Japanese Banks Work with the Yakuza

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Japan’s Financial Services Agency (FSA), the financial regulator that has been sleeping peacefully through all this for years, announced that it would belatedly probe not only Japan’s third largest megabank, Mizuho, which is already deeply tangled up in the scandal that has been making headlines for a month, but also the other megabanks, Mitsubishi UFJ and Sumitomo Mitsui.

Mizuho had extended the loans to the yakuza through an affiliate in a complicated scheme designed to hide them. Mizuho is reportedly under police investigation. A panel investing the scandal issued a 100-page report that pointed out that “many officials and board members were aware of, or were in a position to be aware of, the issue.” Mizuho, in its own report to regulators, claimed that 54 former and current executives had been involved and would be sanctioned and their pay may get docked for a few months.

This includes Chairman Takashi Tsukamoto, who admitted having been in “a position to be aware of” the loans.

Will anyone get fired? Maybe not. Apologies are flying, and officials are furiously trying to settle this and then put a layer of whitewash on it. On Monday, Finance Minister Taro Aso called the scheme a “huge problem.” And the fact that Mizuho had at first lied about the accusations, claiming that its executives knew nothing about these loans, was “the worst thing a bank can do.” Yesterday, he gently slapped the FSA and suggested that “we have to improve what we are supposed to be doing.”

Now Shinsei bank confessed extending numerous loans to, as it said, “anti-social forces” and opening up, you guessed it, numerous accounts for them.

Mizuho has been embroiled in a spreading scandal of lending the yakuza ¥200 million ($2 million), a paltry sum, really. So where are the large loans, the billions and trillions? The yakuza are big organizations with huge projects and ambitious goals. It seems no one is looking for those big loans.

While the yakuza syndicates themselves are legal, doing business with them is no longer legal, though banks have done business with them ever since banks and yakuza have come into existence. Because the yakuza have got to bank somewhere.

Top Mizuho executives are busy admitting and apologizing, and they’re going to get grilled by the Lower House Financial Affairs Committee to add some political theater. Aso is weighing in, and when Shinsei bank suddenly admitted it had lent to the “anti-social forces,” he praised the bank as “sensible,” not the most powerful praise, but better than the “worst thing a bank can do” that he threw at Mizuho for covering up executive involvement.

Like Mizuho, Shinsei did it through a subsidiary to keep these loans in the dark. “Our internal controls were not strict enough,” explained Shinsei President Shigeki Toma. The bank has a spotted history. Its predecessor, Long-Term Credit Bank of Japan, collapsed after the bubble burst in 1989 and was nationalized in 1998. After attempts to merge it with other Japanese zombie banks had failed, the government sold it in 2000 to foreign investors led by Ripplewood Holdings, a first in Japanese banking history. The bank reopened its doors with new management as Shinsei bank – and probably it has been business as usual with whatever elements walked through the door.

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