Change to allow foreign political funds

New rules highlight hunger for cash, overseas business presence

by Sayuri Daimon and Mayumi Negishi

Running for office doesn’t come cheap. Politicians need money for posters, vans, venues for speeches and meals for volunteers. The problem for aspirants to office is that political donations are falling, and corporate money in particular is dwindling fast.

“Companies give almost nothing, except at fundraising parties, where even big firms give only about two-thirds of what they did 10 years ago,” said an official at Fukui Prefecture’s federation of Liberal Democratic Party branches.

Financial institutions gave nothing in latest election cycle, including key local lender Fukui Bank, which gave 1 million yen at a single fundraising banquet in 2000, the official said.

Politicians have hit upon a solution that is bound to raise eyebrows: a provision to be added to the Political Funds Control Law allowing foreign-controlled firms to make political donations. The ruling bloc may give the Diet a bill to this end as early as next week.

At present, politicians cannot accept donations from foreigners or foreign firms, or from firms whose shares are more than 50 percent owned by foreigners. The new rule would let all companies, regardless of shareholder makeup, make political contributions as long as they are listed on a stock exchange in Japan and are headquartered in the country.

There is no denying that politicians are facing a financial squeeze. In 2003, companies gave 18.8 billion yen to political parties and their fundraising arms, down 45 percent from 1998. The figure excludes donations given at fundraising parties, which raised a total 22.6 billion yen in 2003.

Japanese firms have only recently shaken off the effects of a prolonged economic slump. Banks are still weighed down by debts to the government and many firms are still in the red, leaving them open to shareholder lawsuits if they make political donations.

Past corruption linked to political donations and shady corporate funding also contributed to the drop in contributions.

The bill reflects the changing structure of corporate Japan and is testament to how a business community once known for its insularity has opened its doors to foreign investment.

According to the Japan Business Federation (Nippon Keidanren), the country’s biggest business lobby, total foreign investment in Japan grew to 10.1 trillion yen in 2004 from 4.7 trillion yen in 1999, and many well-known firms, including Nissan Motor Co., Orix Corp., Canon Corp. and Sony Corp., have powerful foreign investors.

Orix, for example, saw about 57 percent of its shares held by foreigners in March 2005, compared with 39.3 percent in March 2003. Canon’s foreign ownership rose to 51.7 percent in December 2005 from 46.1 percent in December 2003.

“If the trend continues and if the regulation stays as is, fewer and fewer companies will be able to make political contributions in Japan. Politicians as well as people in the business sector feared” that would happen, said a Nippon Keidanren executive who asked not be named.

“Many companies usually begin to refrain from making political donations when their foreign ownership level reaches 40 percent for fear of violating the 50 percent rule,” he said, noting Sony is roughly 49 percent foreign owned.

Taku Yamamoto, one of the LDP lawmakers sponsoring the bill, agrees that complying with the current law is increasingly tricky, as more small investors from abroad put their money into Japanese stocks. There is no way to know for sure if Japanese nationals hold over 50 percent of a firm’s shares, he said.

“Some politicians may have been breaking the law without knowing it,” Yamamoto said.

Under current law, receiving donations from a foreign firm is punishable by up to three years in prison or a fine of up to 500,000 yen.

Even with the proposed revision, Japan’s rules on corporate political donations are still more restrictive than those of other countries. Britain and the U.S. allow political contributions from any company legally registered there. Canada allows contributions from any firm with operations in the country.

Assuming the new rules take effect, about 40 listed firms that are more than 50 percent owned by foreign investors would be free to make political donations. That would help the business sector, especially Nippon Keidanren, boost its political clout.

Canon President Fujio Mitarai, who will chair the business lobby after Hiroshi Okuda exits in May, has reportedly said his firm will donate actively once the law is changed.

But not all firms are jumping at the chance to donate.

“Many people think if the rule is changed, we will immediately start giving political contributions. But things are not that simple,” said Nissan Motor Co. Vice Chairman Takeshi Isayama.

Nissan was turned around by French business wizard Carlos Ghosn, head of Renault SA, and foreigners now hold some 64 percent of Nissan’s outstanding shares.

“If Renault says ‘No,’ we don’t make political donations,” Isayama said.

Canon may be willing to meet the expectations of Nippon Keidanren chief Okuda, but most firms, including Nissan, do not see any benefit in funding politicians, because donations are unlikely to sway political decisions, Isayama said.

Some may worry the new rules could let foreign organizations influence Japanese politics, but experts and politicians claim the donation process is sufficiently transparent.

Tomoaki Iwai, professor of law at Chuo University, agrees, but he feels there should be more debate about the pros and cons of foreigners’ donations.

“I’m left with the impression that politicians just want more money,” Iwai said. “We should have a thorough discussion as to why it’s OK for Japanese companies to give money and why foreign firms can’t in the first place.”