On Thursday, Japan’s FSA ordered Mizuho Bank to suspend some of its lending business with consumer credit companies, following a scandal involving organized crime syndicates.
Later reports also reveal chairman of Mizuho Financial Group Inc. (NYSE:MFG) (TYO:8411) Takashi Tsukamoto resigned following the regulator’s penalty.
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$2 million transactions with criminal groups
One of Japan’s three biggest banks, Mizuho Bank had processed hundreds of transactions worth about 200 million yen ($2 million) for ‘anti-social forces’, a common term for Japan’s yakuza mobsters.
The scandal has made headlines for weeks, and reportedly sparked a police investigation into Mizuho Inc.’s ties with organized crime. Authorities have long battled to keep gangsters from infiltrating Japan’s corporate sector amid fears about mob involvement in stock trading and the real estate sector, among other legitimate activities.
Like the Italian mafia or Chinese triads, the yakuza engage in activities ranging from gambling, drugs, and prostitution to loan sharking, protection rackets, white-collar crime and business conducted through front companies.
FSA’s order for suspension
On Thrusday, Japan’s Financial Services Authority ordered Mizuho to suspend the bank loan business with its consumer credit affiliates from Jan. 20 through Feb. 19. It also ordered the bank and its parent Mizuho Financial Group Inc. (NYSE:MFG) (TYO:8411) to submit a business improvement plan by Jan. 17.
The regulator’s move came three months after the FSA ordered Mizuho in September to submit a plan to improve its operations for failing to cut off the loans to alleged criminal groups. The FSA had been conducting an additional probe into Mizuho Bank and Mizuho Financial Group Inc. (NYSE:MFG) (TYO:8411) since November 5, after the Tokyo lender admitted in October it gave the regulator a false explanation.
During October, the company submitted its own report to regulators and said 54 former and current executives would be punished, including Mizuho Bank chairman Takashi Tsukamoto. A panel of lawyers hired by Mizuho to probe the transactions said that “many officials and board members were aware of, or were in a position to be aware of the issue. However, they failed to recognize it as a problem, believing that the compliance division….was taking care of it.”
The FSA today issued business improvement orders to the parent company and the lending unit after the bank wrongly reported to the FSA during an investigation that only lower-level officials were aware of the loans.
Atsuko Fukase of The Wall Street Journal points out today’s business suspension is Mizuho’s sixth since becoming Japan’s third-largest lender by market capitalization out of a three-way merger of Dai-Ichi Kangyo, Fuji Bank and Industrial Bank of Japan in 2002.