While the Pyeongchang Winter Olympic Games opened the door to rapprochement between the two Koreas, tension between the United States and North Korea showed no sign of easing as Washington maintained its hard-line stance against Pyongyang. Japan has been in lockstep with the U.S. on North Korean issues, and Prime Minister Shinzo Abe reiterates that Tokyo stands shoulder to shoulder with Washington in dealing with the rogue state. Against this backdrop, a bank transaction scandal threatens to shake the Japan-U.S. alliance. How will the U.S. react to money sent from Japan that could possibly end up financing North Korea’s nuclear development program?
The money transfers in question took place in Ehime Prefecture, a tranquil region in Shikoku. Ehime Bank is a typical second-tier regional bank. It started as Ehime Mujin Kabushiki Kaisha and assumed its current name in 1989. Local residents call it “Himegin.” In late May 2017, the bank’s Ishii branch in the city of Matsuyama was visited by a company president, who had an account at the bank’s Osaka branch, according to Ehime Bank sources. The man asked the bank to remit ¥10 million to an account at Hang Seng Bank of Hong Kong. On the remittance form, the president described the money as a “loan” and named the recipient as “K Company.” Because it does not deal with Hang Seng Bank, Ehime Bank entrusted Mizuho Bank, a major bank with which it has a correspondent contract for foreign exchange dealings, to remit the money. Ehime Bank did not consider the remittance to be strange because the company president had an account at its Osaka branch.
The company president showed up again at the Ishii branch several days later and asked to remit ¥50 million. This time, the branch chief asked the president why he was sending money from Ehime when he had an account at the Osaka branch. The branch chief asked the president to wait in a room, while he consulted with the transaction screening division at the bank’s headquarters about what to do.
The bank eventually decided there was no problem in remitting the money because the president’s identity had been confirmed by his driver’s license, and his attire and demeanor did not indicate anything untoward. His transaction records at the Osaka branch were solid, which convinced Ehime Bank to give the green light to the money transfer.
But the remittances did not end there. The president later remitted at least nearly ¥500 million more over three occasions. The Ishii branch had previously never dealt with a remittance of more than ¥100 million, so the atmosphere at the branch became tense as soon as the president appeared, the sources said. In total, the president remitted ¥550 million over five occasions.
In general, an alert goes off at a bank if a person without an account or a transaction record brings in a huge amount of cash to be transferred, and their remittance request will be put on hold. But when a person has an account and previously had dealings with the bank, the screening can become very lax, particularly at a branch of a second-tier regional bank.
The Ishii branch manager nonetheless consulted the bank’s transaction screening division when the total amount of the remittance request topped ¥100 million. Somewhat nervous, the screening division called the Osaka branch and consulted with the bank’s lawyer. The branch chief was told by the Osaka branch that there was no problem since the company president’s identity was fully confirmed. The Osaka branch contacted a tax accountant who had introduced the president to the bank. The accountant told the branch he had dealt with the president for several years and that his financial standing was solid. The bank’s lawyer eventually advised Ehime Bank not to block the remittance because there was a risk that the bank could be sued in the event that the recipient went bankrupt due to a cash flow problem.
What about Mizuho Bank, which made the remittances in lieu of Ehime Bank? Mizuho also has an alert system to detect illicit money transfers, but it did not sense anything suspicious in the requests and information from Ehime Bank.
The story of the large sum of money transfer became known among many employees at Ehime Bank. But as time passed, it gradually stopped being a topic of conversation, according to sources at the bank.
In early January, however, the transfers suddenly became a bombshell that shook the nation’s financial authorities. It started from a phone call made to the Shikoku Local Finance Bureau by a person claiming to be a reporter from a well-known news agency. “The remittances of over ¥500 million made by Ehime Bank’s Ishii branch constituted illicit money laundering,” the caller told the bureau. The “reporter” went on to say that a scam group was behind the person who made the illicit transfers, which “clearly” was money laundering. He asked for an interview with finance bureau officials and left this name and mobile phone number.
The bureau immediately contacted Ehime Bank to verify that the transactions had taken place and then instructed the bank to reconfirm the president’s identity. Officials from the Osaka branch accompanied the tax accountant to the president’s company in Osaka. They found the company’s office was empty and that the president was no longer reachable by the cellphone number.
Alarmed by the president’s sudden disappearance, the bureau contacted the Financial Services Agency and the Finance Ministry. The ministry had just completed an inspection of Ehime Bank in accordance with the Foreign Exchange and Foreign Trade Act to determine the bank had followed proper procedures. It called the number left by the “reporter” but there was no answer. The news agency told the financial authorities it had no reporter by that name. Then, who was this caller?
The situation started to unfold like a mystery novel. K Company turned out to be a trading firm, according investigations by authorities. The authorities found the firm dealt frequently with a trading house in China’s Northern Theater Command (formerly Shenyang Military Region) in Heilongjiang Province, which borders North Korea. The trading house, it turned out, is widely known to engage in smuggling goods to North Korea.
Inevitably, this raised the possibility that the money sent from Ehime Bank ended up in North Korean hands through the trading house. Even more troubling was the fact that one name given as an executive of K Company matched a name on a United Nations Security Council list of people subject to sanctions when his English spelling was converted to Hangul.
It is most likely that illicit money transfers were made from Japan to North Korea. But the FSA and the Finance Ministry are keeping mum on the incident. How is the Abe administration going deal with this incident that might run counter to the concerted efforts by not just the U.S. but the international community to keep up the tough sanctions on North Korea? This incident cannot be simply brushed aside as a careless mistake by the Japanese banks.
This is an abridged translation of an article from the March issue of Sentaku, a monthly magazine covering political, social and economic scenes. More English articles can be read at www.sentaku-en.com .