Mizuho Bank implicated in suspected "illicit money transfer" of ¥500 million to North Korea
While the PyeongChang 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 hardline stance against Pyongyang. The Japanese government has been in lockstep with the United States on North Korean issues, and Prime Minister Shinzo Abe frequently reiterates that Tokyo stands shoulder to shoulder with Washington in dealing with the rogue state.
Against this backdrop, a bank scandal threatens to jolt the Japan-U.S. alliance to its foundations. How will the United States react to money sent from Japan that could possibly end up financing North Korea's nuclear development program? The stage for these money transfers was Ehime Prefecture, a tranquil region in Shikoku and far from the capital of Tokyo.
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 Matsuyama City in the prefecture 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 wrote the money was a "loan" and the recipient was "K Company."
Because it does not deal with Hang Seng Bank, Ehime Bank entrusted Mizuho Bank, a major Japanese bank with which it has a correspondent contact (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 the Osaka Branch.
Sudden disappearance of man who sent money
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 bank 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. According to a Sentaku investigation, the president later remitted nearly ¥500 million over three occasions. The Ishii Branch had previously never dealt with a remittance of more than ¥100 million, so the atmosphere inside the branch became tense as soon as the president appeared, the sources said. In total, the president made five remittances and sent ¥550 million.
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 request will be rejected. But when a person has an account and previously had dealings with a bank, this screening can become very lax, particularly at a branch of a second-tier regional bank.
The branch manager nonetheless consulted the bank's transaction screening division when the president asked to remit more than ¥100 million. Somewhat nervous, the screening division telephoned the Osaka Branch and consulted with the bank's lawyer. According to information the branch chief received from the Osaka Branch, the company president's identity was fully confirmed and there was no problem. 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 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 would be sued in the event that the recipient went bankrupt due to a cash flow problem.
But 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.
Many employees at Ehime Bank heard about the remittance of an extraordinarily large sum of money for a second-tier regional bank. But as time passed, the transfers 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 City. They found the company was empty and that the president was no longer reachable by cell phone. 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 the proper procedures. It called the cell phone 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?
Executive of money recipient is target of U.N. sanctions
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 (former Shenyang Military Region) in Heilongjiang Province, which borders North Korea.
The trading house 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 U.N. 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. The Financial Services and the Finance Ministry are keeping mum on the incident. How will the Abe Cabinet deal with this incident that might have betrayed not only the United States but also the international community at a time when many nations are jointly imposing tougher sanctions against North Korea? This incident cannot be simply brushed aside as a careless mistake by Ehime Bank and Mizuho Bank.
This is a translation of an article from the March 2018 issue of Sentaku.