Yakuza Bosses Whacked by Regulators Freezing AmEx Cards

Yakuza Bosses Whacked by Regulators Freezing AmEx Cards

By Terje Langeland & Takahiko Hyuga on 9:37 am October 27, 2013.
Tokyo. The yakuza, Japan’s organized-crime syndicates that have reaped billions from activities ranging from extortion to human trafficking, are finding their ranks decimated by authorities employing methods similar to those used to jail Al Capone: going after their money. Japan’s Financial Services Agency delivered the latest blow, last month ordering Mizuho Financial Group to improve compliance and then demanding that top executives report by Oct. 28 what they knew and when about a consumer-credit affiliate found making loans to crime groups.

The regulator’s slap adds to pressure from yakuza-exclusion ordinances enacted nationwide in 2011 making it illegal to do business with gang members, as well as a US executive order that year requiring financial institutions to freeze yakuza assets. The US Treasury Department so far has frozen about $55,000 of yakuza holdings including two Japan-issued American Express cards, according to documents obtained by Bloomberg News under the Freedom of Information Act.

“Pressure on the yakuza has definitely intensified,” said Hideaki Aihara, general manager of the National Center for the Elimination of Yakuza and a former superintendent at the Tokyo Metropolitan Police Department. “There’s no doubt they’re having trouble doing business.”

The impact on yakuza ranks is showing: Membership plunged 11 percent to 70,300 in 2011 and fell another 10 percent to 63,200 last year, following annual declines of about 3 percent or less since 2004, when rosters reached the decade’s high of 87,000, according to Japan’s National Police Agency data.

Jail time

While the gangs themselves aren’t illegal in Japan, violating the exclusion ordinances – which also require customers seeking financial and other services to attest to non-association with a criminal enterprise – could come with a fine of 500,000 yen ($5,100) or a year in jail. Police investigated 164 possible violators since the laws went into effect, arresting nine people to face potential prosecution and issuing warnings to the remainder, the data show.

Police also arrested more than 24,000 yakuza members last year, including 23 bosses of the largest organization, the Yamaguchi-gumi, for crimes such as extortion, drug violations, gambling, theft and fraud, according to the agency’s website.

The yakuza have diversified their business interests in recent years into finance, construction and waste disposal, according to a police report.

“Banks are scrutinizing their borrowers to check whether they have any relations with the yakuza, to avoid any penalties from the FSA,” Aihara said, referring to the banking regulator. “It’s tremendously meaningful.”

Greater vigilance

Alarmed by yakuza involvement in securities trading, the Japan Securities Dealers Association in 2010 began requiring members to take steps to exclude the gangs from the industry.

The move into finance and other legitimate businesses helped prompt greater vigilance by the US, said Adam Szubin, director of the US Treasury’s Office of Foreign Assets Control. The agency, known as OFAC, is leading the effort to freeze assets that’s netted about $55,000 so far.

“It’s a pin prick in terms of the impact that we’re expecting to deliver,” Szubin said in a phone interview from Washington in August.

Targeting gang members alone won’t result in large seizures as “there aren’t just large sitting accounts out there with the name” on them, so the US Treasury is working to blacklist companies and individuals that hold, move or launder funds for the syndicates, he said.

“No bank is eager to have its name splashed across the front page of a newspaper as being the banker of choice for the yakuza or for a narcotics cartel,” Szubin said.

‘Massive impact’

Any company or individual found to be doing business on a continuing basis with the yakuza is “going to lose its customer base, its insurance, its bank accounts, its reputation,” Szubin said. “The same is true with individuals who are trying to keep one foot in the legitimate world and one foot in the illicit world. Exposing them and subjecting them to sanctions has a massive impact.”

The Yamaguchi-gumi is estimated to generate “billions of dollars annually” from drug and human trafficking, extortion, prostitution, fraud and money laundering, the US Treasury said when it blacklisted the group in February 2012. The yakuza are also “heavily involved in white-collar crime, often using front companies to hide illicit proceeds within legitimate industries, including construction, real estate and finance,” according to a July 2011 Treasury statement.

The US Treasury and Japanese police both declined to provide estimates of yakuza assets in response to questions.

Closing accounts

As soon as the yakuza were added to the US Treasury blacklist, most gang members who had accounts at US-affiliated financial institutions closed them, said Jake Adelstein, a writer and researcher who specializes in the yakuza and lives in Tokyo under police protection, citing contacts within the crime groups.

“I didn’t expect anything to be found,” said Adelstein, who expressed surprise at the results of the US Treasury actions. “They’re off to a great start.”

Tightening of laws and stepped-up US prosecutions caused recruitment trouble for La Cosa Nostra, the biggest crime syndicate in the US from the Prohibition era through the 1990s, causing some crime families to disappear and others to see their numbers drop to as little as 10 percent of their 1970s size, according to a report in 2000 from the research arm of the US Justice Department.

Tax evasion

Japanese authorities have occasionally used tax-evasion prosecutions to target yakuza members since the 1970s, according to the book “Yakuza: Japan’s Criminal Underworld.” Chicago crime boss Capone was convicted in 1931 of tax evasion after US Bureau of Internal Revenue agents determined that he never held a bank account in his name, according to a 1931 memo released by the renamed Internal Revenue Service in 2008.

The US executive order requiring financial institutions to freeze the assets of organized-crime groups and members is only enforceable for assets in the US or which are owned or controlled by American individuals, companies and their overseas branches.

The blacklist includes Japan’s three largest gangs – Yamaguchi-gumi, Sumiyoshi-kai and Inagawa-kai – accounting for 72 percent of yakuza membership, and their top leaders, according to the US Treasury. The list also includes Mexico’s Los Zetas drug cartel, the Latin-American gang MS-13, Italy’s Camorra mafia, and the Brothers’ Circle, operating in the former Soviet bloc and the Middle East.

Japanese freeze

Netted by the US freeze were Kiyoshi Takayama, 66, second-in-command of the Yamaguchi-gumi, and Kazuo Uchibori, identified by the US Treasury as deputy head of the third-largest yakuza gang, the documents obtained by Bloomberg News show. In March last year, Takayama had his AmEx card, issued by the Japan branch of New York-based American Express International, canceled.

That month, Tokyo-based Fuji Fire & Marine Insurance canceled Takayama’s two insurance policies and blocked his incoming premium payment of $1,139, according to the documents. The insurer must comply with the executive order because it’s a unit of New York-based American International Group.

Also frozen were Takayama’s $11,276 worth of shares in Gen-Probe, a medical-diagnostics company started in San Diego, California, and formerly a unit of Tokyo-based Chugai Pharmaceutical that traded on the Nasdaq OMX Group exchange before being acquired in August 2012 by Hologic. Marianne McMorrow, a spokeswoman for Hologic, based in Bedford, Massachusetts, declined to answer questions about Takayama’s shareholding in an e-mail.

Court conviction

In March this year, Takayama was convicted by a Kyoto court of extortion and sentenced to six years in prison, according to a court spokeswoman who asked not to be identified, citing policy.

Uchibori, who is 60 or 61 years old, also had his AmEx card canceled, and American Express froze $42,575 associated with his account, including a bill payment of $41,702, the documents show.

The funds are being held in an account at American Express, and the company is awaiting a US government decision on whether it can keep the money, according to a person familiar with the matter who asked not to be identified because he or she isn’t authorized to speak publicly about it.

Marina Norville, a spokeswoman for American Express, declined to discuss specific clients, citing customer-privacy agreements.

Regularly monitoring

“Like all financial institutions, American Express is required to regularly monitor Treasury’s OFAC list and follow normal procedures for freezing customer funds and notifying the government if a card member appears on the list,” she said.

A man answering the phone at Yamaguchi-gumi’s office in Tokyo declined to comment or give his name and said Takayama wouldn’t agree to an interview. A man at the Inagawa-kai headquarters in Tokyo also declined to comment by phone, give his name or make Uchibori available to respond.

Masako Shiono, a spokeswoman for Mizuho Financial, said the company is aware of the US effort to freeze yakuza assets and “is supporting it appropriately.”

The Financial Services Agency last month ordered Mizuho Bank to improve compliance after it let members of crime groups borrow 200 million yen, mostly for car loans, through the bank’s consumer-credit affiliate, Orient, in which Mizuho owns a stake.

Mizuho said on Oct. 8 it had set up a business-improvement committee and appointed an external panel of experts. Mizuho Bank president Yasuhiro Sato on the same day said that he was only made aware of the loans this year due to FSA action. Sato said he was in a position to have found out about the loans in executive meetings as early as July 2011, when reports mentioning the transactions were distributed.

No affiliation

Orient gradually started requiring borrowers to sign documents certifying they have no affiliation with criminal gangs in order to qualify for loans in March 2011, said Daisuke Muraoka, a spokesman at Orient. The company said in a statement on its website on Oct. 16 that it’s cooperating with police investigating at least 37 borrowers who fraudulently misrepresented themselves in signing loan agreements.

The FSA in 2007 had cited Mitsubishi UFJ Financial Group’s banking unit, the nation’s largest lender, for doing business with a criminal enterprise. A subsequent company statement to the Tokyo Stock Exchange pledged to take the penalty seriously and make efforts to restore confidence and ensure compliance.

Doing enough

The US Treasury’s moves followed criticism that Japan wasn’t doing enough to fight cross-border organized crime. A US State Department report in March 2011, four months before President Barack Obama issued the executive order, called cooperation by Japanese police “minimal.” This year’s report said Japan’s compliance with international standards to prevent money laundering is “notably deficient” and said the National Police Agency provides “limited cooperation” to foreign governments.

Szubin said the Office of Foreign Assets Control is working with Japanese authorities. The National Police Agency has been increasing its focus on the yakuza and is taking “some very meaningful steps,” such as sharing more information with local financial institutions, he said.

“We have extensive communications with the Japanese government,” Szubin said. “We are definitely working on shared objectives, toward shared ends.”

Japan’s National Police Agency, in a faxed response to questions, said it works with overseas law enforcement agencies and groups such as the International Criminal Police Organization, or Interpol, and the Financial Action Task Force, a Paris-based group formulating policy against money laundering.

Underground channels

The agency “is in the middle of efforts to cooperate with overseas investigative authorities to tackle international organized crime,” according to the response.

Gangsters are adept at moving funds through underground channels to avoid financial institutions, said Randal Wolverton, a forensic accountant in Kansas City, Missouri.

“The bad guys are ahead of the game when it comes to the underground,” Wolverton, who spent 27 years at the US Federal Bureau of Investigation and served as a financial-crimes section supervisor, said in a phone interview. “You’re dealing with very sophisticated criminals.”

Adelstein said the US and Japanese efforts nonetheless seem to be making an impact.

“It’s becoming inconvenient to be a yakuza,” he said.

Bloomberg

The yakuza, Japan’s organized-crime syndicates that have reaped billions from activities ranging from extortion to human trafficking, are finding their ranks decimated by authorities employing methods similar to those used to jail Al Capone: going after their money.

Japan’s Financial Services Agency delivered the latest blow, last month ordering Mizuho Financial Group Inc. to improve compliance and then demanding that top executives report by Oct. 28 what they knew and when about a consumer-credit affiliate found making loans to crime groups.

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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