Japanese Regulators Squeeze Banks on Yakuza Ties

Forensic & Litigation Consulting

December 4, 2013

Recent media has highlighted the intensifying scandal over Japanese banks’ potential ties to organized crime groups (also known as anti-social forces or the Yakuza). Sparked by a business improvement order issued by Japan’s Financial Services Agency (FSA) to Mizuho Bank on 27 September 2013, investigations of several major Japanese banks are now also underway, emphasizing the need for strengthened compliance throughout the local financial industry. Amidst this heightened crackdown by authorities, clients should ensure they have the appropriate measures in place to safeguard their interests and expose potential vulnerabilities.

Banks’ Compliance Failures and Organized Crime Links

The latest crackdown originated when the FSA ordered Mizuho to improve its internal compliance procedures following an incident with Orient Corporation, the bank’s consumer credit company. Orient Corporation had been issuing loans totaling JPY 200 million to individuals associated with organized crime groups. Although the bank admitted to being aware of the issue as far as back as 2010, it failed to cancel the contracts or raise the issue with the Japanese authorities citing complicated internal structures and insufficient compliance measures. Mizuho is currently addressing the situation, albeit internally, and has ended the contracts in question. As a result, the bank’s president, Yasuhiro Sato has forgone his salary for six months; the bank’s chairman, Takashi Tsukamoto although having resigned his post remains chairman of the bank’s holding company, Mizuho Financial Group Inc; while Mizuho has made salary deductions to over 50 executives, who were involved. Yet however lenient the response, Mizuho continues to attract criticism.

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