Japanese Scandals Raise Issues Over Soka Campus : Inquiries: Critics of the Calabasas college question its legitimacy and tax status in light of multimillion-dollar controversies involving a powerful Buddhist sect.

The Japanese Buddhist organization affiliated with Soka University, whose expansion plans have generated intense public debate in Los Angeles, is also embroiled in controversy in Japan, where the powerful group has been wracked by a series of scandals.

The organization, Soka Gakkai, recently paid $4.5 million in back taxes in Japan in a bizarre tax evasion case involving unreported income from the sale of grave sites to its members. The investigation was triggered by the discovery two years ago of more than $1 million in cash in a discarded safe in a Yokohama scrap yard.

Soka Gakkai has also been implicated in the continuing Japanese securities scandal, which involves huge payments by brokerage firms to prominent clients to make up for investment losses.

And Soka Gakkai and its partner in various ventures, Mitsubishi Corp., are at the center of a highly publicized mystery involving the sale of Renoir paintings and millions of missing dollars.

In California, meanwhile, the federal Internal Revenue Service and state Franchise Tax Board are reviewing Soka University’s tax-exempt status at the request of Assemblyman Tom Hayden (D-Santa Monica).

Bernetta Reade, a spokeswoman for Soka University in Calabasas, said last week that Soka Gakkai’s problems in Japan have had no impact on plans for the Los Angeles-area college and that it would be unfair to link problems in Japan with efforts to expand the campus.

She said that Soka Gakkai and Soka University are “separate corporate entities,” and that critics are “making an incredible leap” in linking the two. “I don’t consider it fair because the entities are not the same,” she said.

She acknowledged, however, that Daisaku Ikeda, the charismatic leader of Soka Gakkai, was also the founder of Soka University.

Hayden, however, asserts that the university and Soka Gakkai are “arms of the same movement.” He says “evasiveness” about links between them “should only deepen your suspicion as to their credibility.”

Soka Gakkai is the lay organization of the Nichiren Shoshu Buddhist sect and has long been a controversial force in Japan, where it claims 10 million members and is the country’s largest religious group. It is considered the power behind Japan’s second-largest opposition party, the Komeito or “Clean Government” party, which Soka Gakkai founded in 1964.

Soka University has branches in Japan and France, and since 1987 has operated a third campus in a lush meadow in the Santa Monica Mountains. The local campus opened with great fanfare, with Ikeda coming from Japan to preside at dedication ceremonies.

The university, which now runs only an English language program for 100 students in Calabasas from its branch in Japan, has been engulfed in controversy since it announced plans last year to expand the 580-acre campus to a full-blown liberal arts college for 4,400 students.

State and federal parks officials say the school would be incompatible with the Santa Monica Mountains National Recreation Area--the network of mountain parks, trails and preserves administered by the National Park Service. Park agencies have long coveted the centrally located site for a visitors center and park headquarters, and have urged the school to sell at least half of its property to them and relocate.

The school responded with an offer to donate money, buildings and 71 acres of the property to the National Park Service if allowed to proceed with its plans. But parks officials said the offer failed to address the adverse effects of a crowded college campus in one of the most spectacular settings in the mountains.

Fearing that parks authorities may seek to acquire the land through condemnation, the college has enlisted well-connected lobbyists and advocates in a bid to influence Congress and the Interior Department, which includes the National Park Service.

The battle has sparked interest in the school’s background and legal problems in Japan, particularly among those interested in forcing the college to move.

Soka University’s difficulties should cause public officials “to be asking some very tough questions, because this kind of high-rolling financial manipulation is not something that a responsible institution of learning or a responsible religious group would engage in,” said David Brown, chairman of the Sierra Club’s Santa Monica Mountains task force and vice president of the Las Virgenes Homeowners Federation--both of which oppose the campus expansion.

Soka Gakkai, which means “Value Creation Society,” was established in 1930 to spread the teachings of Nichiren, a 13th-Century Buddhist monk. A financial powerhouse, it reportedly collects more than $1 billion annually. It has an extensive publishing empire, real estate assets, schools and an art museum. It formally split from Komeito in 1970, but the opposition party still gets most of its support from the religious movement’s voters.

Soka Gakkai preaches peace and compassion, and is credited with helping establish Japan’s social welfare system. But its critics point to its aggressive recruitment techniques--called shakubuku , which means “to break and subdue.” They accuse it of functioning like a cult that promises material reward and happiness in exchange for unquestioning faith.

Soka Gakkai’s role in Japan’s financial and political intrigues has been widely reported by the Japanese and international press.

In the tax evasion case, the group paid $4.5 million in back taxes in May, owed by its extensive cemetery business. The investigation began two years ago when bundles of cash totaling $1.2 million were found in a safe that was being dismantled to recycle the metal. The safe was reportedly brought to the scrap yard on a delivery truck of Seikyo Shimbun, Soka Gakkai’s daily newspaper and the third-largest in Japan, with a circulation of 4.7 million.

The newspaper’s former managing director later asserted that the safe belonged to him, and that the money was his personal profit from the sale of souvenirs at a Nichiren Shoshu temple. He said he had stored the safe in a Seikyo Shimbun warehouse and simply forgot about it.

But that explanation did not satisfy authorities. In an investigation of Soka Gakkai’s tax affairs, they discovered $17 million in unreported income from the group’s cemetery business between 1987 and 1990. The group asserted that its failure to pay the $4.5 million owed for taxes resulted from a different interpretation of tax laws.

Soka Gakkai has also been tarnished by the stock market scandal that has shaken the Japanese political and financial Establishment by revealing a pattern of favored treatment for wealthy investors. The case erupted with disclosures earlier this year that brokerage firms paid at least $1.3 billion to some of Japan’s top industrial groups, banks, public pension funds and other wealthy investors to cover their stock market losses.

The group was identified in late July as receiving $3.26 million from Kokusai Securities Co. Soka Gakkai officials in Japan responded that the payments should not be construed as reimbursement for investment losses. Instead, they said, Kokusai had made unauthorized trades involving Soka Gakkai’s accounts and was paying for its mismanagement.

The tale of the two Renoirs--”Woman After Bathing” and “Woman Reading”--and the missing millions is murkiest of all. Japanese tax authorities are investigating.

Mitsubishi told tax officials that it bought the paintings in March, 1989, for about $26 million and then delivered them to the Tokyo Fuji Art Museum, which is affiliated with Soka Gakkai. But when Mitsubishi filed its fiscal year-end reports, it accounted for only about $15 million of the purchase.

Japanese authorities say the case of the missing $11 million appears to fit a growing pattern of sham sales of art at inflated prices to hide money from regulators or tax authorities. Asahi News Service in Japan reported that “there is speculation that the money might have been channeled to someone tied to Soka Gakkai, which has awarded many contracts to Mitsubishi for the development of large cemeteries.”

Mitsubishi subsequently said it bought the paintings on behalf of Soka Gakkai, which did not want its name disclosed at the time. Soka Gakkai, in turn, said it was the Tokyo Fuji Art Museum that actually purchased the artworks.

The mystery does not end there. Mitsubishi insists that it bought the paintings from two French nationals, but tax investigators found no evidence that the men were in Japan at the time of the purchase, according to Japanese newspaper reports.

A firm of Tokyo art dealers reported that it had sold the paintings to Soka Gakkai representatives for about $15 million on the same day that Mitsubishi said it had acquired the works.

By comparison, the background of the Soka University tax inquiry in California is simple.

Hayden, who supports acquisition of the school’s land for the mountain park, late last month asked officials with the Internal Revenue Service and Franchise Tax Board to investigate the university’s tax-exempt status.

Hayden said the school’s tax exemption was based on its assertion that it operates “a nonprofit institution of higher education.” In reality, Hayden said, it has merely offered a crash course in English to Japanese nationals instead of a full college education--thus violating “the very premise for its tax-exempt status.”

An IRS spokesman in Los Angeles declined to comment on the matter. Franchise Tax Board spokesman Jim Reber said the agency had received a request from Hayden and was responding to it.

But while refusing to discuss details of the inquiry, Reber said Soka University can conceivably remain tax-exempt as a nonprofit educational institution, even if Hayden’s allegations are true.

“If the . . . complaint is that they are an organization that does not confer a degree and they are an organization that may be misrepresenting the term university , that has no bearing on the appropriateness of their tax-exempt status,” Reber said.

Soka University spokeswoman Reade said: “The university believes it is in full compliance with all requirements for its tax-exempt status.”

Alan C. Miller reported from Washington and Myron Levin from Los Angeles.

BACKGROUND

Soka Gakkai, which means “Value Creation Society,” is the 61-year-old lay organization of a Buddhist sect. It is credited with helping establish Japan’s social welfare system, but its critics accuse it of offering cult-like promises of material rewards. A controversial political force, Soka Gakkai has an extensive publishing empire, real estate assets, an art museum and schools.