The government on Wednesday approved the establishment of four new credit unions to take over the banking operations of six failed credit unions accused of diverting funds to North Korea.
The Financial Services Agency and the Finance Ministry’s Kanto and Kinki finance bureaus authorized the six Chogin credit unions to transfer their operations to the four new lenders, provided the four lenders sever ties with the pro-Pyongyang General Association of Korean Residents in Japan, or Chongryon.
The takeover of the six failed credit unions, including Chogin Kinki Credit Union and Chogin Tokyo Credit Union, completes the process of consolidating and liquidating a total of 16 Chogin credit unions that have gone bust since the first — Chogin Osaka Credit Union — failed in May 1997.
Fund injections by the government-run Deposit Insurance Corp. are expected to exceed 1 trillion yen.
The four new lenders are Hana Credit Union, Mire Credit Union, Keiji Credit Union and Hyogo Himawari Credit Union.
Hana is taking over Chogin Tokyo Credit Union, Chogin Kanto Credit Union and three other Chogin credit unions in Chiba, Nagano and Niigata prefectures.
Mire, Keiji and Hyogo Himawari are breaking up and taking over the extensive branch network of Chogin Kinki Credit Union, which stretches from Osaka to Hyogo Prefecture.
The four new lenders pledged to take on some Japanese as board members, use outside accounting firms to audit their books, and promised to sever ties with Chongryon in their articles of incorporation.
FSA and DIC officials said they will not reimburse the holders of bogus deposit accounts at the six failed credit unions.
If more bogus deposit accounts are discovered, the holders of such accounts cannot demand refunds from the four new lenders, the officials said.
The two agencies said they will closely watch the four new lenders to prevent Chongryon from tapping into the deposits and public fund injections the lenders will receive.
Financial Services Minister Hakuo Yanagisawa has said the government will not pump public funds into the credit unions unless they sever ties with Chongryon.
The FSA suspects Chongryon used the Chogin credit unions to channel money to North Korea through means such as opening bogus deposit accounts.
FSA investigators said they have uncovered numerous fictitious deposit accounts that they suspect were used to divert funds to North Korea.
On Nov. 28, police arrested former Chongryon executive Kang Young Kwan on suspicion he instructed Chogin Tokyo Credit Union officials to embezzle 830 million yen of the union’s funds.
The series of scandals involving Chogin credit unions began with Chogin Kinki Credit Union, formed in 1997 through the merger of five similar credit unions in the Kansai region.
In 1998, DIC pumped 310 billion yen into Chogin Kinki so it could take over the operations of another failed Chogin credit union in Osaka and assume the duty of refunding depositors.
Two years later, Chogin Kinki failed with a negative net worth. Investigators subsequently charged executives at the union over allegedly redirecting the credit union’s funds.
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