Japan's Crime Incorporated: The years of the bubble economy lured Japan's yakuza gangs to muscle into big business. Terry McCarthy in Tokyo explores their corporate web

ONE OF THE most shocking revelations to emerge from the most recent political scandal in Japan, surrounding the Sagawa trucking company, was that a yakuza, or gangster syndicate, had played a significant role in the appointment of Noboru Takeshita to the post of prime minister in 1987.

Unable to silence a harassment campaign by a far-right group against Mr Takeshita, his aides turned to the Inagawa-kai, Tokyo's largest yakuza gang. Harassment stopped almost overnight. An offer had been made that could not be refused.

What Mr Takeshita was expected to give in return remains a matter of speculation.

Yakuza gangs have a colourful image. Unlike criminal organisations in other parts of the world - the Mafia, the Chinese triads or the smaller syndicates in European countries - they do not cloak themselves in secrecy.

It is not illegal just to belong to a yakuza gang, and in fact most members maintain offices with the gang's nameplate outside and put the gang's name on personal calling-cards. Not infrequently they give interviews to journalists, and sometimes hold press conferences to air grievances.

The yakuza gangs' immense power extends to the top of the political and corporate spheres. Yakuza weddings and funerals are regularly attended by top executives and elected politicians. There is an unbroken line of communication between conservative members of the ruling Liberal Democratic Party and extreme right-wing and nationalist groups that are linked with the anti-Communist yakuza syndicates. Many of these shady connections can be traced back to Japan's military expansion in the 1930s.

Yakuza gangs can be totally ruthless. They have access to guns in a society largely free of firearms, and they are accountable only to their bosses, or oyabun.

The Japanese police keep a close track on yakuza activities - police files indicate there are 88,000 gangsters belonging to 3,200 gangs. Until recently the police had left the yakuza organisations more or less alone, except when their operations threatened ordinary people. In fact, the gangs performed a welcome function in Japanese society, in which a host of informal checks and balances serve to keep everyone in their place. Traditionally, their province was prostitution and gambling. Although both activities are illegal, the police recognised they were impossible to stamp out, and were satisfied to have yakuza members keep the peace in this potentially violent and lawless area.

And although yakuza gangs peddled soft drugs, particularly amphetamines, they had an unspoken agreement with the police that they would use their influence on the streets to keep harder drugs, particularly heroin, out of Japan. Only when rival gangs engaged in shoot-outs on the streets, putting pedestrians at risk from stray bullets, did the police feel the need to step in and make arrests.

Even today, a walk through Tokyo's largest red-light district, in Shinjuku, will show yakuza groups at their old work. Young men with short haircuts and black suits lounge around street corners, pimping, soliciting and generally overseeing the off-loading of millions of pounds of salarymen's money into the shady world of bars, massage parlours and a variety of other 'pink' salons (pink, not red, being the colour associated with illicit sex in Japan). These young hoods frequently have characteristic tattoos covering them from ankles and wrists to their necks, and some will be missing a little finger, cut off in traditional atonement for failing in some duty.

But this unofficial policing / profiteering role in the seamier side of Japanese nightlife, once the mainstay of income for the gangsters, has now become little more than pin money for the biggest syndicates.

As the Japanese economy grew more powerful, the gangs began to look for ways to increase revenue. Increasingly they spread their tentacles into legitimate business. All the time they profited from their main advantage - an ability to control people, particularly those from the lower reaches of society with nowhere else to turn, or compromised by heavy debts.

During the 1960s and 1970s, they made inroads into the building industry, with its fluid workforce. They tapped into distribution and transport networks. Long-distance lorry drivers, after many hours on the road, would often find themselves in yakuza-controlled brothels in lonely towns far from home.

The gangs became loan sharks, forcing repayment with intimidation and sometimes violence. And using their contacts in the building industry, they dabbled in the property business, again using muscle, or the threat of it, to evict reluctant property owners to make way for valuable development projects.

However, their involvement in Japan's economy remained small-time stuff. The big leap came in the mid-1980s, as a government decision to ease the money supply and allow easy credit generated one of the most rapid economic expansions ever seen in the modern world.

Fabulous riches were created during the years of the 'bubble economy'. Stock and property prices rocketed, banks and credit institutions were lending money like water, and suddenly the world became a supermarket for Japanese buyers, who picked up office buildings in New York, golf courses in California, hotels in Hawaii and Impressionist paintings in Sotheby's, seemingly at whim. From the beginning of 1985 until the end of 1989, when the Tokyo stock market reached its peak, the value of shares on the first section of the exchange increased by 435,000bn yen ( pounds 2,250bn) - more than four times Britain's GNP for 1989.

It was during this boom that the larger and more sophisticated yakuza syndicates launched themselves into mainstream business - stock and property markets, hotel and golf course developments. Early in 1985, Susumu Ishii, the head of Inagawa-kai, Japan's second largest yakuza group, established the gang's 'business activities bureau', to report directly to him and oversee the thrust into legitimate business.

Ishii set up the Hokusho Sangyo Co as his first shell company for dealing in property. Within a few years he was a multi-millionaire, with Picassos and Chagalls on the walls of his house, a private helicopter and a country club, and close links with at least two of Japan's big four securities companies. Many other yakuza gangs followed Ishii's example, and the police realised the era of the friendly hood was over.

'Mobster organisations today are not only posing a threat to the public safety through gang disputes - they are also having a major impact on the country's economic system itself, through active fund-raising activities involving the general public and companies,' said Ryoichi Suzuki, the director-general of the National Police Agency (NPA), in a speech to police chiefs last year after the exposure of a big yakuza scandal involving the stock market.

The era of the keizai yakuza (economic yakuza) had arrived.

In March last year, an anti-gang law was passed, giving the police increased powers to crack down on yakuza groups. Once a gang has been officially designated as a 'violent organisation', either because of proven illegal activities such as extortion, or because there are convicted criminals in its ranks, the police have far greater discretionary power to search offices and question individuals. The aim is to stop the more explicit racketeering and intimidatory tactics of the economic yakuza organisations, and force them back to the fringes of society. But critics of the new law fear it will simply drive yakuza members underground, where they will safely continue to operate with the funds they have amassed.

Others say the new law has come several years too late, as the yakuza syndicates were given plenty of time to diversify their business in the bubble years. In fact, it was only after the bubble burst, and a long string of financial scandals began to emerge, frequently with yakuza connections, that the police began to realise the scale of the problem on their hands.

The National Police Agency publicly estimates that the income of all yakuza groups in Japan in 1989 was 1,300bn yen. But the real figure is thought to be between three and 10 times that amount, depending on whom one talks to.

Seiji Iishiba, a former member of Tokyo's Metropolitan Police with extensive experience of the yakuza, says that until the police have powers to confiscate assets, they will not make any progress against the economic yakuza groups. 'People tend to focus too much on who gets arrested and how many years in prison he gets. At the end of the day, it is all the same if they get away with huge sums of money.'

One of the most spectacular scandals, involving huge speculation in property and valuable paintings, showed the extent of yakuza penetration of the board of directors of a formerly highly respected trading company - Itoman, founded in 1883 and apparently secure with the backing of its main bank, Sumitomo. When the Itoman scandal broke in September 1990, its ramifications shook the business world.

Itoman's origins were in textile trading, and it had built up a sophisticated network of offices and customers in Asia and throughout the world. It fell on hard times in the 1970s, and was eventually bailed out by the Sumitomo Bank. Having returned to profitability by the 1980s, Itoman was asked to return the favour to Sumitomo in 1988, by helping an ailing property development company which had large debts to the bank. It was then that the yakuza involvement began.

With little experience of property dealing, Itoman, for as yet undisclosed reasons, turned to Suemitsu Ito to run the new property division. Ito was a front-man for a well-known Korean businessman in Osaka, Ho Yong Chung, who had extensive yakuza connections. Ho bought 19 per cent of Itoman's shares, and Ito was given a seat on the main board of the company. At the same time he was milking Itoman, through its new property arm, for hundreds of billions of yen.

According to public prosecutors, who were called in to investigate Itoman's dealings when its debts became conspicuously high, Ito was buying property and paintings from Ho at apparently vastly inflated prices, using Itoman's money. Itoman took on huge debt, amounting to 1,400bn yen as a result of these purchases, and it was only because of its close link with Sumitomo, one of Japan's biggest commercial banks, that the whistle was not blown sooner.

Finally the Ministry of Finance intervened in September 1990, and after a long investigation Ito and Ho were arrested, while the chairman of Sumitomo, Ichiro Isoda, was forced to resign in disgrace. Apart from the huge sums of money apparently thrown around so recklessly, the most shocking aspect of the case was the apparent ease with which a man who was known to have yakusa links was able to get a seat on the board of a reputable mainstream Japanese company - and then, almost single-handedly, to run it into the ground.

Court proceedings are still going on, but last month it was announced that Itoman, after more than 100 years in business, is to disappear, and its debts are to be absorbed by one of the Sumitomo group companies.

The crunch point for Itoman, in retrospect, came when Ho bought up 19 per cent of its shares, giving him considerable influence in the running of the company. The yakuza organisations, flush with funds, have used similar tactics with a number of other companies, sometimes to take over the business entirely, more often to make a quick profit. Kurabo Industries, for example, a textile company listed on the Tokyo stock exchange, discovered in November 1990 that 15 million of its shares - 5.5 per cent of its stock - had been taken over by a shell company acting as a front for a yakuza syndicate. Three months later Kurabo was forced to buy back its own shares, giving the gangsters a pounds 25m profit on a single transaction.

Janome Sewing Machine Co, the country's second-largest sewing-machine maker, which, like Kurabo, is listed on the main section of the Tokyo stock exchange, fell victim to a similar manoeuvre. In 1987 a group of speculators with yakuza connections acquired 20 per cent of the company's stock. One of their representatives was given a seat on the board, and then reportedly suggested the company buy back the shares. Gangsters were allegedly sent to the home of Janome's president to concentrate his mind.

According to a survey of 2,106 companies last year by Tokyo's Metropolitan Police Department, 41 per cent had been approached and threatened in some way by the yakuza. And contrary to expectations, the bigger the company, the more attractive it becomes to the gangsters. Around 70 per cent of companies in the survey with annual sales above 1,000bn yen said they had been approached. Of those that came under yakuza pressure, 30 per cent admitted they had given in and paid the gangsters to avoid more trouble.

Another yakuza racketeering tactic is the activity of the sokaiya groups that specialise in manipulating shareholders' meetings. Typically the sokaiya gangs will prevent legitimate shareholders asking questions that could embarrass the company's directors, either by direct intimidation or by shouting down the questioner from the floor. In return, the company gives them large pay-offs.

The sokaiya tactics were outlawed in 1982, but last October three senior executives of Ito-Yokado, Japan's most profitable retailing company, which runs the 7-Eleven convenience store chain, were arrested for paying 27m yen to three sokaiya gangsters for keeping last year's shareholders' meeting quiet.

Police say sokaiya gangs were also evident in the shareholders' meetings of securities companies last year, most of which made substantial losses and have a large number of clients who feel they were deceived into buying stocks under the impression prices would not fall. But with the sokaiya presence, no serious questions were put to the directors.

The biggest scandal so far involving the yakuza gangs and the securities companies broke in the summer of 1991. It concerned the railway and property developer Tokyu Corporation, and Susumu Ishii, uncrowned king of Japan's keizai yakuza.

Ishii's Inagawa-kai in Tokyo was the second-largest yakuza syndicate after the Yamaguchi-gumi, which is based in Kobe in central Japan. In 1985 Ishii set up a property development company, and by 1987 he was buying heavily into blue-chip Japanese companies - NTT, Nippon Steel and Mitsui Metals. But Tokyu was his most ambitious venture. In March 1989 the strong and politically well- connected chairman of Tokyu, Noboru Goto, died, leaving the company vulnerable to speculators or even a takeover bid.

Between April and October, Ishii bought up 27 million Tokyu shares, many of which were paid for with loans from Nomura and Nikko Securities, two of Japan's big four securities companies. Ishii bought the shares at prices between Y1,700 and Y2,000. Then, in October, Nomura started strongly pushing Tokyu shares to its other investors, and within a month the share price had rocketed to more than Y3,000. On paper, Ishii had made a profit of pounds 175m on his Tokyu shares. At the same time, Nomura and Nikko bought golf club memberships from Ishii for pounds 10m each - although it turned out that the club was a public course.

What Ishii was aiming at - an outright takeover of Tokyu or a quick profit on his capital gains - will probably never be known, because he suddenly fell ill, and died in September last year. But the Ministry of Finance started an investigation to see whether Nomura and Nikko had conspired to manipulate Tokyu's share price. Both companies deny the charge, and also claim they did not know Ishii was a gangster when they were dealing with him. But as a result of the scandal, the chairmen of the two securities companies were forced to resign.

Lawyers have pointed out that it is only because Ishii is dead that so much information has emerged about his involvement with Tokyu, as well as his role in helping Noboru Takeshita become prime minister in 1987, as part of the ongoing Sagawa scandal. 'If he were alive today, he would have kept people's mouths shut,' one said. And they say that for every scandal that appears revealing yakuza involvement in mainstream business, many more remain hidden in the general confusion of the unravelling of bubble mania.

The Sagawa scandal, which continues to paralyse Japan's parliament, has indicated just how far yakuza connections may go, in business and in politics. Top executives of Sagawa Kyubin, a truck delivery company, had been acting as intermediaries between yakuza organisations and Japanese cabinet members, according to the testimony of Hiroyasu Watanabe, the former head of Sagawa's Tokyo office. Watanabe is under arrest on charges of aggravated breach of trust.

The advance of the economic yakuza has been slowed by the turndown in the Japanese economy. But there are no signs that the big syndicates are breaking up, and already police forces in other countries, particularly the US and Australia, are concerned about attempts by yakuza gangs to penetrate legitimate businesses in their countries.

The FBI had long known that yakuza members were operating in Hawaii, a favourite destination for Japanese tourists. Mostly they ran prostitution and gambling rackets for visiting Japanese. But just as ordinary Japanese companies began to expand rapidly in the US with the cheap money of the late 1980s, so too the yakuza syndicates began to diversify - into property speculation, money laundering and stock market investments. At least one purchase of a Las Vegas casino by a Japanese investor has been linked to the yakuza.

'The United States is now a prime investment site for boryokudan (yakuza) capital,' said Robert Mueller, Assistant Attorney- General, in testimony before the US Senate last year. Australia and a number of Pacific islands are also aware of attempts by yakuza gangs to buy up property and casinos.

Most embarrassing of all was the revelation that the brother of the outgoing US President, George Bush, had apparently acted unwittingly as a guarantor and consultant for a yakuza-controlled firm when it bought out a financial services company in New York in 1989. The target company was Asset Management International Financing and Settlement, and the Japanese buyer was none other than Hokusho Sangyo - the shell company set up by Susumu Ishii in 1985. Prescott Bush was apparently unaware of the Japanese company's yakuza links at the time, and quickly distanced himself from the deal when the details came out.

In many ways, the emergence of the economic yakuza groups has followed the pattern of increasing sophistication of organised crime syndicates around the world. What makes the yakuza gangs different, though, is their apparent access to public officials in the highest places in Japan, the relatively weak legal tools to cope with them, and the sheer weight of money they were able to build up during the bubble-economy years.

How powerful they have become will probably only be revealed when Japan's economy resumes its upward path.-

(Photographs omitted)