Top-Level Japanese Executive Arrested in Stock Scandal

Prosecutors Monday arrested one of Japan’s most respected business leaders on bribery charges in the Recruit stock scandal, dealing a serious blow to the already beleaguered government of Prime Minister Noboru Takeshita and signaling potential danger for politicians linked to the case.

Hisashi Shinto, former chairman of Nippon Telegraph & Telephone Corp., was arrested together with his aide, Kozo Murata, on charges of receiving bribes from Recruit Co. when Murata dealt in shares of a Recruit subsidiary in 1986.

The arrest of Shinto, 78, who is known widely outside of Japan, is a major development in the case because it could set a precedent for prosecution of suspects who did not take part directly in the controversial stock transactions.

Among the scores of business and government leaders implicated in the scandal are 17 members of Parliament, including Takeshita and other key leaders in the ruling Liberal Democratic Party. They have defended themselves in public by claiming, as Shinto did, that their aides traded the stock without their knowledge.

Parliament Immune

Members of Parliament cannot be arrested while the body is in session, but they can be indicted without physical detention. So far, 10 people have been arrested in the case, including Hiromasa Ezoe, 52, founder of Recruit, the employment services company at the center of the scandal, and an executive of a related finance company, both of whom were re-arrested Monday for allegedly bribing Shinto with the stock sales.

Although it appears extremely unlikely that Takeshita himself will face any criminal charges, the arrest of Shinto could further embroil former Prime Minister Yasuhiro Nakasone in the affair.

“I feel today that the prosecution has come closer to the core of the case,” Tsuruo Yamaguchi, secretary general of the Japan Socialist Party, told a news conference Monday evening.

Opposition parties have charged that Nakasone used his influence as prime minister to arrange the purchase of two U.S. supercomputers by NTT, which the former state telecommunications monopoly then resold to Recruit in a questionable business deal. Nakasone, whose three aides benefited from Recruit stock trading, vehemently denied accusations of influence peddling and alleged at a Feb. 27 news conference that he was the victim of a Communist Party frame-up.

The opposition renewed calls Monday for Nakasone to testify on the matter before Parliament and threatened to block deliberations on the budget unless he complies. Nakasone and the ruling party have rejected the demand.

Takeshita’s administration, meanwhile, is reeling from the scandal, and there has been serious speculation over the last few weeks that he might be forced to step down, well before his two-year term ends in November.

Indeed, the major prop to Takeshita’s survivability at this point appears to be the lack of a suitable successor, because nearly every senior ruling party politician has been tainted by the affair.

Despite his promises to restore confidence in the government by pursuing political reform, Takeshita’s support rating plunged to a record low of 21.3% at the end of February, according to a poll by the newspaper Yomiuri. That may partly reflect the unpopularity of a new consumption tax that Takeshita forced through Parliament.

When the Recruit scandal broke last year, it seemed that Takeshita would emerge largely unscathed. But the situation has grown increasingly untenable for the prime minister, who assumed office in November, 1987, and quickly acquired a reputation as a problem-solver, especially where U.S.-Japan trade disputes were concerned.

Shinto, who became head of NTT in 1981 and oversaw its privatization, was forced to resign last December after it was disclosed that Murata, his aide, had made approximately $160,000 in tax-free profits by investing in Recruit Cosmos Co., a real estate development company affiliated with the Recruit group. Murata allegedly deposited $72,000 of the $160,000 in Shinto’s personal bank account.

Murata, 63, was given an interest-free loan from First Finance Co., a Recruit affiliate, and invited to buy shares of Recruit Cosmos before it was listed on the over-the-counter market in October, 1986, and soared.

NTT had close business dealings with Recruit, which at the time was diversifying aggressively into the data communications field. In addition to the supercomputer deal, which opposition lawmakers say was arranged by Nakasone at a conference with President Reagan to help offset the bilateral trade imbalance, NTT leases high-speed digital circuits to Recruit.

PROFILE OF A GIANT

Nippon Telegraph & Telephone Corp. was established April 1, 1985, as successor to Nippon Telegraph & Telephone Public Corp. Furnishes domestic telephone, telegraph and related services without competition in Japan; also leases equipment.

Total assets: $91.6 billion

Employees: 291,142

Operating rev.: $45.3 billion

Net income per share: $137

Source: 1988 Moody’s International Manual

All figures as of March 31, 1988.