Pyongyang's pachinko connection

PUBLISHED : Thursday, 11 May, 2006, 12:00am
UPDATED : Thursday, 11 May, 2006, 12:00am

As in any economy, there are some uniquely Japanese twists that have an impact on the struggle against money-laundering and questionable financial transfers.

'One of the biggest issues for the Japanese authorities is income from the pachinko industry that is funnelled back to North Korea,' said Stuart Witchell, Japan representative of International Risk, a business intelligence and investigation consultancy.

'In the past couple of years, the authorities here have managed to squeeze the purse strings of [South Korea's] Dear Leader Kim Jong-il,' he said. 'However, the amount that is being sent to North Korea is impossible to estimate. It is probably in the trillions of yen and a pretty sophisticated underground banking system operates here, linked with Bangkok and Macau.'

The US took action against Banco Delta Asia in September, freezing an estimated US$25 million in North Korean assets, and Japan's financial authorities followed suit with a ban on transactions with the institution.

In the past, hard cash destined for Pyongyang was simply carried aboard North Korean ships that called at Japanese ports, while counterfeit cash and drugs allegedly came in the other direction.

But the biggest source of income for the regime was pachinko, a type of pinball played on an upright board. As gambling is prohibited in Japan, winners who collect trays of balls can exchange them for prizes such as cigarettes - or for tokens that are then taken to a different booth where they can be exchanged for cash. The government turns a blind eye to this type of gambling.

According to Mr Witchell, as much as 30 per cent of Japan's pachinko industry is controlled by North Koreans, who have become more devious since the government increased controls on their money transactions.

Many are opting to take South Korean nationality so they appear to be 'clean' to investors and banks, although their ideology has not changed and their earnings still find their way back to Pyongyang.

'I'm not at all confident that all the appropriate due-diligence checks are being done in this area and there needs to be more concern among financial institutions that are dealing with pachinko parlour operators, particularly if they're among those that are planning to list on the Tokyo stock market, because something like this could be very damaging to their reputation,' Mr Witchell said.

'To be frank, it's not just the pachinko industry either. The same due diligence should be applied to most transactions in Asia.'