New Scandal Over Political Payoffs Threatens Japan’s Leadership : Corruption: A trucking firm is suspected of using underworld connections to raise huge sums of money intended to influence public officials.

Japanese authorities Thursday stepped up a fraud investigation expected to shed light on a mushrooming scandal that insiders believe could shake Japan’s ruling elite to the core.

Police raided the Tokyo offices of Sagawa Kyubin, a trucking firm suspected of using underworld connections to raise money for political payoffs. Investigators had discovered that Tokyo Sagawa, part of the Kyoto-based Sagawa Kyubin, made improper loans and loan guarantees worth $4.1 billion, one-third of that money going to front groups for organized crime. Sagawa is expected to have losses of more than $2 billion on those loans.

Coming three years to the day after a similar police raid set the stage for the politically debilitating Recruit Co. influence-buying scandal, the Sagawa raid may foreshadow another series of revelations that could dangerously undermine public trust in Japan’s political institutions and hurt the ruling party’s performance in July’s elections for the upper house of Parliament, political analysts say.

The case, which also comes on the heels of the bribery indictment of a key former aide to Prime Minister Kiichi Miyazawa, combines elements of financial fraud with gangster ties and political payoffs. Disclosures of these ties are revealing the extent to which national politics in Japan operates like the corrupt political machines of some American cities.

The Sagawa scandal also reinforces the belief here that outsiders in the Japanese business world must pay off politicians and bureaucrats to break into the Establishment and be given room to grow.

“This case, more than any other, really shows the structure of Japan,” said Hajime Takeshi, editor of Insider, a publication that tracks Japanese politics. “It stretches from the highest of the politicians to the lowest of the gangsters.”

Party leaders, academics and analysts alike allege that the payoffs are so widespread--including money paid to leading politicians in all major parties except the Japan Communist Party--that the prosecutor’s office may find it too hot to investigate fully.

“So many high-placed people are involved in it that I don’t know if the public prosecutor’s office will have the nerve to get to the root of this,” said Masao Kunihiro, an opposition member of Parliament allied with the Japan Socialists.

“The prosecutors feel responsible for the stability of the system,” explained Takashi Inoguchi, a political science professor at Tokyo University. “If they believe that continuing their investigation will contribute to a breakdown in the system, they will stop it.”

Still, the size of the payoffs, reportedly in the hundreds of millions of dollars, is startling even to insiders and may be hard for prosecutors to ignore. “It was even surprising for me to discover the large amounts of money involved,” said Mutsuki Kato, one of the Japanese Parliament’s most influential members and chairman of the All-Japan Trucking Assn.

Another influential member of Parliament from the ruling Liberal Democratic Party, Koichi Hamada, has publicly attacked fellow party members for accepting “unimaginable” amounts of money.

At the center of the controversy is Sagawa Kyubin, a Kyoto-based package delivery firm that, using unorthodox practices, grew into a $6.5-billion-a-year company, second-largest in the industry. It pays its drivers starting salaries of more than $8,000 a month; in return, it expects them to run, not walk, when delivering packages from their trucks to customers’ offices and to work overtime, often driving dangerously long hours.

But this hard work was apparently not enough. Police now believe that Sagawa also used political payoffs to enhance its growth prospects, raising money for the payoffs by offering loan guarantees that enabled gangsters to borrow money from banks and other financial institutions without collateral. In one case, police say, Sagawa received as much as 10% of a $470-million loan as a kickback, with the cash delivered in paper bags.

The Sagawa scandal ties into a series of financial scandals disclosed last summer. Police have revealed, for example, that Sagawa provided much of the money that former gangster boss Susumu Ishii used in his effort, in concert with Nomura Securities, to manipulate the stock price of Tokyu Corp., a railroad company. Sagawa was also the source of much of the money Ishii used to expand his U.S. investments, paying President Bush’s brother, Prescott Bush, $250,000 to work as a consultant on at least one such acquisition.

The Sagawa case is notable not only because of the apparent involvement of gangsters and politicians but also because of charges of extensive payoffs, on a national and local level, to bureaucrats, generally considered to be honest.

Hisashi Kikuchi, an author and political columnist close to Kiyoshi Sagawa, the founder of the trucking firm, told The Times that he has seen a secret company list of more than 50 leading politicians who each received more than $800,000 from the company. “The amounts involved are greater than that of all other scandals combined,” Kikuchi said.

Sagawa has already admitted that the company has been paying the salaries of dozens of politicians’ secretaries and offering his own employees for free labor to many other politicians.

It is unclear what, if anything, the politicians may have done for Sagawa in return. But with the Ministry of Transport in charge of enforcing about 2,000 regulations that govern everything from the number, size and weight of trucks to the routes they travel, some observers suggest that there was plenty of room for politicians to lean on bureaucrats for favors on Sagawa’s behalf.

“The culture of big transport companies excludes newcomers,” said Inoguchi of Tokyo University. To get customers and boost ties with bureaucrats, “the easiest way is to use politicians.”

The history of scandal in Japan is replete with examples of “outsider” companies that have offered bribes to develop the political contacts necessary to win new customers and break down bureaucratic barriers: Marubeni, a newcomer trading company, made political payoffs to help win a contract for Lockheed Corp., the disclosure of which led to Prime Minister Kakuei Tanaka’s indictment in 1974.

Recruit Co., an upstart publishing company, gave away underpriced shares for inside information, leading to the resignation of Prime Minister Noboru Takeshita in June, 1989.

Sagawa was also an outsider when in 1957, at age 35, he founded a company delivering kimono cloth from Kyoto to seamstresses in Tokyo. He has since built a nationwide network that operates 13,000 trucks, each bearing the large painted corporate logo of an 18th-Century deliveryman in loincloth with a package over his shoulder, running to make his delivery.

To succeed, former Sagawa employees say, Sagawa enlisted the help of gangsters and politicians to resolve conflicts that arose from truck accidents and opposition from entrenched competitors.

“We used to drive full-speed even through the middle of towns,” a former Sagawa employee was quoted in a recent NHK television special as saying. “We were told that Sagawa has no fears because it is backed by gangsters who will take care of us if we get in trouble.”

Sagawa told the Nikkei Sangyo Shimbun, an industry daily, in a 1982 interview that when he tried to buy a trucking company in Kyushu, he was given the cold shoulder by established companies. “We came to a compromise after my friends intervened for me,” he said. “It isn’t because I asked for political intervention; they just offered it.”

Sagawa’s biggest prize was the purchase of Watanabe Transport in 1974, giving it entree into the giant Tokyo market. Hiroyasu Watanabe, the company’s founder, became Sagawa’s right-hand man, increasingly handling payoffs to politicians, according to former employees.

Yugihiro Hamada, a former president of one of Sagawa’s affiliate companies, said recently on television that Watanabe played a key role in the company’s growth by paying off politicians and removing administrative barriers to growth.

Numerous national publications have published an anonymous list circulated in Parliament that shows the amounts of money key Japanese politicians have reportedly received from Sagawa. At the top of the list is former Prime Minister Tanaka, who reportedly received $86 million from Sagawa.

Yukihide Okano, president of the Institute of Highway Economics and a national expert on the transport business, says Tanaka, now disabled by a stroke, played a key role in helping Sagawa win licenses for new routes early in his career.

Also on the list are former Prime Minister Takeshita, who is reported to have received $14.4 million, former Cabinet Secretary Ichiro Ozawa, who is listed as having received $8 million, and Prime Minister Miyazawa, who is listed as having received $640,000.