It was perhaps the biggest financial story of postwar Japan — or it should have been.Yamaichi Securities, one of the nation’s four top brokerages, which was among the world’s six largest in the 1980s, had in 1992 started to illegally bury millions of dollars in red ink off the books, setting up dummy foreign companies to absorb the losses. For good measure, its bosses were paying off sōkaiya (corporate extortionists) to stop them blowing the whistle on this practice.
In 1994, though, after weeks of old-fashioned digging and trawling through financial statements, journalist Shigeo Abe had the scoop of a lifetime — he and a team of reporters uncovered the entire mess.
But instead of running the story with banner headlines, Abe says his bosses at the Nikkei newspaper spiked it, sent him out of the country and allowed Yamaichi to stagger on for another three years.
Yamaichi would eventually collapse in 1997, leaving creditors and taxpayers saddled with more than ¥300 billion in debt. Live on television, President Shohei Nozawa famously made a tearful apology to the nation for the company’s losses. There was no mea culpa from the Nikkei.
“If we had published the story, the result for Yamaichi shareholders and people connected with the company might have been very different,” says Abe today, a quietly spoken, casually dressed 63-year-old. He recalls his bewilderment, then anger, as he watched his painstakingly built story buried by a single phone call.
“The story was ready to go when it was stopped. The Yamaichi president had called the Nikkei president and pressured him to not run it. He said: ‘If we go bankrupt it will cause chaos in the economy.’ And that was that.”
A few months later, Abe was sent to the Nikkei’s office in London, a kind of five-star exile, he believes, likening it to shimanagashi, the feudal practice of sending political troublemakers away to live on remote islands. During his three years abroad, he pondered his chosen profession.
“There are no real scoops in Japanese newspapers,” he says. “They are almost always authorized leaks. I wondered about whether I wanted to work for a company that only reported problems that didn’t damage its business.”
When he returned to Tokyo in 1997, the 25-year veteran quit and began working for the weekly press, eventually founding the monthly investigative magazine Facta, which last year out-scooped Japan’s richest media to reveal the Olympus Corp. scandal.
The Olympus story must have felt like history repeating itself. Again, an elite company was involved in the same illegal practice of burying losses, known in Japan as tobashi.
And again the Nikkei, Japan’s leading business daily, initially declined to report it — even after Facta published it in July, along with diagrams and alarming accusations.
It wasn’t until the story made the front pages of the business press in Europe and America months later that the Nikkei and other leading vernacular newspapers began catching up.
Soon after the article appeared in Facta, and Olympus’ newly appointed President and Chief Executive Officer Michael Woodford was sent a copy of the magazine’s five-page story, he confronted Olympus Chairman Tsuyoshi Kikukawa about its claims. Those included one that Olympus had paid $800 million for what Woodford called “Mickey Mouse companies,” and another that it had spent $687 million on advisory fees in a $2 billion deal for a British medical equipment firm named Gyrus.
“Kikukawa said I’d not been told because I was so busy, but that was ridiculous to me,” Woodford said in December.
After that meeting with Kikukawa, he has described how he waited weeks for the scandal — openly published in Facta — to break in the local media, before realizing he was on his own.
Facta’s claims of “bizarre acquisitions” by Olympus included a pet-food company and a face-cream maker — neither of which had turned a profit. Exactly why a camera- and optical machinery-maker had spent so much money on 100 firms with “zero synergistic” value to it is still unclear.
However, in a second exclusive article, published in August 2011, Facta offered one possible reason: payoffs to “antisocial forces,” the Japanese euphemism for yakuza gangsters.
An increasingly nervous Woodford again faced off with Kikukawa — and was fired on Oct. 14, 2011.
As he walked out of the Olympus office in Shinjuku, central Tokyo, after surrendering his mobile phone and company car, Woodford reportedly said his “hands were clammy” and he feared for his safety.
He did the only thing he could think of, which was to call a foreign reporter — Jonathan Soble of The Financial Times — and met him in a public place with lots of people around. By the time Woodford arrived in London a day later, the tale was on the FT’s front page.
Woodford later noted that even then it still took the mainstream Japanese media a full week to pick up the story, trailing most of the world’s major news outlets in the process.
Abe says the reason is simple: Facta was able to write about Olympus because the magazine has no advertisements or commercial ties to anyone. It survives on fees from roughly 20,000 subscribers and the initial funding of anonymous donors.
“Running even a small magazine costs ¥100 million a year and most operate at a loss for the first few years,” he says, recalling how one wealthy elderly woman from the Kansai region of western Japan had parted with her cash to the as-yet-unfounded magazine in 2005. “She told me, ‘all this money is no good to me if our society is in danger.’ “
Facta is not sold in bookstores either because, Abe explains, he would have to pay the stores to stock it.
The Olympus story was the product of the same ferreting techniques he used to dig out his Yamaichi story. “Our approach is to use the skills we’ve built up as financial experts over the years to follow irregularities. If you study corporate accounts long enough, something odd often pops up and you follow that trail till you find the reason.”
He says a Facta freelancer — another ex-Nikkei journalist — was tipped off to the Olympus problems a year ago by a whistleblower. “It was absolutely clear something was odd,” Abe explains. “They were making acquisitions and not making them public. The company’s cash flow was extraordinarily high but its capital was shrinking year by year. It didn’t add up.”
The story was shopped around several disbelieving editors until Abe agreed to check it out and publish.
And he believes the Olympus scandal has yet to bottom out, pointing to the likely involvement of “criminal elements” — though he is careful to distinguish those from organized crime, saying, “I don’t see evidence of that yet.” He suspects the dummy Olympus companies were part of a money-laundering network, but that’s as much as he will say for now.
He predicts, however, that other Olympus-type scandals are being protected by a wall of silence in the press. “The lack of disclosure at poorly performing Japanese companies is a key reason for the poor economy of the last 20 years. Many more should be scrutinized,” he declares.
Among the many stories Abe points to as not being properly covered by the big Japanese media are the Fukushima nuclear crisis (see accompanying story) and the tremendous influence that a handful of advertising agencies and talent agencies wield over Japanese society.
“Have you ever seen an article about those agencies?” Abe inquires. “It’s almost impossible to cover them or their influence in Japan. They represent a lot of clients in Japan who naturally don’t want any negative publicity, so their influence on what the public reads and sees is immense. And that is largely unknown — it’s terribly difficult to show their influence. I believe that kind of opacity is one of the scariest aspects of life in Japan.”
David McNeill is a Tokyo-based journalist who writes for the The Independent, The Chronicle of Higher Education and other publications. He is also a coordinator for www.japanfocus.org.