This is the first of a five part series on the yakuza’s still wide reach in Japan
In recent years, foreign reporters in Tokyo have written about the decline of Japanese organized crime – the yakuza – owing to the passage of new anti-yakuza regulations. They’ve predicted the eventual fading away of the country’s unique criminal subculture.
It’s true that those rules prohibiting all dealings providing financial benefit to organized crime have inconvenienced some gangsters at the bottom of the yakuza pyramid and reduced the numbers of formal yakuza members.
However, organized crime writ large remains well entrenched in Japan, as many yakuza have simply gone underground – and it is a serious problem.
Admittedly, serious means different things to different people. Yet if one considers Japan’s well-funded underworld groups operating largely unchecked in the nation’s economy and financial world – and how yakuza financial resources have strengthened organized crime’s already strong political influence – this seems to meet the definition of serious.
Given the extent of organized crime involvement in Japanese finance, politics, bureaucracy and legitimate commerce, one might even consider Japan the G7’s version of Russia –although with less violence.
Many Westerners and even the US government have never really understood the yakuza.
They too often imagine the stereotype of curly-haired louts with tattoos and missing fingers, making money from drugs, prostitution, extortion, illegal gambling and loan sharking. All in all, a lurid and exotic part of Japanese society, but harmless in the grand scheme of things.
This has always been an oversimplification, especially over the past 25 years, as the yakuza became a permanent and expanding fixture in the legitimate Japanese economy, including the upper reaches of the financial industry.
To understand the scale of yakuza influence and why it matters, one must look beyond the punch-permed street thugs. At the other end of the yakuza spectrum, there is a different type of yakuza (so-called keizai or, “economic” yakuza) operating in another universe and posing far more risk but receiving less attention.
Based on over two decades’ researching the yakuza, I propose to tell you about organized crime’s deep, ongoing influence in today’s Japan and – as importantly – why it matters.
Well-heeled, diversified, well-hidden
From a certain perspective, the yakuza resemble a large hedge fund, a private equity operation or a good-sized sovereign wealth fund. And in terms of sophistication, global reach and funding, they are practically indistinguishable from their legitimate counterparts.
Of course, they have one advantage that many hedge funds do not – the threat of violence and no scruples about blackmailing company executives to make them do what they want them to do.
According to one estimate, the yakuza have as much as US$50-$100 billion in assets – and a sizeable chunk of that is investible.
While the yakuza profit handsomely from their old standby operations – sex, drugs, pornography, extortion and fraud – perhaps, 50% or more of the underworld income derives from legitimate businesses, including restaurants, ramen shops, hotels, construction and real estate companies, rental properties, pet shops (yes, pet shops), car dealerships, hospitals, retirement homes, travel agencies, taxi companies and iPhone game makers.
There is probably not a single industry or business sector in which the yakuza are not involved. The fact the yakuza operate far beyond the so-called traditional yakuza industries of industrial waste disposal, stevedoring, real estate and money lending surprises many observers. It should not.
The godfather of godfathers, Kazuo Taoka, third-generation leader of the largest syndicate Yamaguchi-gumi, told members in the late 1950s that they all needed “to have a legitimate business as well.”
A couple of instructive, almost mundane, examples include a struggling men’s hair products company and a well-established electronic parts manufacturer that came under yakuza control.
One of Japan’s best-known language schools, which collapsed nearly a decade ago, reportedly had deep organized crime ties – as did a prominent home healthcare provider and labor dispatch company that was a darling of domestic and foreign investors; over $250 million of its assets vanished as well.
Yakuza involvement in these businesses is more than just token shakedown payments and can include direct or partial ownership, equity investment and shareholding. And, management is quite hands-on in certain cases.
Pachinko is intentionally omitted from this analysis, despite the Japanese pinball industry’s longstanding image as a yakuza money spinner.
It is not hard to find yakuza in the pachinko business – and at least a couple pachinko operators and hardware manufacturers reportedly have deep underworld ties. However, this is less of a yakuza presence than imagined – especially at the operating level.
The reason? Over 20 years ago, as Asia Times reported at the time, the police effectively took over responsibility for “security” at pachinko parlors – as a way to provide post-retirement jobs for retiring cops. This has had a considerable – if not complete – cleansing effect.
As for the industry’s widely reported North Korean connections, these do exist. However, the amounts of money transferred from certain pachinko companies to Pyongyang are a fraction of what they were a decade or two ago.
Where the real money is
Certain keizai yakuza specialize in financial crime – stock manipulation, fraud and company takeovers: getting control of a company; running up the stock; taking huge loans, pledged on company assets and never to be repaid; or even just looting the assets.
But, much yakuza investment activity is legitimate in most respects – other than the fact yakuza are involved. In such cases, one might argue the yakuza are simply looking for a better return – just like regular investors.
I have seen direct yakuza involvement in every sort of financial activity an investment bank or securities company might be involved in: mergers and acquisitions, initial public offerings, currency trading, real estate investment trusts, distressed assets, stock investment funds, whatever.
And, more often than not, there is nothing overtly suspect in the way business is conducted – and, sometimes, there’s nothing objectionable beyond the facts that organized crime is involved and one never quite knows where the money originates.
Real estate and property investments are one favored way to recycle Yakuza income while ending up with a tangible asset that can produce more income and also appreciate in value. During the economic downturn in the late 2000s, yakuza were among the top investors in Japanese real estate, according to some observers. They had plenty of money when few others did not and spotted a golden opportunity.
While some yakuza are the smash-and-grab sort, others are patient enough to leave a company alone and rake in profits over an extended period. If and when the time comes to cash in, the Yakuza generally can get their money out first – not least due to the threat of violence against corporate officials who might resist.
Next: Japan’s venture capitalists are yakuza
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. Here we are republishing as a five-part series a paper of his that originally appeared in the Journal of Financial Crime.