The Chosen Soren (Chongryun in Korean), a group of pro-Pyongyang ethnic Koreanspermanently residing in Japan, has come under heightened scrutiny as U.S. and Japanese policymakers seek new ways to stop North Korea's nuclear weapons program. With the six-party talkscurrently at a standstill, the United States and its allies are seeking ways to economically andpolitically pressure the Pyongyang regime to abandon its nuclear weapons program . The ChosenSoren has long supported North Korea by facilitating trade, remitting cash donations, establishingpersonal contacts, and possibly coordinating illicit transfers of narcotics and weapon parts. Japaneseofficials have recently indicated more willingness to crack down on Chosen Soren's illegal activities. U.S. officials may be prepared to cooperate with Japan in dealing with the organization as part ofa broader strategy of influencing North Korean actions. Congress has been actively engaged in its oversight of the Administration's North Korean policy, including a hearing held by the Financial Management, Budget, and International SecuritySubcommittee of the Senate Governmental Affairs Committee on May 20, 2003 in which a NorthKorean defector testified that Chosen Soren had coordinated shipments of missile parts to theregime. This report will explore assessments of Chosen Soren's relations with the North KoreanandJapanese governments, the recent changes in Japan's policy toward the group, and possible optionsfor the United States to exploit the link provided by the Chosen Soren between the reclusive NorthKorean regime and the outside world. This report was prepared using exclusively open sources. Members of Congress may benefit from classified briefings from the intelligence community on the extent of Chosen Soren's ties withthe North Korean government. The Chosen Soren (General Association of Korean Residents in Japan) is a political and social organization made up of ethnic Koreans who have chosen to affiliate themselves with North Korea. Chosen Soren represents a minority of the 640,000 ethnic Koreans in Japan; membership estimatesrange from 50,000 to 180,000. (1) Established in 1955,the group is made up primarily of descendantsof Koreans who moved to Japan as laborers in the 1930s when the Korean peninsula was annexedby Japan. Chosen Soren reportedly administers and finances 140 schools and a university thatemphasize Korean language and culture; publishes a newspaper; serves as a confederation for 12affiliated associations; holds close ties with financial institutions catering exclusively to ethnicKoreans; and acts as an unofficial representative of the North Korean government. Up to 30% ofthe pachinko industry (a popular form of pinball gambling with over 18,000 parlors nationwide) iscontrolled by ethnic Koreans, many of whom have close ties to Chosen Soren. (2) The Chosen Soren has a counterpart in the pro-Seoul Korean organization Mindan (Korean Residents Union in Japan). Both organizations work to promote ethnic Koreans' civil rights inJapan. Members of both are classified as "special permanent residents," but hold official citizenshipin North or South Korea. The groups differ in approach: Mindan supports the enfranchisement inJapan of special permanent residents (the designation of most ethnic Koreans) while Chosen Sorenadvocates a strong national identity with North Korea. Chosen Soren facilitated the repatriation ofover 100,000 Korean residents living in Japan to the North and sparred with Mindan in the 1960's,including outbreaks of violence. (3) Membership inMindan now outpaces Chosen Soren about 4 to1, and the trend over the past few years indicates that ethnic Koreans are increasingly eitherbecoming naturalized Japanese citizens or associating with Mindan. (4) Chosen Soren justifies its longstanding existence largely on the discrimination faced by ethnic Koreans in Japan. Although some Korean families have been in Japan for several generations, asspecial permanent residents they do not have the right to vote, cannot work for the centralgovernment, and were required to be fingerprinted as resident aliens until the early 1990's. (5) Together with the history of Japan's often brutal 35-year colonization of the Korean peninsula(1910-1945), relations between the Korean minority and the Japanese government have always beenstrained. Japanese political leaders have avoided confrontation with Chosen Soren both out of fearof provoking reaction from Pyongyang and out of a sensitivity to accusations of racialdiscrimination. (6) Government agencies also largelyignored the money flow from Japan to NorthKorea, permitted ferry links with little enforcement of safety measures and cargo inspections, (7) andallowed Chosen Soren to maintain its tax-free diplomatic status for years. (8) Traditionally Chosen Soren had close ties with the political left in Japan, particularly the Socialist Party. But until very recently, Chosen Soren leadership also enjoyed warm relations withseveral members of the Liberal Democratic Party. Accusations have arisen regarding ChosenSoren's ties with organized crime in counterfeiting and the drug trade. Some critics suggest thatJapanese politicians may intentionally allow cash remittances and contacts between Chosen Sorenand North Korea to continue because of the politicians' own involvement with gangster trade. Detractors allege that the interdiction of links with Pyongyang could expose LDP affiliation with the yakuza organized crime syndicate. (9) The secretive nature of North Korea makes the extent of political interaction between Chosen Soren and Kim Jong Il's regime difficult to assess. North Korea reportedly sends $3.6 million a yearto Chosen Soren to help administer the Korean schools in Japan. (10) Chosen Soren sendsrepresentatives to serve in North Korea's legislature, the Supreme People's Assembly, as well asdelegations to major public celebrations, but the extent of leverage and access to policymaking inPyongyang is not clear. Chosen Soren also reportedly runs a 2,000-member underground networkof "study groups," called gakushu-gumi , which are affiliated with the North Korea Worker's Partyand train members to spy on South Korea and the Japanese military. (11) In September 2002, shortlybefore a diplomatic summit with Japanese Prime Minister Junichiro Koizumi, Kim Jong Il publiclyissued a directive to visiting Chosen Soren leader Ho Jong-man, ordering the gakushu-gumi todisband in advance of the meeting. (12) Althoughthis indicates direct communication between KimJong Il and the Chosen Soren organization, reports on whether the directive was obeyed are notconclusive. The issue of hard currency flowing into North Korea from Japan has been the subject of extensive debate, both on the question of where the money goes (to individuals or to the regime) andthe amount. Before Japan's economic bubble collapsed in the early 1990's, U.S. officials estimatedthat up to $1 billion a year could have been transferred to North Korea from Japan, but, by allaccounts, that figure has decreased with the economic downturn in Japan and the death of PresidentKim Il Sung. Most observers now agree with Nicolas Eberstadt's estimation that, even at their peak,remittances generally were below $100 million annually. (13) Remittances are passed either in personwhen Korean residents travel to North Korea or by transfers through financial institutions. According to Japanese Finance Minister Masajuro Shiokawa, at least $33 million was reported tothe government as transferred to the North in fiscal year 2002. (14) Some Japanese firms associated with Chosen Soren have been implicated in illegal plans to transfer high-tech equipment to North Korea that could be used to develop the North's nuclearweapons program. Meishin, a Tokyo-based trading company run by members of Chosen Soren, hasadmitted that it exported three transformers that regulate electrical current, a device that can be usedfor uranium enrichment as well as missile development, to North Korea via Thailand. The shipment,exported without authorization by Japan's Ministry of Economy, Trade, and Industry, was orderedby the Korea Daesong General Trading Corporation, a company administered by the intelligence unitof the Korean Workers' Party. (15) US reports havesingled out Daesong as part of an extensiveorganization known as Division 39 of the Korean Workers' Party that provides hard currency to KimJong Il's regime; some reports value the cash assets of the unit at up to $5 billion, secreted in banksin Macau and Switzerland. (16) Reportedly, Japan-based firms often go through third countries in their dealings with North Korea. In Meishin's case, the transformers were destined for Pyongyang through Loxley Pacific, asubsidiary of Loxley PCL, one of Thailand's top communications companies. Loxley has significantbusiness interests in North Korea as well, holding exclusive 30 year rights to telecommunicationservices in Rajin-Sonbong, a Special Economic Zone in the North. According to press reports,Loxley Pacific often acts as a middleman between Meishin and Daesong for trade in rubber, sugar,and other products. (17) Chosen Soren has also been involved with at least one other non-ethnic Korean company that sold military technology to North Korea. The Japanese engineering firm Seishin Enterprises wasfound to have shipped a jet mill, a machine that can be used to grind solid fuel into fine powder foruse in missiles, to North Korea in 1994 on board the Mangyongbong ferry and attempted again inMay 2003 to export electronic scales that could be used in the production of biological and chemicalweapons. A senior member of a science and technology organization affiliated with Chosen Sorenreportedly coordinated price negotiations and product specifications for the order. (18) After the JapanCoast Guard exchanged fire with and then sank a North Korean spy ship in December 2001, officialsdiscovered Japanese-made radar and other precision devices in the recovered vessel, raisingquestions about Japanese firms supplying equipment to the DPRK military. (19) North Korean involvement in international drug-trafficking has recently come under increasing scrutiny. In his annual report to Congress on drug-producing nations, President Bush asserted thatevidence revealed that "state agents and enterprises" in the North were involved in narcotics trade. State Department officials have testified that Japan is a major recipient of methamphetamines fromNorth Korea, a market that, according to State Department testimony, may have provided up to $7billion in cash profit for the regime. (20) TheMangyongbong passenger ferry that links Japan and NorthKorea is suspected of hauling illicit shipments of such drugs. A North Korean escapee told the Yomiuri newspaper that he had smuggled narcotics for the regime on the ferry, handing over thegoods to members of Chosen Soren, who would then pass the drugs on to Japanese gangsters forsale. (21) Reported indications of ties between NorthKorea and the Japanese mafia are on the rise, butdocumentation of links specifically with Chosen Soren is scant. The test launch of the Taepodong missile over Japan in August 1998 by North Korea and theadmission by Kim Jong Il in September 2002 that North Korea had abducted several Japanesenationals has significantly altered the Japanese government's stance towards Chosen Soren. In thepast year, domestic outrage over the abductions and intense media coverage of the return of fiveabductees has spurred the government to crack down more severely and monitor more closelyChosen Soren's interaction with North Korea. Japanese politicians, responding to public opinion,have become more outspoken in their criticism of Pyongyang and have curtailed existing ties withChosen Soren. The Japanese government has taken a number of legal steps, either in enforcingpreviously lax laws or proposing new legislation to stem possible illicit transfers to North Korea. Japanese officials have recently imposed and enforced more strict regulations for the North-Korean operated Mangyongbong ferry, which can carry 200 passengers and 1,000 tons ofcargo. It has operated for years as the sole link for ethnic Koreans living in Japan with their familiesin the North, usually making one or two round trips a month. Following the abduction admission by Kim Jong Il, authorities have taken a harsher line, insisting on thorough safety checks, inspections of the cargo, and strict adherence to regulations onpassenger limits. In January 2003, the Mangyongbong suspended its operation for seven months,ostensibly to bolster safety requirements, before resuming service in August. Since then, Japaneseofficials have delayed departures by citing violations of the Ships Safety Law and the DomesticAnimal Infectious Diseases Control Law. Japanese officials have also ordered improvements on 40of the 50 vessels from North Korea inspected this year. Officials estimate that 1,300 North Koreanships dock at Japanese ports annually. The transport ministry has requested a budget increase for2004 to improve inspection of foreign vessels. (22) Chosen Soren reportedly has not paid local taxes since 1972, when the then Governor of Tokyo declared the organization to be North Korea's de facto representative in Japan, entitling it todiplomatic tax-exempt status. In July 2003, conservative Tokyo Governor Shintaro Ishihararescinded the status, demanded $515,000 in annual taxes, and in early September seized threeChosen Soren facilities when organization officials refused to pay. Several other local governmentswith Chosen Soren chapters are either considering or have already demanded similar tax payments. (23) The failure of several credit associations that cater to pro-Pyongyang residents also has directed attention to the questionable financial operations of Chosen Soren and heightened public anger. Inthe past several years, most of Japan's Chogin (an abbreviation for "Korean bank" in Japanese)credit unions have collapsed, reportedly largely due to illegal remittances to North Korea. (24) Oncenumbering 38, only seven such credit associations remain. (25) The banks are accused of allowingPyongyang sympathizers to use fictitious or borrowed names to create bogus accounts, which werethen used to channel cash to North Korea, as well as offering preferential loans to people whodonated large amounts to the North Korean cause. (26) The banks also lent money in excess of thecollateral, which was often land and buildings either owned by or affiliated with Chosen Soren. (27) Although the banks are officially independent, the management of many of the credit unions wasappointed by Chosen Soren executives, according to media reports. (28) The banks began failing as their nonperforming loans increased, necessitating the infusion of public funds to protect ordinary depositors. Japan's Financial Services Agency authorized thetransfer of the operations of several failed credit unions to four new lenders with the stipulation thatthe unions sever ties with Chosen Soren. (29) Morethan $3.3 billion in public funds was pumped intothe replacement credit unions in 2002 alone, prompting an outcry from the public as the abductionissue heightened tension with North Korea. A group of legislators forced government bankingregulators to insist on the appointment of a Japanese national as the credit union president afterrevelations that the former president had earlier served as a Chosen Soren executive. (30) Japan's majornewspapers have published strident editorials calling on financial authorities to closely scrutinizethe new union's links with Chosen Soren officials to ensure independence from the organization. (31) Because of the anti-North Korean climate in Japan following the abduction admission andNorth Korean missile tests, Japan's actions over the past several months suggest an increasedwillingness to confront Chosen Soren, which would be in line with previous U.S. proposals for Japanto choke off funds to North Korea. Japanese measures to promote this goal might include continuedclose surveillance of the restructured banks serving Chosen Soren members, a re-invigoration ofefforts to regulate the flow of pachinko profits, and more robust enforcement of export controls onvessels bound to or originating from North Korea. Some observers have suggested that the UnitedStates press Japan to cut off all official trade (about $400 million in 2001) with North Korea, muchof which is facilitated by Chosen Soren. (32) Japanhas already relaxed its sanctions criteria by citingthe Foreign Exchange and Foreign Trade Control Law, which permits the government to imposesanctions in order to preserve peace, instead of requiring a United Nations Security Councilresolution. (33) Overall reform and increasedtransparency of Japan's financial institutions could alsoprove helpful in following the money trail to Pyongyang. Congress and the Administration may pursue multilateral efforts as well. The Bush Administration recently has promoted cooperative measures with allies to pressure North Korea,such as the 11-country Proliferation Security Initiative (PSI) charged with interdicting vesselssuspected of carrying illicit cargo. Such efforts to crack down on international drug and weaponstrafficking may reveal more illicit ties between Chosen Soren members and North Korea, whichcould trigger additional punitive actions. Options involving third parties include asking Thailandto eliminate technology transfers to North Korea that are reported to have transited through itsterritory or asking Austria and Macau to curtail bank transfers that often pass through their financialinstitutions. (34)

Summary: The Chosen Soren (Chongryun in Korean), a group of pro-Pyongyang ethnic Koreans permanently residing in Japan, has come under heightened scrutiny as U.S. and Japanese policymakers seek new ways to stop North Korea's nuclear weapons program. With the six-party talkscurrently at a standstill, the United States and its allies are seeking ways to pressure economicallyand politically the Pyongyang regime to abandon its nuclear weapons program. The Chosen Sorenorganization has long supported North Korea by facilitating trade, remitting cash donations,establishing personal contacts, and possibly coordinating illicit transfers of narcotics and weaponparts. Japanese officials have recently indicated more willingness to crack down on Chosen Soren'sillegal activities. U.S. officials may be prepared to cooperate with Japan in dealing with theorganization as part of a broader strategy of influencing North Korean actions. Congress has been actively engaged in its oversight of the Administration's North Korean policy, including a hearing held by the Financial Management, Budget, and International SecuritySubcommittee of the Senate Governmental Affairs Committee on May 20, 2003, in which a NorthKorean defector testified that Chosen Soren had coordinated shipments of missile parts to theregime. This report provides a background on Chosen Soren and its membership in Japan and explores its relationship with the Japanese government. It goes on to discuss documented links, both legaland illegal, with the North Korean government, including weapons, drugs, and cash transfers. Athird section outlines changes to Japan's policy towards Chosen Soren, ranging from taxation policyto shipping surveillance to restructured credit unions. The report concludes with a brief discussionof possible options for Congress and U.S. officials. This report will be updated as necessary.