Fallen Japan Powerbroker Arrested on Tax Evasion Charges

Shin Kanemaru, once the most powerful man in Japanese politics before resigning in disgrace last year in a corruption scandal, was arrested and jailed Saturday on charges of evading hundreds of thousands of dollars in income taxes.

Kanemaru’s secretary, Masahisa Haibara, was also arrested on charges that could send the onetime political kingmaker and his aide to jail for up to five years, the Tokyo District Public Prosecutor’s Office announced. Law officials said they made the arrests to prevent the pair from destroying evidence.

The arrests rocked Japan’s political world and set off a wave of reaction, including speculation that the ruling Liberal Democratic Party would be significantly damaged, new calls for the political heads of other top officials, such as former Prime Minister Noboru Takeshita, and accelerated demands for wide-ranging reform.

Public distrust of the nation’s politicians, heightened by the numerous scandals of recent years, is likely to increase still further. Various commentators, in a round of talk shows today, called for new measures to make political money trails more transparent through more restrictive laws on fund raising as the only way to restore public trust.

“This heightens the need for political reform. As the LDP, we are absolutely going to have to pass the reform proposal in this year’s parliamentary session,” one top ruling party official said.

The political turmoil is not likely to affect the stock market or efforts to craft an economic pump-priming package, however.

Hours before the arrests, the lower house of the Japanese Parliament approved a $621-billion budget for the next fiscal year, adopting several measures to try to stimulate the depression-racked economy. But the spending proposal calls for only a 0.2% increase from current spending.

Kanemaru, 78, was charged with underreporting his income and evading taxes in 1987 and 1989.

One of the central questions is where all of Kanemaru’s money came from. Sources close to the investigation say that he did not fully report income of more than $1 million, while his official salary as a Parliament member was just over $100,000.

Japanese news reports citing law enforcement sources said Kanemaru reported only $85,470 worth of income in 1987 and 1989. However, he allegedly purchased $6.8 million worth of debenture bonds from Japan Bond Trust Bank, while his secretary, Haibara, purchased $3.4 million worth of the bonds, raising the question as to where the excess money came from. The Japanese media speculated that Kanemaru had diverted the political contributions he received into private use.

According to Japanese media reports, law officials do not believe the money is connected to Kanemaru’s earlier scandal involving his receipt of $4 million in illegal campaign contributions from the Tokyo Sagawa Kyubin Co., a trucking firm with links to gangsters.

Kanemaru was scheduled to be questioned further today by investigators.

Kanemaru resigned in October and was fined only $1,600 at the time, which set off a torrent of public criticism that the prosecutor’s office was shirking its duty by kowtowing to the kingpin’s widespread influence.