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Japanese bank ties to organized crime trip Abenomics reformers

A career in organized crime has its perks, but in Japan, there are certain additional side benefits. For one thing, unlike most consumers and small business operators, mobsters seem to have no trouble arranging credit on favourable terms.

Some of the country's leading bankers acknowledge that their institutions have extended loans in the past to what Japanese officials like to call "anti-social forces," but who are better known by their popular brand name, yakuza.

In order for Abenomics – Japan's ambitious economic liberalization program – to succeed, reform-minded Japanese politicians are pushing to deregulate key sectors and markets and free up capital for productive investment. But the country's more than 3,000 crime groups, wedded to a highly profitable status quo, stand as one more impediment to those crucial structural reforms.

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A Japanese parliamentary committee probing the spreading yakuza loan scandal heard another apology Wednesday from Mizuho Financial Group boss Yasuhiro Sato, whose bank kicked off the latest bout of public hand-wringing over the corporate and political influence of organized crime.

Governments have sought to cut off the yakuza's lucrative ties to business and the financial markets since a series of scandals in the 1990s. While the country reeled from the collapse of the property bubble, it was revealed that two major brokerages had been compensating certain clients for their losses. Later, the government had to pour money into collapsed mortgage firms, whose bad debts included an inordinate number of loans linked to criminal groups.

"We deeply regret that the Japanese financial sector's credibility was hurt because of our relations with anti-social forces," Mr. Sato told the lawmakers. He also acknowledged that these "relations" were more widespread than Japan's second-largest bank had admitted in September, when it first revealed that its consumer finance unit had made 230 such loans, worth ¥200-million ($2.1-million) combined. Most were auto loans. What's more, Mizuho kept the credit flowing more than two years after finding out what its recipients did for a living.

Another leading banker, Koichi Miyata, president of Sumitomo Mitsui Financial Group, earlier told reporters its lending arm has made "suspicious loans," but provided no other details. "It's hard to define 'anti-social forces' and some people are just rumored to be in such a category," he insisted. Several other financial firms say they have uncovered similar unsavoury loans, made mainly through their consumer finance businesses.

There have been no hints of serious legal penalties for the bank chiefs. Mr. Sato is giving up his salary for six months, but retains his job. About 50 other executives have had their pay docked and a couple of compliance officers have been fired. But the Financial Services Agency, which polices their activities, is poring through the records of the three biggest banks, Mizuho, Sumitomo Mitsui and No. 1 Mitsubishi UFJ Financial Group, to ensure that there aren't more questionable dealings hiding in the shadows.

The yakuza may be feeling the heat. Their membership was in steep decline even before more than 24,000 were nabbed by police last year. But like organized crime groups everywhere else, they have spread their tentacles into numerous legitimate endeavours, including such mob favourites as entertainment, construction, real estate, finance and waste removal.

It will be impossible to eradicate them. But if Prime Minister Shinzo Abe expects to get anywhere with his politically difficult reform agenda, his government needs to do more to drive them to the margins.

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About the Author
Senior Economics Writer and Global Markets Columnist

Brian Milner is a senior economics writer and global markets columnist. In a long career at The Globe and Mail, he has covered diverse business beats, including international trade, the automotive industry, media, debt markets, banking and the business side of sports. More

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