Japan Payoff Scandal Grows

A widening scandal over company payoffs to racketeers engulfed more of Japan’s best-known corporations on Thursday as authorities pressed a crackdown on extortion by gangsters threatening to humiliate or physically attack business executives.

Toshiba Corp.--the latest firm caught in a scandal that has seen arrests spread from Japan’s four biggest brokerages to a major bank and several top manufacturers--admitted Thursday to making payments to a firm that police say was a racketeering front.

Making payments to racketeers is illegal in Japan, even if the money is extorted by threats of disruption or violence.

At Mitsubishi Motors Corp., President Takemune Kimura said Thursday that he and Chairman Hirokazu Nakamura will resign over the scandal. Last week, four Mitsubishi Motors executives were arrested on suspicion of having made payoffs to the same extortionist front.

Police say they have evidence that at least 13 other companies also gave the racketeer-linked firm money disguised as payments for use of a suburban Tokyo beach house. Few employees of the companies paying for the facility ever used it, police say.

Against this background, Prime Minister Ryutaro Hashimoto is personally determined to press forward with the crackdown on corporate racketeers as part of his overall reform program, said Kaoru Yosano, 59, a senior figure in Hashimoto’s Liberal Democratic Party.

The ruling party and the Justice Ministry are pushing for a new set of anti-gangster and anti-racketeering laws that would include tougher penalties and allow wiretapping of suspected mob figures, Yosano noted. Wiretapping, an important tool in fighting organized crime in many countries, is banned in Japan.

The firm owning the beach house involved in the latest set of investigations and arrests is linked to Teiji Nakamoto, 53, who along with Kaoru Hamada, 40, was arrested last week on suspicion of extorting $196,000 from Mitsubishi Motors.

Among the firms on the police list of those allegedly making payoffs to Nakamoto, according to Japanese media reports, are many that would qualify for a corporate Who’s Who of Japan.

Besides Mitsubishi Motors and Toshiba, the list includes Asahi Bank Ltd., Hitachi Ltd., Mitsubishi Electric Co. and Mitsubishi Estate Co. Most of the firms whose names have emerged publicly have admitted making payments but have not confirmed whether the payments were illegal. Some companies say they are still investigating whether such payments were made.

Corporate racketeers, known as sokaiya, have a history of about 100 years in Japan. Their current practice is to threaten to disrupt shareholder meetings with embarrassing revelations or to commit physical violence against corporate executives. Companies routinely pay them off.

In many cases, even prestigious firms establish ongoing friendly relationships with what is called a “ruling party” sokaiya that is responsible for protecting the firm from “opposition party” sokaiya.

The same racketeering organization may play the “ruling party” role for some firms and the “opposition party” role against other companies, said Seiichi Takahashi, an attorney with expertise on organized-crime issues.

One effect of the system, and that helps account for its longevity, is that shareholders’ meetings in Japan are usually extremely short, with even legitimate shareholders having no opportunity to ask probing questions of management.

“This is a cultural thing,” Takahashi said. “In Japan, it is such a big deal to be embarrassed in public. Top corporate management is really afraid of being embarrassed.”

The current uproar over sokaiya broke earlier this year with a string of financial world arrests linked to alleged racketeer Ryuichi Koike, who is now imprisoned.

The number of executives of Japan’s “Big Four” brokerages arrested in that case rose to 20 on Thursday with the arrest of two former vice presidents and a managing director of Nikko Securities Co. Four executives of Daiwa Securities Co. were arrested on Tuesday.

Few in Japan seem surprised by the prevalence of ties between top firms and racketeers.

“I am amazed because all these well-established companies like Dai-Ichi Kangyo Bank and Mitsubishi Motors are getting caught, but I’m not surprised at what they’ve done,” said Miho Suzuki, 30, a jewelry shop clerk.

Etsuko Kawase of The Times’ Tokyo bureau contributed to this report.