORITY
RHEHAAA/NSC WASHDC PRIORITY
RHMCSUU/FBI WASHDC PRIORITY
RHHMUNA/HQ USPACOM HONOLULU HI PRIORITY
RHMFISS/DEPT OF HOMELAND SECURITY WASHINGTON DC PRIORITY
RUAGAAA/COMUSKOREA SEOUL KOR PRIORITY
RUCNDT/USMISSION USUN NEW YORK PRIORITY 6622
RUEAIIA/CIA WASHDC PRIORITY
S E C R E T SECTION 01 OF 07 TOKYO 005020 

SIPDIS

SIPDIS

E.O. 12958: DECL: 10/26/2016
TAGS: PREL PGOV EFIN ETTC EFIS ETRD JA KN
SUBJECT: JAPAN'S SANCTIONS AGAINST NORTH KOREA

Classified By: Ambassador J. Thomas Schieffer. Reasons 1.4 (B) (D)

S E C R E T SECTION 01 OF 07 TOKYO 005020

SIPDIS

SIPDIS

E.O. 12958: DECL: 10/26/2016
TAGS: PREL PGOV EFIN ETTC EFIS ETRD JA KN
SUBJECT: JAPAN'S SANCTIONS AGAINST NORTH KOREA

Classified By: Ambassador J. Thomas Schieffer. Reasons 1.4 (B) (D)


1. (C) Summary. Japan extended sanctions originally imposed
against the DPRK following the DPRK's 2006 missile and
nuclear tests by six months on October 10. The sanctions are
aimed at limiting trade and financial flows to the DPRK,
while sending a strong public message to Pyongyang about the
abduction and nuclear issues. Loopholes and cut-outs
available to the DPRK have limited the extent to which DPRK
trade and cash flows have been affected, and a pre-sanctions
decline in trade and money transfers mask what effect the
sanctions may have had. That said, Japanese legal measures
against Chosen Soren, North Korea,s de facto representative
in Japan, have gotten the DPRK,s attention, taking a toll on
the organization,s activities. The DPRK has reacted to this
&attack8 on Chosen Soren with protests in both Tokyo and
the UN. Some Japanese government officials, academics,
non-governmental experts, and third country embassy
representatives hold mixed views about the sanctions,
efficacy, particularly in terms of how they may shape the
DPRK,s decision-making process. End Summary.

--------------
Strong Public Message
--------------


2. (C) Following the DPRK's missile and nuclear tests, the
government of Japan announced a series of political,
economic, and financial measures in 2006 aimed at punishing
Pyongyang. In July, Tokyo banned the passenger ferry
Mangyongbong-92 from entering Japanese ports, forbid entry of
DPRK officials into Japan, and ended charter flights between
Japan and North Korea. In September, consistent with
requirements under UNSCR 1695, Japan banned interaction with
15 entities and one individual identified as having engaged
in illicit financial activities with the DPRK. Following the
October nuclear test, Tokyo banned all North Korean ships and
goods from Japan, and barred all North Korean passport
holders from its borders. The Fukuda Cabinet extended these

sanctions for another six months on October 10, citing lack
of progress on the abduction issue.


3. (C) Tokyo authorities close to the abduction issue, such
as Special Advisor to the Prime Minister on the Abduction
Issue Kyoko Nakayama, are especially vocal in describing
Japanese sanctions as "effective." In private, senior
Japanese officials have described the importance they attach
to the strong public message the sanctions send. For
example, on September 4, 2006, Asian and Oceanian Affairs
Bureau Director-General Kenichiro Sasae stressed to Assistant
Secretary for East Asia and Pacific Affairs Chris Hill that

SIPDIS
needs to show North Korea there are consequences" to its
policy of "brinkmanship." Failure by the international
community to respond to DPRK bullying, he added, would
constitute a case of "big thunder, little rain." Then-Chief
Cabinet Secretary Yasuhisa Shiozaki, reinforced that message
when he told visiting A/S Hill on January 20 that the point
of sanctions enacted by Japan and the UN had been to isolate
North Korea.


4. (C) Working-level officials at MOFA tell Embassy Tokyo
that while Japanese authorities believe that sanctions may
have some influence on the DPRK leadership, a key purpose of
sanctions is to make clear how strongly Japan feels regarding
the abduction and nuclear issues. At the same time, MOFA
understands that the real-world impact of sanctions is not
strong enough to change decisions by the North Korean
leadership.


TOKYO 00005020 002 OF 007


--------------
Mixed Views About Sanctions, Efficacy
--------------


5. (C) Several observers in Japan note the difficulty of
distinguishing the effect of Japan,s measures vis-a-vis
those of the UN Security Council or U.S. actions directed
against Banco Delta Asia in determining: 1) What is the
actual effect of Japan,s sanctions, and 2) how should
&effectiveness8 be defined. In separate conversations with
Embassy Tokyo, DPRK watchers Professor Masao Okonogi, Dean of
the Law Faculty at Keio University, and Hideshi Takesada,
Executive Director for Research and International Affairs of
the National Institute for Defense Studies, agreed that
Japan's sanctions are having "little to no effect" on DPRK
decision-making or regime stability. Okonogi pointed out
that North Korean cash flows from pachinko parlors, real
estate holdings, and banking interests, which he claimed were
the leading producers of hard currency for Pyongyang, had
suffered more from the effects of Japan's economic slowdown
than from its aggressive sanctions policy. The lone voice of
dissent, Waseda University Professor Toshimitsu Shigemura,
argued that sanctions were having an effect, but that they
might take one to two years to impact the North Korean
leadership's thinking.


6. (C) Reaction among Western embassies in Tokyo is also
mixed. Canadian and New Zealand diplomats expressed the view
that the "demonstration effect" was more important than the
actual impact. However, the UK and Sweden, each of which
maintains a diplomatic presence in Pyongyang, differ sharply
from the others. Representatives of both nations state that
sanctions are having a definite impact on the North Korean
economy, although they admit that the impact on political
decision-making remains uncertain.


7. (C) Swedish Embassy Deputy Head of Mission Magnus
Lennartsson Nakamitsu said that his impression is that
Japanese sanctions are having an impact on the DPRK. "People
tell us that the import ban is certainly being felt in the
coastal communities in the east," he added He noted the
difficulties that the ban on port calls have created for "all
sorts of illicit trade, including the income from the North
Korean drug trade."


8. (C) According to UK Ambassador to the DPRK Jonathan
Everard, the Japanese sanctions are "more effective than the
UN sanctions." The loss of hard currency resources has hurt
the regime, he observed, because in a country where "power
flows from access to hard currency, the regime is probably
alarmed that those who trade on the Chinese border and in
markets are earning hard currency which is not under regime
control." That revenue loss tilts the relative power in the
DPRK away from the regime, and is likely to have made the
regime "more cautious" in its internal policies, he added.
Conversely, the pain inflicted allows "relative liberals" to
argue that the costs of the DPRK's policy of defiance are too
high, and allows military hardliners to call for renewed
strength in the face of "Japanese aggression."

--------------
Trade: Pre-Sanctions Downward Trend
--------------


9. (C) At first glance, data provided by Japan's Ministry of
Economy, Trade, and Industry (METI) seem to suggest that
Japanese trade restrictions are having an impact. Japan
imported about JPY nine billion worth of goods from North
Korea in 2006, but effectively ceased bringing in DPRK

TOKYO 00005020 003 OF 007


products as of December 2006. Japan's customs database
records no imports from the DPRK for 2007. The nine billion
yen drop in imports from 2006 to 2007 equates to a possible
loss of at least USD 75 million in hard currency earnings, a
figure amounting to approximately 5 percent of the DPRK's
total exports in 2005. Exports from Japan to North Korea
continue at the rate of JPY 50 - 60 million per month, an
amount equal to less than USD 500,000 per month. This
compares with JPY 400 - 500 million (USD 3 million ) USD 4
million) per month that in exports over the same period last
year.


10. (C) In general, though, Japan-DPRK trade declined every
year between 2002, the year North Korea admitted to abducting
Japanese citizens, and 2005. Imports declined a total of JPY
20 billion during this period, while exports declined JPY 12
billion. Those decreases, coming well before Japan
implemented sanctions, may reflect an "abduction boycott" --
an economic backlash staged by individual Japanese citizens
angry over the abduction issue. Some observers note that the
2006-07 reductions in Japan-DPRK imports/exports are as much
a result of the overall downward trend in evidence from 2002,
as they are of last year's sanctions policy.


Japanese Imports Japanese Exports
from DPRK to DPRK
(JPY billion)

2002 29 17
2003 20 11
2004 18 10
2005 15 7
2006 9 5



11. (C) With regard to items banned under UNSCR 1695 and
1718, Japan's Ministry of Economy, Trade, and Industry (METI)
requires that, under the Foreign Exchange and Trade Control
Law, the items prohibited for export to North Korea under
those resolutions need METI approval in order to be exported
legally -- approval which would be denied should any company
actually apply. This requirement has been publicized through
press releases, the Japanese government gazette, and notices
to industry associations. Because there is no licensing
system for controlling the trade in luxury goods, however,
the enforcement of this requirement relies on companies
accurately reporting to Japanese customs on the content of
their exports to North Korea. Customs officials then
determine whether the proposed export does or does not
conform to a product banned under the relevant UNSCRs.

--------------
PRC-ROK Back Door
--------------


12. (C) Available data suggest that in response to Japan,s
sanctions, the DPRK has been able to turn to South Korea and
the PRC to make up for trade shortfalls. Bilateral trade
between the two Koreas in calendar 2006 totaled USD 1.35
billion, a new high representing an overall increase of 28
percent from 2005. South Korean exports, meanwhile,
increased 16 percent, and imports 53 percent. PRC-DPRK trade
showed similar expansion, according to figures supplied by
Embassy Beijing, despite occasional cutbacks in commodities
and services. Chinese exports to North Korea during the
period 2001-06 rose from USD 573 million in 2001 to USD 1.23
billion in 2006 -- a more than 100% increase. PRC imports
from the DPRK increased as well, from $167 million to $468

TOKYO 00005020 004 OF 007


million over the same period.

PRC Imports from DPRK PRC Exports to DPRK
(USD million)
2001 167 573
2002 271 467
2003 396 628
2004 582 795
2005 497 1,085
2006 468 1,232

--------------
Finance: Difficult to Get a Handle On
--------------


13. (C) The paucity of data on the amount of money flowing
between Japan and the DPRK, especially for the time period
beginning immediately before Tokyo implemented its economic
restrictions, makes it impossible to accurately assess what
impact Japan's sanctions have had on hard currency going to
North Korea. However, most observers believe the amount of
money flowing between Japan and North Korea to be
significant, and that the flow proceeds largely unchecked.
Analysts base that view on the belief that Japan's sanctions,
even if enforced diligently, probably force money into
third-party channels. MOFA Intelligence and Analysis Service
(IAS) Deputy Director-General Shigeo Matsutomi told visiting
INR A/S Fort in September 2006 that bank remittances from
Japan to North Korea had fallen to just USD 2 million dollars
in 2005, the year before sanctions went into effect.


14. (S) An Embassy Tokyo-based team looking into money
transfers, in cooperation with Japanese government officials,
estimated that proceeds from pachinko and pachinko slots
might be in the range of USD 261-280 billion. However, this
same team believes that very little of this money is remitted
to the North. There are several reasons: first, the
pachinko industry has become immensely competitive, with
Taiwanese and South Korean firms entering the market and
driving down profit margins. The view that Chosen Soren
controls the industry, and that it is a DPRK cash cow, is no
longer accurate. Second, changes in tax laws several years
ago, and in the procedures for collecting taxes, have made it
much harder for pachinko parlors to hide earnings that can
then be remitted to the North.


15. (C) Japan-DPRK financial flows continue either directly,
via third countries, or aboard foreign-flagged vessels. For
example, Consulate-General Osaka-Kobe has noted reports that
the passenger ferry Mangyongbong-92, banned from entering
Japanese ports, continues to transport ethnic North Korean
Japanese passengers to the DPRK. Instead of boarding in
Niigata as they used to, however, they now have to travel to
Busan, South Korea, for transport to the DPRK.

-------------- --------------
Financial Enforcement: Police Lack Manpower, Authority
-------------- --------------


16. (C) In 1990, the government required financial
institutions to file suspicious transaction reports (STR's)
for suspect money transfers with the Financial Service Agency
(FSA). Japan created the Japan Financial Intelligence Center
(JAFIC) within the FSA in 2000. The Organized Crime Law,
enacted in March 2007 and aimed at preventing the flow of
organized crime profits, moved the JAFIC from FSA to the
National Police Agency (NPA). Under the new law, NPA
headquarters farms out STR's collected by JAFIC to local
police field offices for follow-up investigation.

TOKYO 00005020 005 OF 007




17. (C) NPA officials have told Embassy Tokyo they did not
welcome the responsibility and resisted Diet efforts to have
the JAFIC placed into police headquarters. The Diet failed
to allocate additional money and/or manpower to the NPA,
especially the local precincts, to carry out the new,
additional responsibility -- meaning that already
resource-strained local offices will be forced to take on
this burden without additional resources. NPA also opposed
the transfer because the new law does not give the police
authority to supervise and order private sector institutions
to act. The Japan Federal Bar Association (JFBA) opposed
provisions obligating not only banks and financial
institutions, but also lawyers, to complete STR's. JFBA
fears that lawyers might be required to report clients
involved in potentially suspicious transactions to police.
The Crime Profits Law, which took effect in April 2007,
exempts until the end of 2007 companies involved in real
estate, jewelry, and private post office boxes.

--------------
Loopholes in Reporting Requirements
--------------


18. (C) Japan's Anti-money Laundering and Anti-terror
Financing Law requires monitoring of international
remittances over JPY 100,000. Authorities do not monitor
transactions below that amount. A second measure, the
Customer Identification Law (the ID law will be rolled into
the money/terror legislation by March 2008),requires banks
to identify customers conducting domestic wire transfers for
the same amount. However, a provision in the ID law permits
customers to use their bank cards to send more than JPY
100,000 via ATM, on the theory that banks are presumed to
have already satisfactorily identified those customers at the
time the card was issued.


19. (C) For example, in a hypothetical case, a school run by
the General Association of Korean Residents in Japan (Chosen
Soren) can send JPY 99,999 to a DPRK bank without breaking
the law, or being required to report the money movement. A
Chosen Soren school that repeatedly sends money to the same
DPRK bank every month might generate a STR by a diligent
private Japanese bank official, but the school might avoid
even that minimum scrutiny by having school staff members
send varying amounts directly to different banks in North
Korea, or via third countries.


20. (C) Contacts at the NPA and the Ministry of Finance (MOF)
tell Embassy Tokyo that there are no specific criteria for
identifying what constitutes a suspicious transaction. If,
in the view of a bank official, the transaction does not seem
to be suspect, no STR is filed with police. When banks do
file STR's, suspect transactions are not held up pending
investigation of the STR, and the money transfer takes place
despite the fact that the transaction might later be deemed
illicit.

--------------
Financial Transactions Trending Down
--------------


21. (C) Figures supplied by the MOF show remittance and cash
courier transfers from Japan to the DPRK on a downward trend
each year from FY 2000-06. Data from the first five months
of Japan,s FY07 (April 06 to August 06) indicate total
transfers stood at USD 8.6 million, compared to USD 26.5
million for all of FY06.


TOKYO 00005020 006 OF 007



22. (C) This downward shift may be attributable to factors
other than Japan's sanctions, such as Japan's "abduction
boycott," or cash re-directed via third countries.

Reported remittances to the DPRK:

FY (Apr-Mar) (USD, million)

2000-01 39.4
2001-02 34.8
2002-03 34.0
2003-04 24.2
2004-05 24.1
2005-06 26.5
2006 (Apr-Aug) 8.6

--------------
Customs Enforcement Problematic
--------------


23. (C) Embassy Tokyo,s Immigration and Customs Enforcement
(ICE) officers report problems with Japan's lack of
enforcement of monetary reporting requirements. Japan's
Foreign Exchange and Foreign Trade Law (FOREX) requires
travelers entering and departing the country to report
physically transported currency and monetary instruments
(including securities, travelers checks, and promissory
notes) exceeding one million yen, or gold weighing in excess
of one kilogram, to customs authorities. MOF officials
report collecting approximately 2000 reports monthly, a
number that corresponds to a minimum of USD 20 million that
might be crossing Japan's border each month. Customs
officials do not attempt to verify the information on the
individual reports, are not allowed to analyze the data, and
are not permitted to capture the information gathered onto a
computer data base. Customs simply collects the information
and passes it to MOF. As a result, Embassy ICE
representatives assess that Japan's reporting for
cross-border transportation of bulk cash is "perfunctory,"
and efforts to enforce reporting are "unmotivated." The
thousands of Mangyongbong 92 ferry passengers who return to
the DPRK each year from Busan could well be carrying millions
in hard currency.

--------------
Chosen Soren: Getting the DPRK,s Attention
--------------


24. (C) One aspect of Japan,s sanctions policy that appears
to have gotten the DPRK,s attention involves the actions
taken against the pro-Pyongyang General Association of Korean
Residents in Japan (Chosen Soren). Japan removed Chosen
Soren,s tax free status in 2007, a move that is forcing the
closure of Chosen Soren-run schools in Japan. In addition,
Tokyo District Court ordered the seizure of Chosen Soren's
downtown headquarters, North Korea's de facto embassy in
Japan, in order to collect roughly USD 500 million (62.7
billion yen) in bad loans owed to the quasi-governmental
Resolution and Collection Corp. Our ROK Embassy colleagues
speculate that the seizures were intended to 8put pressure
on North Korea" by curtailing Pyongyang's political and
financial activities in Japan, despite government claims that
this was merely a tax collection issue. Chosen Soren members
reacted by organizing large demonstrations in Tokyo, Nagoya,
and Kobe on March 3 to protest unjustifiable political
suppression." They protested again in Tokyo on October 10,
and both Japan and the DPRK exchanged heated Rights of Reply
at the UN on October 2 on the issue of the treatment of
Chosen Soren.

TOKYO 00005020 007 OF 007


SCHIEFFER