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Who got Yakuza into our banking system?
Business Week carried a feature story in its Jan. 29, 1996 edition with the headline "The Yakuza And The Banks" printed in big yellow letters, accompanied by a cover photo of a "jiageya (land turner)" in Osaka.
The main focus of the parliamentary debate begun recently is whether tax money should be used to bail out the special housing loan companies, "jusen," whose management collapsed under the weight of trillions of yen in bad loans.
The seven failed jusen companies have a combined total of claims amounting to 13.2 trillion yen, at least half of which was lent to the yakuza (organized crime)-related companies at the peak of the economic bubble. These loans are quite difficult or almost impossible to recover. As far as the known figure goes, the use of 1 trillion yen in public funds to save the "jusen" will in effect save the yakuza, which would no doubt incur the public's wrath.
The question to be asked is how the yakuza could penetrate the nation's banking industry so deeply. The yakuza has been around for centuries, but at least until the 1970's it had confined its activities to the underground world without making much noise or interfering with legitimate businesses.
It is doubtful whether we could refer to the yakuza's kind of business as"modest," but since Japan's Edo period (1600-1868) it has concentrated ondrugs, prostitution, gambling, and protecting restaurants and bars. However,when the stock and land speculation boom hit the nation in the 80's, theselong benignly-set confines began to crumble, leading not only to theyakuza's overt presence in the economy but also to its having ties withpolitical and financial big shots or bureaucrats in the Ministry of Financein order to run a bigger business.
In reality, the bad loans are not recoverable, and thereby will be born by private institutions and the government evenly. Added to the first phase, the government will end up paying for 1.3 trillion yen, as of now.
*Emergence of Yakuza through "Sokaiya" business
First of all some historical background. The decline of pre-war right-wingand organized criminal gangs led to a lack of middle men, symbolized by Kodama Yoshio, who once stepped in to settle troubles between the underground world and the legitimate economy. Kodama was found to have acted as a secret agent for the Lockheed company, which had tried to bribe highJapanese officials, in a revelation made during hearings held by a U.S.Senate committee on multi-national corporations in 1976. He was tried along with former PrimeMinister Tanaka Kakuei as the central figure in the scandal, and died without hearing the final ruling. Since the Lockheed scandal, there hasnever been a Kodama-like heavy-weight fixer who can mediate between different yakuza groups and be a go-between for the yakuza and politiciansand businessmen.
Secondly, the revision of the Commercial Law in 1982 put tighter controlson "sokaiya," a racketeer who extorts money from companies by causing trouble at stockholder's meetings, who found their territory increasingly encroached by the yakuza. The Sokaiya will harass companies like a hyena, and in some cases blackmail them by unearthing scandals involving management, or they play the role ofprotector at the stockholder's meeting to prevent tough questioning bystockholders.
The revision made it a rule to arrest not only sokaiya who received payment from their victim companies, but also the corporate management who paid them. Therefore, many sokaiya groups that could no longer profit from their traditional business associated themselves with yakuza groups to work on projects such as publishing a magazine specializing in exposing corporate scandals. This is one way of continuing to receive moneyfrom companies in the name of subscription fees. In such cases, any support from a powerful yakuza group helps them increase their subscription fees from the companies. Those yakuza and sokaiya who are smarter get insider information from those companies for stock investment, an assured way of profiteering. That way, companies can satisfy the yakuza and sokaiya without any extra payment from their accounts.
Ties with financial institutions through land dealings
Thirdly, as the boom in land speculation came on the back of stockspeculation, a business practice called jiageya (land turner) rose to the spotlight. Those involved in jiageya business will, for example, visit small,old-style mom and pop shops concentrated in the shadows of high-rise buildings in a downtown area and persuade the owners to sell their premises.This way the jiageya would clean the area block by block and then sell it to major real estate companies or developers at a premium price for commercialbuildings.
In another example, when a golf course developer comes across a farmerunwilling to part with his land that is situated in the middle of the proposed development, it is time to call in the jiageya. "Persuasion" istoo sweet a word to use here: they resort to any conceivable means, forinstance blackmailing, threats, demolition, or arson, and if they succeed in"persuading" land owners to sell, they are considered skilled jiageya. Not all, but many are related to yakuza.
As land prices soured, everyone including banks, and their subsidiaries suchas non-banks and jusen, wanted to purchase any land, therefore spitting outmoney to anyone, including yakuza-related organizations, without any ethicalstandards. Once the connections were built with financial institutions, theyakuza was no longer content with jiageya business; itstarted to run real estate businesses, develop buildings and golf courses ontheir own. And financial institutions just kept lending them money. Thatway, a base was being established for direct and indirect transactions between yakuza and securities firms and banks by the mid-1980's. However, ifthe problem had stopped right at that point, we might not have had the huge problem we are now facing. But the decisive blow came from the Ministryof Finance.
MOF begging Yakuza
A small article titled "Ministry of Finance and Yamaguchi Gumi" appeared inthe March 15, 1985 issue of the Insider newsletter, which I publish. The article told the story of how MOF got involved with the gang.
Yamaguchi Gumi is Japan's largest organized crime based in Kansai in the western part of the country. At the time of Great Hanshin Earthquake about a year ago, a photograph was carried throughout the world showing the leader of thegroup handing out aid to neighbors around his mansion on a hilltop in Kobe city.
At the time of the article, MOF was troubled with a number of scandals involving mainly Sogo, mutual financing banks, based in Kanto in centralJapan. Sogo banks are small in terms of assets and have a weak management capacity. Many of them were encroached by Kanto-based yakuza, incurringmassive losses in failed stock and land speculation. They tried to have former MOF officials installed as managers in a bid to turn the tide and wash the Ministry's hands of the yakuza. But the Ministry was havingdifficulties in doing so.
The article by Insider said: "MOF at the end of 1984, through theunderground connections of former officials, requested the then leader ofYamaguchi Gumi, the late Takenaka Masahisa, to come to Tokyo and help kickout Kanto-based yakuza from Sogo banks."
At the time, Yamaguchi Gumi was in the midst of an internal breakup, andTakenaka needed money. He immediately complied with the request and went toTokyo to start talks with the Kanto-based yakuza. But immediately after, hewas killed by an unknown assassin. However, taking advantage of this situation, Yamaguchi Gumi not only expanded its business territory but also started interacting openly with the bank's top management with the consentof the Ministry.
For instance, Sumitomo Bank, originally headquartered in Osaka and weak inTokyo, acquired a Tokyo-based Sogo bank, Heiwa Sogo Bank, from 1985 to 86.Through the acquisition, the Sumitomo offices in Tokyo increased, leading totheir ascent to the number one position in the nation's banking industry.That was made possible by the Ministry andthen Finance Minister Takeshita Noboru at the front, and Yamaguchi Gumi in the back.
This unpardonable tie between yakuza and banks is no doubt a product of ourtime, but unless there was an "administrative guidance" by MOF to keep banksfrom associating with yakuza, we wouldn't have had such an overt relationships between the two. The nation is now burdened under massive debts of 150 to 200 trillion yen---though the Finance Ministry grossly underestimates the amount at 30 trillion yen in order to avoid any responsibility.
The amount we are talking about with regard to jusen is just one tenth of that figure. The collusive structure amongpoliticians, bureaucrats, and businesses is now in the way of the nation'sdevelopment, but in the world of finance, we have a structure of tie-insamong four, the above three plus yakuza. Unless the structure is broken upthe nation has no choice but to be doomed.