Japan's Next Spy Scandal

It's received very little attention in the west, but the government of Japan is facing a potentially serious spy scandal. The former head of the nation's Public Security Investigation Agency (PSIA), Shigetake Ogata, was recently arrested on charges of registering fraudulent documents, in connection with a $22 million purchase of the headquarters of the Chosen Soren, the association of ethnic Koreans living in Japan. As director of the PSIA (a post he held until 1997), Mr. Ogata was charged with monitoring the Chosen Soren, a group with close ties to North Korea.

According to the International Herald-Tribune, prosecutors also accused Ogata of receiving an unspecified gratuity from the group over the deal. Two real estate executives have also ben arrested, on suspicion they conspired in the fraudulent transaction, which was engineered through an investment holding company headed by Mr. Ogata.

Word of the deal emerged last month, as the Chosen Soren (also known as the Chongryon), scrambled to pay settlements imposed by a Japanese authorities. Tokyo has recently been cracking down on the Chosen Soren--long been a fund-raising front for the DPRK government--in retaliation for North Korea's nuclear and missile tests, and its past abductions of Japanese citizens.

The Chosen Soren's most recent financial problems were triggered by a Japanese court, which ordered the group to repay $507 million in costs associated with the collapse of 15 credit unions linked to the group. The court also ordered the auctioning of Chosen Soren property, which may have influenced the deal with Mr. Ogata. The former intelligence official apparently offered the deal in May, then backed out just hours before the court ruling was announced.

So far, there is no confirmation that Ogata used intelligence information in setting up the deal, or that the alleged fraud poses a security risk. But the on-going investigation will certainly raise questions about Ogata's association with the group, and how long those ties existed. As head of the PSIA, Mr. Ogata had access to Japan's most sensitive information on the group, including data on its financial activities, and organizational ties to Kim Jong-il's regime in Pyongyang. PSIA is (roughly) the equivalent of Britain's MI5 and the FBI's Counter-intelligence and organized crime divisions.

While he retired from the intelligence service a decade ago, many of Ogata's former associates remain with the organization, and could have provided updated reports on Chosen Soren and its fiscal situation, giving him the information needed to launch the real estate purchase. By any standard, an agreement between a North Korean front organization--and a former Japanese official charged with monitoring its activities--certainly deserves close scrutiny, particularly when the aborted deal was hatched weeks before the court ruling was revealed.

As a real estate speculator, Mr. Ogata appeared to be in the right place--well ahead of time. That suggests that someone within the PSIA and/or Japan's Judicial Ministry tipped him about Chosen Soren's troubles, or (even worse) perhaps the North Korean organization approached him, trying to arrange a sweetheart deal that would allow them to retain control over key properties and other assets.

Keep an eye on this one. Our instincts tell us that it's much more that a real-estate-deal-gone-bad, and future revelations may prove very embarrassing to the Japanese government.