For some, like Koichiro Tarutani, it may even have been fatal. Two weeks ago the Yamaichi Securities executive was walking home when, in a darkened parking lot, he was viciously slashed. Stumbling about 40 yards, Tarutani cried for help, then collapsed and died. ““His guts were spilling out,’’ recalls a noodle-shop owner who came to Tarutani’s aid. ““I was so shocked I couldn’t sleep that night.''
Tokyo’s harried prosecutors aren’t getting much sleep, either, these days. Tarutani’s murder, while still unsolved, had many of the earmarks of a killing by Japanese yakuza. These are the gangsters who, along with their cousins-in-crime, the sokaiya, have long enjoyed a central if shadowy role in business in Japan–far more than the mafia does in Italy. But in recent months, in what appears to be a ground-clearing operation for the Big Bang, authorities are cracking down on the seamier practices. More than a dozen top banking and securities execs have been arrested, including such noted figures as former Nomura Securities president Hideo Sakamaki and former Dai-Ichi Kangyo Bank chairman Tadashi Okuda, both of whom have been accused of paying off sokaiya–professional thugs who keep annual shareholder meetings short and quiet. Now regulators want such payoffs and other practices stopped. The racketeers are peeved, and they may be expressing their anger in ways they know best: Yamaichi’s murdered exec, Tarutani, headed its customer-complaint department.
This goes to the heart of the problem Japan’s authorities face in trying to realize the prime minister’s goal of a ““free, fair and global’’ financial market by 2001. For decades racketeers have been used in all manner of wheel-greasing roles in Japan; in the go-go ’80s developers employed yakuza as jiageya, or specialists in evicting tenants to pave the way for new construction. Bankers would sometimes dispatch yakuza to bankrupted businesses to confiscate property ahead of unsecured creditors. ““People in the U.S. have lawyers [to resolve conflict]; Japan has the mafia,’’ says Ken Okamura, an analyst at Dresdner Kleinwort Benson. Japan’s distinctive economy, in fact, is run largely extralegally. Even the Ministry of Finance (MOF), the nation’s most powerful authority, does its own genteel arm-twisting in back rooms, a practice known as ““administrative guidance.''
The problem is that global finance runs on legal accountability, on the free flow of information and on transparency. It’s one thing to liberalize brokerage commissions to spark competition; that’s what Japan plans to initiate next April in imitation of reforms begun in New York in 1975 and in London a decade later. But if you don’t have a strong legal or accounting infrastructure, you can’t expect a Wall Street to spring up.
Some see the yami no sekai, the dark world, as so intertwined in the ““legitimate’’ financial world that the two cannot be separated. That, at least, is how Kuniji Miyazaki may have felt. The 67-year-old ex-chairman of giant Dai-Ichi Kangyo Bank–which has more assets than Citibank and Bankers Trust combined–was considered a key figure in DKB’s loans of nearly 30 billion yen to Ryuichi Koike, the reputed sokaiya extortionist at the heart of the scandal. But Miyazaki, rather than clarifying his role, simply hanged himself in his study one quiet Sunday morning in late June. Suicide is a time-honored means of taking responsibility in Japan, but today it is making Big Bang reformers wince. ““He could have just confessed,’’ sighs Hideto Iida, a securities lawyer. ““Japan is trying to adapt to the global standard. I must say that committing suicide was a method very far from the global standard. It could create the impression that Japan is still a strange country.''
Foreign investors may discover just how strange in the years ahead. Consider the festering bad-debt problem left over from the ’80s ““bubble’’ years. For years, foreign financial advisers have been counseling the Japanese to securitize the nonperforming loans–repackage them into bonds to be sold to investors–as U.S. banks did to unwind their own bad debt in the early ’90s. A raft of tax and legal issues must be resolved first. But Japan’s banks have an even tougher problem: they loaned billions to yakuza-affiliated real-estate speculators. As a result, they’re literally terrified to collect on much of $300 billion to $600 billion in bad debt that still ensnares the banking system, or to foreclose on the collateral. Why? Two and a half years ago, when Sumitomo Bank got a little aggressive in collecting loans in Nagoya, its branch manager was killed.
More than half of Japan’s bad real-estate debt is somehow gang-linked, estimates Teikoku Databank, a leading compiler of financial stats. If that stuff is securitized in a big way, watch out: many such deals are done so the investor doesn’t know who really owns the assets. So IRA holders in Peoria could conceivably find themselves earning interest on brothels run by tattooed Osaka toughs with half a pinkie missing. Only a handful of securitized deals have been done overseas so far, but one–nearly $1 billion in medium-term notes–was backed by Japanese loan-shark assets.
Still, there are positive signs. Some say the government now understands that the system must be wholly remade if the Big Bang is to succeed. The MOF is pushing to qualify more lawyers, and trying to beef up the power of accountants to improve corporate disclosure–which in turn will make slushy payoffs to sokaiya harder. But even the optimists say it will take a decade or two to contain the problem. ““I do not think it can be rooted out, but I hope it will diminish,’’ a ranking MOF official told NEWSWEEK. ““It will be a long-term battle between police and prosecutors and the underground.''
A few MOF officials are so eager to leave behind the bad old days that they are urging U.S. investment banks to flood in and grab a bigger share of the market. And the foreigners are coming: a few U.S. companies, like a ““vulture fund’’ run by Minneapolis-based Cargill, have found it much easier to buy up distressed assets this year. Overseas securities firms, meanwhile, have beefed up their staffs by 11 percent in the last year while their Japanese counterparts have cut workers. ““Everyone’s coming in, everyone’s interested, beefing up their resources and their research, getting ready for deregulation,’’ says a NatWest Securities official. “"[We’re] getting ready to go.’’ Japan’s racketeers, however, aren’t–and that may turn the Big Bang into a Big Bust.
Three big firms have been rocked by their ties to reputed racketeer Ryuichi Koike.
Dai-Ichi Kangyo Bank: Accused of issuing Koike 30 billion yen in loans. Eleven officials have been arrested. The bank has been indicted under the Banking Law.
Nomura Securities: Accused of giving Koike 370 million yen in payoffs. Four officials have been arrested. The firm has been indicted under the Securities and Exchange Law.
Yamaichi Securities: Offices were raided in July. The company allegedly gave Koike 79 million yen to cover investment losses.
