Pressed for cash, Japan’s gangsters ensnare bankers

Japan’s Mizuho Bank is in trouble following admissions that it had loaned money to the country’s organized crime syndicates, popularly known as the Yakuza, with the knowledge of senior management. The bank is a core unit of the Mizuho Financial Group, Inc, Japan’s second largest financial group in terms of assets.

Yakuza gangs are not illegal and register as companies, much like any other business. However, since 2011 it has been illegal to do business with them. New laws have made it increasingly difficult for the gangs to make money and have helped reduce membership to 63,200 last year from a peak of 87,000 in 2004.

As traditional revenues from extortion, drugs, gambling, theft, and fraud, have become more difficult, the yakuza have diversified into finance, construction, and waste disposal, devising new schemes to avoid detection.

One of these has been for individual gangsters to take out consumer loans from credit organisations and default on re-payments. The lenders then have the choice of taking action to recover the loans, thereby admitting they had broken the law, or doing nothing. Since no financial institution wishes to see its name in headlines about business with the mob, nothing was done. Mizuho’s problems only emerged during a routine inspection by the Financial Services Agency this September.

Mizuho's troubles began when Orient Corp. a leading consumer credit lender affiliated to the bank, approved gang members for auto and other small loans. Consumer credit firms are less informed than banks about organized crime. Since 2010, the Japan Bankers Association has gathered information on gangsters from public records and shared it with members but not with consumer lenders, who have been left to make their own checks.

After initial denials, Mizuho admitted that 230 illegal loans had been made totalling ¥200m, and that lending had continued for two years after it was first detected. The bank’s CEO made ritual bows of apology before cameras, as is the Japanese custom.

The FSA has ordered Mizuho to improve its control and compliance functions, describing them as “seriously flawed.”

The bank will establish a new in-house watchdog whose sole purpose will be to keep Mizuho from doing business with organized crime. It will strengthen the bank's loan screening and terminate any loans to underworld groups. Separately, the banks, other financial institutions, and the police will increasingly share databases on gang activities and membership.
 

Picture credit: © Lalan33 | Dreamstime.com