This is the second of a five-part series on the yakuza’s still wide reach in Japan. Part one is here.
Japan’s organized crime often works hand-in-glove with the pedigreed elite and other “yakuza-minded” businessmen and individuals, including lawyers and accountants. These kyoseisha – cooperative entities – are not yakuza themselves, but are willing to assist and are paid well for their services. In some cases, the connections are unwitting, but in most cases, they are knowing and intentional.
In 2009, Lehman Brothers Japan (LBJ) agreed to lend around US$350 million to a Japanese company to fund the refurbishment of hospitals and old-folks homes – a laudable and potentially profitable venture given Japan’s aging society. The borrower company and its representatives appeared legitimate and had several pedigreed advisors working with them.
LBJ even hired a well-known private investigative firm to vet the parties, and its own lawyers reviewed the deal. But, when the time came, repayment was not forthcoming. The money was never recovered.
This was a yakuza operation – reportedly done with “inside help” from at least one elite banker. All in all, not a bad day’s work: US$350 million – and tax-free. The deal itself and the main counterpart company in particular had all the earmarks of a yakuza scheme and should have been easily detected.
The yakuza take was actually considerably more than US$350 million as other western firms got in on the “sure-thing” deal and handed over another US$150 million or so – for a total of around US$500 million that the yakuza made off with.
Interestingly, the platforms that yakuza use for their financial and other business activities (both legal and illegal) are often legitimate or legitimate-seeming. These include licensed securities and financial companies and a wide range of listed companies. These companies are sometimes owned outright by the yakuza, sometimes under strong influence or, as is often the case, a small number of key executives are just willingly cooperating.
Indeed, the fact a company is regulated or listed on a Japanese exchange – even the Tokyo Stock Exchange (TSE) – should not be considered enough to clear a company of underworld connections. If pre-listing screening for underworld connections of companies on all Japanese exchanges is generally inadequate, even less satisfactory is what passes for periodic monitoring for yakuza infiltration. And monitoring is less strict still beyond the major exchanges in Tokyo and Osaka.
In the early 2010s, an informal review by an expert on keizai yakuza financial activities of just the Tokyo and Osaka exchanges found that about 4.5% of listed companies had organized-crime connections that should have given pause to any respectable company.
On the TSE Mothers Market, the taint rate was about 15%. The review did not cover the Sapporo or Nagoya exchanges in depth but, given their lax pre-listing screening, one can draw one’s own conclusions.
Ironically, Japanese regulators often do detect corporate misbehavior and place sanctions on listed companies. But, although the wrongdoing often involves yakuza, the organized crime angle is rarely, if ever, publicly cited, assuming the authorities are even aware of it.
Globally minded, entrepreneurial
The yakuza operate on a global scale – although they are hiding their activities better than during the “bubble era” of the 1980s and early 1990s. The author has traced their financial and business operations to China, Hong Kong, Singapore (especially popular), Korea, Cambodia, Vietnam, Mongolia, UAE, Israel, the UK, The Netherlands, the Caribbean, South America, the Middle East and the USA.
Besides the advantage of being far removed from Japanese police “radar screens,” factors including business opportunities (beyond routinely shaking down local Japanese companies), ease of incorporation and even tax advantages drive overseas expansion of yakuza the same way they do for legitimate firms.
Coupled with host nation regulators who either are oblivious of the problem or do not much care in the first place, overseas business/financial activities maximize upside benefits for organized crime while minimizing risks.
Several years ago, the author mentioned to a senior legal official from a Southeast Asian country that yakuza were increasingly active in his jurisdiction. He laughingly replied, “At least we’re getting a good class of criminal.”
Even within Japan, certain regions are considered more advantageous or safer than others for yakuza – because of the perceived laxness in local law enforcement’s anti-yakuza efforts.
Japan’s best entrepreneurs?
The economic yakuza at this end of the spectrum are some of Japan’s best entrepreneurs and have the knowhow to spot – and even create – investment and other money-making opportunities. In most respects, yakuza abilities and sophistication equal the best Wall Street has to offer.
One yakuza gang sent its associates to South Korea to conduct investment road shows to attract investors in Japan’s high-tech industry – particularly focusing on small and medium-sized technology companies. In 2015, a yakuza-affiliated real estate company conducted seminars in a Southeast Asian country soliciting investors in Tokyo real estate – and took out large ads in the major local newspaper touting its new real estate development in central Tokyo.
Yakuza-affiliated companies have posted ads on Tokyo subways – including ads encouraging individual investors to get involved in financial investment niches the yakuza were hyping and helping to operate.
Japan’s solar industry, which boomed in recent years, was a natural fit for yakuza – particularly as they provided “services” to clear land for solar development. This was simply a rural version of the yakuza’s longstanding role in jiage; clearing tenants – often by such traditional gangland means as strong-arming them – from urban properties in order to assemble larger land plots for redevelopment.
Cryptocurrency is another new business the Yakuza have reportedly gotten involved in – including rumored involvement in a US$500 million “bitcoin” heist in 2017.
In the early 2020s, casinos are finally set to land in Japan and the yakuza are prepared. Officially, yakuza will not be allowed in – just as bid-rigging, officially, has long since been outlawed in Japanese construction projects. But as a respected former National Police Agency police official, the late Raisuke Miyawaki, once commented, “The only people who can keep the yakuza out of the casino business are the yakuza.”
Japan’s venture capitalists
In some respects, yakuza perform the role that venture capitalists fill in the United States. Japan has no Silicon Valley, and banks and other investors are notoriously reluctant to lend to a “guy with a good idea.”
In the late 1990s, certain yakuza and kyoseisha, their cooperators, even established an organization to promote and support “venture businesses.” They continue playing this role today in different guises. They are not altruists, however, as more than a few start-ups have learned.
Establishing a legitimate and active venture capital business in Japan would do more to weaken the yakuza than passing any number of new “anti-yakuza” laws.
What government knows
Is the Japanese government aware of this? More than one might imagine.
Most notably, annual National Police Agency White Papers regularly refer to yakuza economic activity as posing a threat to the pillars of Japan’s economy.
In the late 2000s, a senior Securities Exchange Surveillance Commission (SESC) official admitted to a group of western bankers that the problem of organized crime in the financial industry was serious and said SESC needed western financial institutions’ help. For a Japanese official to admit such a thing – to foreigners, no less – was astonishing.
The Osaka Stock Exchange (OSE) also announced in 2009 that it would review all OSE-listed companies for organized-crime ties. This resembled a similar OSE “anti yakuza campaign” in 2001 that also appeared to discover no yakuza-affiliated companies worthy of sanction – which was no small feat. Nonetheless, one does not announce this sort of thing unless the situation is desperate.
The Financial Services Agency (FSA), National Police Agency (NPA) and Tokyo Stock Exchange even formed a committee in the mid-2000s to address yakuza infiltration of the TSE. If they were successful at rooting out the yakuza from the TSE, they have been quiet about it, but they clearly knew they had a problem.
In 2000, the author attended a meeting at the TSE where a senior NPA official advised attendees how to keep yakuza out of their companies. His advice was: “Don’t give them tea, and don’t give them your meishi (name card).” Nothing more.
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.