Japan Bank Officials Arrested

The first arrests were made on Thursday of employees of one of Japans top banks in connection with a racketeering scandal that also involves the countrys biggest brokerage.

Prosecutors arrested four officials of Dai-Ichi Kangyo BankLtd (DKB) on suspicion of violating the Commercial Code, the latest development in a probe that Japanese media speculated might finally lift the lid on the extent of ties between gangsters and financial institutions.

A statement from the Tokyo Prosecutors office said the officials were suspected of giving loans worth 11.78 billion yen ($101 million) to Ryuichi Koike, a racketeer who is also at the centre of a payoff scandal involving the nations top brokerage, Nomura Securities Co Ltd.

 

The loans, made from 1994 to 1996 through Daiwa Shinyo, a finance firm associated with DKB, were not properly collateralised, the statement said.

In the twin-track investigation of DKB and Nomura, Koike was charged on Thursday with receiving a 47.49 million yen ($409,000) payoff from Nomura not to disrupt its shareholder meetings.

Koike was a leading member of a band of racketeers known as sokaiya who extort money from companies by threatening to ask embarrassing and sensitive questions about their business activities at traditional rubber-stamp shareholder meetings. Sokaiya buy stakes in firms to gain admission to the annual meetings.

Their activities were outlawed in 1982, but the practice has proven tough to stamp out.

Japanese media have said the investigations of DKB and Nomura were not just against the two companies but to probe once and for all ties between racketeers and the financial world.

With Japan planning a Big Bang deregulation of its financial markets to make them again globally competitive, there is an extra urgency in the investigations to show the world that Japan is cleaning up its business act.

The four DKB officials arrested were all linked to the banks so-called general affairs section. In Japanese firms it is these sections that traditionally handle dealings with sokaiya.

They included former director Hiroshi Inotsume and current general manager Tatsuo Shibuya.

The arrests were made a day after prosecutors directly linked Nomura itself to the scandal, indicting the company as a whole on charges of violating securities law by compensating afirm owned by Koikes younger brother for trading losses.

At the same time, two former Nomura directors were charged with conspiring to give cash to the racketeers. Last Friday, former Nomura president Hideo Sakamaki, who stepped down in March, was arrested on suspicion of conspiring with three Nomura officials to give 38.5 million yen ($331,000) to Koike.

Japans Parliament took up the scandal on Thursday when former Nomura president Yoshihisa Tabuchi, who stepped down in 1991 and became an adviser, was summoned to testify. Tabuchi and former Nomura chairman Setsuya Tabuchi were in charge of the company when Koike bought 300,000 Nomura shares by making use of loans from DKB. The two men are not related.

In a parliamentary committee hearing, Yoshihisa Tabuchi denied Nomura gave some politicians and bureaucrats preferential treatment in return for their help in making a success of an industrial park the firm financed in Vietnam.

Japanese media have said Nomura operated VIP accounts offering preferential treatment to selected clients, including politicians, senior bureaucrats and business leaders. Nomura has denied the accounts were to give preferential treatment, saying they were simply a courtesy to important clients.