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Japan faces fresh scandal
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March 11, 1997: 10:58 p.m. ET
Corporate Japan finds cutting racketeer ties tough
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TOKYO (CNNfn) - For the second time in less than a week, a case of suspected payoffs to "sokaiya" racketeers shows yet again how tough it appears to be for corporate Japan to cut the ties that bind it to organized crime.
Food-seasonings company Ajinomoto said Tuesday that two of its senior officials had been arrested on suspicion of paying tens of thousands of dollars in company funds to sokaiya.
The new scandal follows revelations last week that managing directors of Nomura Securities made improper payments to the relative of a sokaiya.
And last year, four former executives of Takashimaya department store admitted to paying more than $1 million to sokaiya in two years.
Sokaiya typically try to extort money from firms by threatening to expose dubious business practices or to make a disturbance at yearly shareholders' meetings.
Companies also have reportedly hired sokaiya to muzzle legitimate shareholder questions at the annual meetings.
In paying off the sokaiya, Japanese executives want to "avoid any form of confrontation [and] make it look as if everything is going all right and [there is] no problem at all," said Toshiko Binder, senior analyst at HSBC James Capel.
Fear of sokaiya brings out the police every June, when many big Japanese companies hold their meetings on the same few days day to foil the racketeers.
The payoffs have persisted despite pleas from business groups and police for companies to stop dealings with the gangsters.
Some experts also said the ability of sokaiya to prey on management reflected a corporate stance that places little emphasis on providing information to shareholders, who are often indifferent anyway.
"At most Western shareholders' meetings, shareholders ask serious questions, and management tries to answer seriously," a Japanese executive told Reuters. "But in Japan, the shareholders' meeting is just a ceremony, and the sokaiya are able to take advantage of that."
As Japan lurches toward more deregulated financial markets, the system is uncomfortably unwinding the cozy ties that once kept many misdeeds behind closed doors.
"It is general consensus [that corporate blackmail] is probably occurring more in Japan than it does in most of the other G-7 countries," said James Fiorillo, senior analyst at ING Baring Securities. "There is going to be a lot more discussion, concern [and] focus on some the less ethical trading practices."
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