Ministry 'aided' Daiwa cover-up

Suspicions grow of Japanese collusion over delaying reports of bank's losses

Despite repeated denials of responsibility, suspicions are growing that senior officials of Japan's Ministry of Finance colluded in a seven- week cover-up of $1bn (pounds 600m) in trading losses at the Daiwa Bank.

The chief of the ministry's banking bureau, Yoshimasa Nishimura, yesterday refused to comment on claims by a former Daiwa executive that he tacitly encouraged the bank to delay reporting the losses, incurred over 11 years by a rogue trader, Toshihide Iguchi, at its New York branch.

Hiroyuki Yamaji, a former managing director of Daiwa, who resigned along with fellow executives earlier this month, told the Asahi newspaper that the bank deliberately failed to notify the US regulatory authorities after discovering the losses in July, and that it was supported in this by Mr Nishimura. Mr Yamaji's revelations suggest that Daiwa is no longer prepared to bear the full brunt of responsibility for the notorious delay, which, even more than the initial losses themselves, is seriously threatening the reputations of both the bank and the ministry. Government officials have repeatedly put the blame on Daiwa, saying that the mandatory requirement to inform the US regulators of illegal losses rests with banks, not governments.

At times, however, their rationalisations have appeared, at best, naive. In an earlier news conference, Mr Nishimura went so far as to cite "cultural differences" for his failure to probe the former Daiwa president, Akira Fujita, who resigned a fortnight ago. "In Japan, it is not our custom to ask one of such status as the president of a bank to show to others a private letter," he told reporters, referring to the letter of confession received from Mr Iguchi. "When a bank is given a licence to conduct business, then managers of the bank should act with good faith, honesty and trustworthiness." He also cited the small number of Japanese banking inspectors - 400 - as opposed to 8,000 in the United States.

Daiwa executives knew the extent of the disaster by the beginning of August, but allowed Mr Iguchi to continue trading to allow time to write off the losses, according to Mr Yamaji. There were also fears that Mr Iguchi might flee, or even commit suicide, before the affair had been fully investigated by the bank. "We wanted to prevent information from leaking, and we were worried about what would happen if Iguchi ran away," he said. "Yes, I was aware that this trading was not proper, but I figured that it would all be cleared up in the September accounts."

On 8 August senior executives of Daiwa visited the finance ministry's banking bureau and told Mr Nishimura about a 30-page confession from Mr Iguchi. According to Mr Yamaji, the banking bureau chief told them: "As far as timing goes, it would be bad if this gets out." They were left with the strong impression that Mr Nishimura favoured delaying any announcement of the losses, which were not notified to the US Federal Reserve until 18 September.

Regarding a separate cover-up of a $97bn loss by Daiwa's New York trust operation, he admitted that he and his colleagues knew they were acting illegally but "couldn't muster the courage" to speak out.