Financial power equals political power, as yakuza financial clout subverts the political world. Yakuza are – and have been for decades – an important source of funding and votes for politicians of all parties, except perhaps the Communists.
Decisions by politicians and bureaucrats are sometimes made to benefit yakuza rather than the citizenry or the nation at large.
For example, a yakuza-owned waste disposal plant for many years poisoned the air at the American airbase at Atsugi outside of Tokyo, as the Japanese government refused to address the problem.
This became a highly contentious issue in the bilateral defense relationship – distracting from more important matters such as upgrading Japan Self Defense Force (JSDF) capabilities and JSDF’s ability to operate with US forces.
The government eventually closed the plant down, but reportedly paid the company (and, thus, the yakuza owners) upwards of US$50 million in compensation. Reportedly one reason for government foot dragging was that a number of retired government officials enjoyed post-retirement amakudari (literally, descent from heaven) employment at the plant.
There are even cases of yakuza applying brazen pressure on politicians. In the late 2000s, a Democratic Party of Japan politician raised questions about a yakuza-connected real estate deal in central Tokyo. He was subsequently threatened by two yakuza.
And, the murder of a serving DPJ member of parliament in 2002, Koki Ishibashi, by a Yamaguchi-gumi gangster remains a troubling case. Ishibashi was a rare and vocal critic of corruption in the Japanese government.
Although the “murderer” conveniently turned himself in, some observers note the police did not exactly try hard to investigate further to nail highero-ups for the crime.
In another case, the mayor of Nagasaki was murdered in 2007 for refusing to give yakuza a cut of the city’s public works projects.
Not surprisingly, freedom of individual expression is restrained in Japan when it comes to topics and matters in which the underworld is involved or has a stake.
The mainstream Japanese media are thoroughly intimidated from reporting on yakuza activities and underworld connections with public officials. And, without an effective investigative press, it is almost impossible to successfully take on the yakuza – or organized crime in any other country, for that matter.
Indeed, court orders are ignored in some cases due to organized crime fears. Astonishingly, the courts have tolerated the non-compliance.
In one instructive case in the late 2000s, following threats from one of the uyoku groups – nearly all of which are tied to yakuza in some fashion – a major Tokyo hotel canceled a contract with a teachers’ union to hold its annual meeting at the hotel. The union sued in court and won.
The court ordered the hotel to comply with the contract. The hotel simply refused to do so. The court subsequently ordered the hotel to pay a paltry fine – effectively stating, “We understand.”
Impact on private firms
The yakuza matter also for private companies, Western ones included.
First, a company can lose a lot of money. Lehman Brothers Japan lost at least US$350 million from a single fraud scheme in 2009.
And, a while later, then-foreign-owned Shinsei Bank lost upwards of $500 million after extending loans to a listed financial company – with reputed yakuza ties – that conveniently declared “bankruptcy.”
Also, if a company gets entangled with yakuza, it becomes an easy target for Japanese regulators looking to teach somebody a lesson.
Citibank Japan had problems with regulators in the mid-2000s that were at least partly due to its negligence in allowing yakuza to open accounts. Citibank was by no means the only financial institution in Japan with yakuza clients – nor even the worst by any stretch – but it was a convenient (and foreign) target for the regulators.
Citibank eventually pulled out of Japan – where it had been highly profitable – even after senior Citibank executives had traveled to Tokyo and performed what amounted to a ritual public humiliation.
A company can also be subject to yakuza intimidation or worse. Lehman Brothers Japan hired around-the-clock guards for a foreign executive who provoked the underworld’s ire. Other firms have been threatened by uyoku and harassed by those yakuza-linked rightist groups’ black sound trucks.
There’s more. Once a company gets in bed with yakuza, it will be forced to guarantee profits to organized crime investors. Informing yakuza clients that their investments have not made money – or that they should repay their loans – is not for the fainthearted.
As one imagines, once a company deals with the yakuza it is pretty close to impossible to stop. The company will eventually be blackmailed into doing deals the company does not want to do.
More than a few company executives, foreign ones included, thought they were savvy enough to do business with the yakuza. This might work once or twice, but it never has a happy ending over the long run.
Even worse, smaller companies (and even some bigger ones) have been taken over completely by organized crime.
Serving as a money laundering conduit is a near-inevitable outcome of yakuza dealings. At a minimum, laundering exposes a firm to regulatory sanction and reputational harm.
But it should be noted that the yakuza problem is not really a money laundering issue. Money laundering is a symptom of other misbehavior. Target the misbehavior and otherwise hound the criminals, and the money laundering problem disappears.
Efforts by governments (not just the Japanese government but all governments) focused on detecting money laundering are basically ineffective owing to the sheer difficulty of spotting money laundering in any given transaction. They are simply focusing on the wrong thing. (These efforts do, however, keep a nice-sized industry of anti money laundering experts and compliance officers employed.)
Finally, reputation matters – in the eyes of regulators (local and foreign); shareholders; industry counterparts; the public; and even the underworld. Being seen as a company that is either too stupid to spot organized crime, or one that does not care is not particularly helpful.
In the mid-2000s, the western investment group Cerberus found itself featured on the front page of a major Japanese newspaper – charged with using a Yakuza real estate company to obtain a well-situated land parcel in central Tokyo. True or not, this is not the sort of news coverage most companies like to see.
Conclusion: Don’t laugh
Japan and its yakuza are an eye-opening story. This is especially so for anyone who has visited or lived in the country, which by any measure is safe and orderly – and has almost no observable street crime.
Yet, Japan is a paradox: it is an economic powerhouse with a well-functioning democracy and established civil and law enforcement institutions that nonetheless has home-grown organized crime insinuated into most parts of society, government and business.
As this article demonstrates, organized crime is not a problem only in less developed, politically chaotic countries with weak civil institutions. Indeed, the yakuza are a parasitical influence on the Japanese economy and divert public and private money and resources away from productive uses.
Moreover, organized crime subverts politics via money and blackmail and is hard to rein in, much less eliminate. And, this all results in gradual public cynicism in governmental institutions and elected leaders.
But one should not be self-righteous when considering Japan and its yakuza problem.
Every nation has corruption and criminality and, perhaps, even the same basic amount; it just manifests itself differently from country to country – often depending on prospects for getting caught. And, it is not always tattooed, card-carrying gangsters doing the dirty work.
Indeed, the City of London’s willingness (with Her Majesty’s government’s tacit approval) to welcome “hot” East European money over the past 20 years is not qualitatively different fom anything the Yakuza have going on in Japan’s financial sector.
And don’t forget Wall Street’s behavior before and after the 2008 financial collapse – to include handsomely profiting from government bailout schemes that would have made the yakuza envious. If one wants to get away with a financial slap on the wrist for money laundering on a breathtaking scale, just be a too-big-to-fail western financial institution –regulated on occasion by regulators who hope to work for you someday.
Finally, it must be noted that Japanese citizens are not uniquely tolerant of organized crime, and in fact, mostly despise the yakuza. But their ruling class has let them down. If Japanese politicians and officials wanted to do so, they could pulverize the yakuza. They just choose not to. And such will probably be the case 20 years from now.
While Japanese citizens and businessmen have little choice other than to live with it, foreign businessmen too often rationalize away the yakuza problem – claiming it does not exist or the threat is overblown – while in more than a few cases hoping to make some money and get out of town before anything happens.
Yet, ironically the right approach to the yakuza threat – the approach that starts with admitting there is a problem – can be a competitive advantage. And, with proper effort, it is possible to navigate around the yakuza and take advantage of opportunities other companies pass up – while staying out of trouble, and building a good reputation with regulators.
As one respected Western company president whose firm did things the “right” way said when asked if he minded turning down business: “No. People see what kind of company we are and we get more business as a result.”
Grant Newsham, a retired US Marine Corps officer, former US diplomat and former Tokyo security chief for a major global investment bank, currently is a senior research fellow at the Japan Forum for Strategic Studies and the Center for Security Policy. This series originally appeared in full in the Journal of Financial Crime.