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Viewing cable 06SEOUL2917, THE "GAMBLING REPUBLIC": CAUGHT IN THE NET OF

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Reference ID Created Released Classification Origin
06SEOUL2917 2006-08-25 09:28 2011-08-25 00:00 UNCLASSIFIED Embassy Seoul
VZCZCXYZ0007
PP RUEHWEB

DE RUEHUL #2917/01 2370928
ZNR UUUUU ZZH
P 250928Z AUG 06
FM AMEMBASSY SEOUL
TO RUEHC/SECSTATE WASHDC PRIORITY 9911
INFO RUEHBJ/AMEMBASSY BEIJING 1135
RUEHKO/AMEMBASSY TOKYO 1215
RUEAIIA/CIA WASHINGTON DC
RHMFIUU/COMUSKOREA J5 SEOUL KOR
RHMFIUU/COMUSKOREA SCJS SEOUL KOR
RUEKDIA/DIA WASHINGTON DC
RHEHNSC/NSC WASHDC
RUEKJCS/SECDEF WASHINGTON DC//OSD/ISA/EAP//
RHHMUNA/USCINCPAC HONOLULU HI
UNCLAS SEOUL 002917 
 
SIPDIS 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: PGOV KS
SUBJECT: THE "GAMBLING REPUBLIC": CAUGHT IN THE NET OF 
SEA-GATE 
 
SUMMARY 
 ------- 
 
1. (SBU)  A scandal surrounding a video gambling craze is 
sweeping the nation and on August 25 has captured the front 
page of Seoul newspapers for the fifth straight day.  The 
scandal centers on suspicion of bribes and kickbacks related 
to the approval of a new type of digital slot machine and its 
accompanying compensation scheme that has recently exploded 
onto the scene of gaming centers throughout the nation.  With 
speculation of involvement by President Roh Moo-hyun's 
nephew, the issue involves the Chong Wa Dae (President's 
office) as well as the ruling Uri Party and opposition Grand 
National Party (GNP).  Beyond the high-level political 
attention to this scandal, many Koreans are also crying foul 
about the broader social impact of the gambling boom that has 
seized the country. 
 
POLITICAL IMPLICATIONS 
---------------------- 
 
2. (SBU)  Over the weekend of August 19-20, the Korean media 
launched an attack against the president's nephew, Roh 
Ji-won.  The press implicated nephew Roh as having been a key 
player in the illegal business deals related to the promotion 
of the gambling craze.  Initially, Roh Ji-won claimed that he 
turned down a sales position at Woojyun Systec, the company 
that received a nearly $2,700 government grant and was later 
acquired by the distributor of "Sea Story," the largest chain 
of video gambling stores.  However, it has been discovered 
that Roh Ji-won did in fact work as a sales executive at 
Woojyun.  President Roh quickly spoke out in support of his 
nephew and assured the public that his nephew was innocent. 
By the time this story broke, President Roh had already 
stated on August 13 that, "the only problem occurring during 
my presidency was the gift certificates used in adult video 
arcades".  Many took this admission as an attempt by Roh to 
draw attention away from his nephew and direct investigators 
to focus more on who is responsible for regulating the 
issuance of the prize certificates.  Roh's tactic may have 
worked as the current focus has shifted away from Roh to 
government regulators involved in the gaming industry. 
 
THE GAMBLING REPUBLIC 
--------------------- 
 
3. (SBU)  As the frequency of the highly visible gaming 
centers or video shops increases, the public's awareness and 
concern over the large amounts of money trading hands is also 
rising dramatically.  Many in the press are using the term 
"Gambling Republic" to express the pervasive nature of the 
gambling halls.  (NOTE:  The most common chain of game 
centers is "Sea Story" whose storefronts are decorated in 
bright blue and orange colors with a sea-themed backdrop. 
There are currently 15,000 video shops throughout the country 
with more opening every day.  END NOTE.).  Also bringing 
attention to the issue were the suicides of two people 
financially overextended as a result of a gambling addiction. 
 
4. (SBU)  On August 13, a man by the surname Son hung himself 
from a tree because he could not pay back a nearly $100,000 
debt due to his addiction to game parlors.  On June 16, a 
housewife committed suicide by slitting her wrists because 
she could not pay back a credit card debt of nearly $90,000 
accrued from gambling services in Internet PC parlors.  Such 
suicides have led to an increasingly public outcry to address 
gambling as a pervasive and growing social problem.  The 
Christian Ethics Movement (CEM), a civic group, has become a 
leading voice in a campaign against addictive arcade games 
and is calling for legal measures to abolish them.  The CEM 
estimates that 3.8 percent of the Korean population, or 1.3 
million adults, are severely addicted to gambling.  The 
addiction is more prominent among lower-income workers who 
wish an easy route to hit it big. 
 
HOW THE GAME IS PLAYED 
---------------------- 
 
5. (SBU)  While gambling is officially illegal in Korea, the 
latest way to get around the law is for the slot machines to 
issue paper certificates to winners instead of cash, thereby 
avoiding the letter of the anti-gambling law.  The maximum 
limit on prize money from video arcades is roughly $21, but 
 
several game rooms have also been accused of altering the 
computer chip in the machines to allow payouts as high as 
$2,550.  The paper certificates are promptly taken outside of 
the gaming establishment and exchanged for cash, minus a 10 
percent service fee.  While arcade owners cannot operate 
exchange booths inside the arcade, anyone who registers with 
the appropriate agency can operate an exchange booth.  As a 
result, arcade owners acquire the exchange booths by 
registering under someone else's name and reap the benefits 
from the gift voucher commissions. 
 
6. (SBU)  When the Korea Game Development and Promotion 
Institute approved the issuance of gift certificates for 19 
companies in December 2004, the original notion was that the 
certificates would be exchanged for "cultural items" such as 
books.  The reality is that the vast majority (approximately 
98 percent) of the coupons are exchanged for cash with the 
total value of certificates issued in the past year estimated 
at over $25 billion dollars.  (NOTE:  Put into context, the 
amount of winnings issued in the past year exceeds the 
national defense budget, which is $23 billion dollars.  END 
NOTE.).  According to the Financial Supervisory Service, 
around $40 billion dollars worth of gift certificates are 
currently in circulation. 
 
OPPORTUNITY OR THREAT? 
---------------------- 
 
7. (SBU)  Bang Hwa-seop, Chief of Staff for policy for Rep. 
Song, Young Gil (Uri), opined that Sea Story was not a 
crisis, but actually an opportunity.  He told poloff that the 
government has been considering legalizing some forms of 
gambling in a few cities (Jeju, Incheon, Busan) for years, to 
create profitable, legal gaming areas like Las Vegas or 
Macau.  "Sea Story" was now forcing the government to focus 
on the issue such that it may spawn some actual reform.  In 
an editorial on August 16 in the "JoongAng Ilbo," the author 
suggested that Korea adopt a similar model to Japan's 
approach to the pachinko issue.  Pachinko developers 
willingly inserted tracking chips into the machines to allow 
tax auditors to both collect taxes and monitor payouts to 
remove any illegal aspects of the industry.  This action 
legitimized the industry and forced out organized crime while 
also allowing pachinko businesses to be listed on the Tokyo 
Stock Exchange. 
 
COMMENT 
------- 
 
8. (SBU)  Opposition and ruling party members alike such as 
Uri Party floor leader, Kim Han-gill, have criticized 
President Roh for his preoccupation with asserting his lack 
of involvement in the scandal by framing the issue as an 
administrative error.  Rather, the core issue is whether 
politicians used their influence to create a loophole that 
legitimized and promoted illegal gambling and inadvertently 
contributed to a growing social and economic problem.  The 
Media Rating Board, which reviews games for consumer release, 
and the Korea Game Development and Promotion Institute, the 
agency in charge of issuing the "cultural" gift certificates, 
are clearly implicated, but it has yet to be determined who 
is responsible for the policy and how close they are to the 
Blue House.  Records from National Election Commission, which 
tracks political contributions that exceed $2,100 dollars, 
indicate that at least three prominent lawmakers, including 
Kang Jae-sup, the Chairman of the opposition Grand National 
Party (GNP), received contributions from Sammi Corporation, 
one of the companies that issue the gift certificates. 
Freshman National Assembly representative Chae Su-chan of the 
Uri Party told poloff on August 23 that although there is 
probably no real substance to the scandal, the main 
opposition GNP and the media will fan the flame to a "big 
wave" long in coming. 
STANTON