Corporate Scandals Amongst Methods Yakuza Damage Japan

This is the fourth in a five-part series about the still wide reach of the yakuza in Japan. Part one is here; Part 2 here; Part 3 here.

Is it really important that organized crime is firmly anchored in the Japanese economy and society?

With Japan being the world’s third largest economy and in many ways an attractive and safe society and stable place to do business, Westerners tend to downplay – if not ignore – the influence of the yakuza and the risks involved. However, look at everything that has already been mentioned in this series and ask if it would be important to talk about the United States and the Sicilian Mafia. It would.

There are many reasons why yakuza influence things in Japan.

First, from an economic and social point of view:

Organized crime weighs on the entire economy. Japan’s experience during and after the bubble era of the 1980s and early 1990s is illustrative. When the bubble finally burst and initial efforts were made to get rid of the Furyosaiken (distressed real estate loans that played a huge role in inflating the bubble), it was found that a significant percentage of the money had been loaned to Yakuza and its affiliates, and there were also many corrupt politicians and bankers involved.

The high profile murders of two bankers charged with collecting the loans ensured that no serious effort was made to address the bad credit problem. The government’s failure to address this at an early stage arguably had a snowball effect and was the immediate cause of two decades of economic stagnation.

Next, the encroachment and relocation of legitimate businesses by yakuza – which are difficult or impossible to regulate or tax – provides recurring and (and expanding) sources of income that further bolster underworld power and political influence.

And the yakuza don’t pay taxes on much of their income anyway – or they just pay what they want. This robs the government of revenue that could be used for more productive things like increasing defense spending or eliminating school fees for all Japanese students or helping single mothers.

Organized crime and fraud payouts are also a corporate tax. Yakuza’s disbursements related to a single real estate redevelopment project in Tokyo in the late 2000s totaled over $ 200 million (although another large real estate project in Roppongi at the time was reportedly just a cheap basement payment of $ 35 million Yakuza had to afford to make sure things went smoothly). Such withdrawals are still happening.

The body of Nagasaki Mayor Iccho Ito, carried by his relatives, arrives in Nagasaki on April 18, 2007. Ito was shot dead the day before by Tetsuya Shiroo, a member of a yakuza gang. Shiroo was reportedly angry that a construction company associated with his gang had been denied a contract by the city government. Photo: AFP / JIJI PRESS / STR

These payouts definitely divert company funds from more productive uses. The roughly $ 1 billion Olympus paid the Yakuza for fear of blackmail could have been better spent on research and development, hiring engineers, or even paid out as a shareholder dividend.

In addition, when the yakuza are caught up in business, ordinary citizens suffer – and sometimes many of them suffer. In one notable example, in 2012 a financial company, AIJ, which ran retirement plans for thousands of small and medium-sized businesses, went bankrupt – and at least $ 1 billion disappeared. This affected several million people (including employees and family members) who were expecting these pensions.

The mutual fund was founded and operated by former executives of a well-known Japanese financial company – but reportedly with the support of members of the yakuza. So much for the idea that Yakuza is Robin Hood’s looking for defenseless “little people” – or a harmless curiosity that has little influence on anything important.

Yakuza’s involvement in public construction projects and recovery from natural disasters add to the problem and massively reduce costs. This again reduces the amount of money the government can spend on more productive endeavors that benefit ordinary citizens and the nation.

It is reported that the Fukushima nuclear clean-up and major Tohoku recovery operation after the March 11, 2011 earthquake and tsunami – well over $ 200 billion in total – had extensive yakuza involvement. And while some yakuza have been arrested for posting workers illegally, most of them are allowed to work in the nuclear industry without being monitored.

Tomohiko Suzuki, a Japanese journalist who temporarily worked at the crippled Fukushima nuclear power plant, shows a camera built into his wristwatch during a press conference in Tokyo on December 15, 2011. Suzuki claimed Japan’s yakuza crime syndicates were involved in the supply of clean material -up crews. Suzuki also said yakuza groups have long sent borrowers to nuclear power plants as workers in exchange for debt relief. Photo: AFP / STR

According to some estimates, 10 to 20% of the Japanese public works budget goes to the yakuza. That’s maybe $ 50 billion a year that could be better used. A not-too-distant example was a regional white elephant airport construction project that cost billions of dollars and was reportedly carried out in collaboration with and on behalf of a prominent yakuza chief. The construction of another airport, Kansai International, was reportedly a massive sum of money for organized crime.

Even the government’s efforts to strengthen Japanese businesses have been hijacked by organized crime. For example, in the early 2000s, a Japanese government’s program to support small and medium-sized businesses by providing a $ 2 billion support fund proved to be a bonanza for yakuza. One gangster described how he started a “company” and asked for support. In a short time he walked away with $ 1 million. Not a bad job if you can get it.

The yakuza also perpetuate the inefficiencies of the business, with the Japanese construction industry being a prime example. And organized crime effectively eliminates foreign and domestic competition from certain industries, thus preventing more efficient and lower cost operations.

A former US government expert on cross-border organized crime stated, “The most insidious and troubling aspect of the Keizai Yakuza is without a doubt the simple fact that their ability to threaten violence (or at least use their brand or reputation for violence) is theirs decisive competition enables an advantage over all other economic players. This distorts economic decision-making in their favor and against the interests of everyone else, including legitimate investors, and can and likely will significantly distort the overall market at least in the sectors in which they influence. “

Yakuza machinations distort and corrupt financial markets and can make Japan less attractive as an investment destination. Even local Japanese are often suspicious of the financial markets – after all, the game is manipulated too often. Why invest when Yakuza always makes a profit on their “investments” – at your expense? And Japan is exporting its yakuza problem since organized crime is empowered to operate in foreign financial markets.

Satoru Takegaki, 64, a one-time bodyguard of a former Yamaguchi-gumi gang leader, shows a poster against the gang campaign during an interview with AFP in Himeji, Hyogo Prefecture, in 2015. Ten years after Satoru Takegaki retired from a life of crime, he spent his days helping other ex-gangsters find jobs and adapting to life outside of the crowd. Photo: AFP / Kazuhiro Nogi

Another result of the rampant influence of organized crime is that an adequate legal system does not develop. Yakuza effectively serves as a dispute settlement mechanism in the business world and even in civil society. Pioneering research by an American scientist a few years ago convincingly showed that the yakuza play a role that lawyers play in the United States.

An expert found that in one part of southern Japan, almost every company of a certain size has yakuza in stock – to solve problems with customers, other companies, and even Japanese authorities.

From the above, one could reasonably argue that the yakuza undermined the Japanese state to some extent. The government and its laws no longer guarantee economic exchanges.

Unfortunately, but perhaps not surprisingly, prosecutors get corrupted and law enforcement is sometimes corrupted and / or demoralized. Anecdotes suggest that when a company hires former prosecutors or senior police officers as “advisors” it is as often as not trying to hide something.

Another result of the clout of yakuza is that the wider citizenry is becoming skeptical – and sometimes viewing public institutions and their elected officials as accomplices in organized crime. In western Japan there are indeed yakuza who serve on a city council.

Yakuza also operate in the posting of workers and sometimes help companies keep unions cooperative. According to one researcher, the Japanese government’s firm support for the temp / recruitment industry, which is heavily involved in organized crime, has seriously harmed Japanese society. He notes that, contrary to foreigners’ impressions of lifelong employment in Japan, 38% of Japanese workers are currently temporary workers – in poorly paid positions, with poor prospects, and unable to marry, let alone have and raise children.

And it gets worse as unchecked organized crime blooms crimes like human trafficking, child pornography, and drug trafficking. Traditionally, North Korea has been the main source of methamphetamine – Japan’s preferred drug – but more recently China and the Mexican cartels, which work with the Yyakuza, have become the main suppliers of the drug.

Precursor chemicals for the manufacture of illicit drugs were also sent to Afghanistan from Japan, with Yakuza directly involved. “Safe” Japan also has a problem with stolen vehicles – luxury cars and even construction equipment are stolen and shipped overseas to the Middle East, Europe and the Russian Far East.

Grant Newsham, a retired U.S. Marine Corps officer, former U.S. diplomat, and former Tokyo chief security officer for a major global investment bank, is currently a Senior Research Fellow at the Japan Forum for Strategic Studies and the Center for Security Policy. Here we publish a five-part series of his paper that originally appeared in the Journal of Financial Crime.

Asia Times Financial is now live. Combining accurate news, insightful analysis and local knowledge with the ATF China Bond 50 Index, the world’s first cross-industry Chinese benchmark index for bonds. Now read ATF.