Mitsubishi Electric ready to bite bullet

Company faces ¥77 billion in fines for overcharging ministry, JAXA


Mitsubishi Electric Corp. said it expects to pay ¥77.3 billion, including penalties and interest, for carrying out decades of bill-padding related to defense and other public contracts.

The Defense Ministry earlier reported it had been overcharged ¥24.8 billion by Mitsubishi Electric for missile and other contracts. Similar irregularities were also discovered in the firm’s business dealings with the Cabinet Satellite Intelligence Center and other public organizations.

The sum estimated Friday by Mitsubishi Electric would mark the biggest punitive payment made by a single company in Japanese history, exceeding the ¥31.8 billion imposed on NEC Corp. for its defense-related overcharging scandal in 1998.

The ministry, however, stopped short of filing a criminal complaint against Mitsubishi Electric, citing difficulties in identifying the suspects.

“I am deeply sorry for failing to discover such serious irregularities,” Mitsubishi Electric President Kenichiro Yamanishi said at a news conference. The company will cut his pay for six months.

Besides the ¥24.8 billion overcharge, Mitsubishi Electric padded bills by ¥7.1 billion for satellite development and other contracts it received from the Cabinet Satellite Intelligence Center, the Japan Aerospace Exploration Agency and the National Institute of Information and Communications Technology.

In addition, three Mitsubishi Electric subsidiaries and one affiliate overcharged a total of ¥6.9 billion. The five firms, including the parent company, padded the bills mainly by overstating the man-hours spent on supplying products and services, the ministry said.

The four public organizations plan to impose penalties amounting to about twice the overcharged amounts, which will take one to two months to finalize. The Defense Ministry said Mitsubishi Electric and the four group companies will remain suspended from receiving contracts until full payment is made.

The ministry was alerted to Mitsubishi Electric’s overcharges by a whistle-blower in autumn 2011, triggering probes by the Board of Audit and other government organizations.

The practice is believed to have started around 1970, mainly in contracts related to missile and radar systems. Mitsubishi Electric even used special terminals to conceal its illicit bill-padding.

The ministry calculated the overcharges based on contracts concluded since fiscal 2001, the earliest year for which accounting records remain. The ministry said it was also overcharged ¥2.4 billion by Sumitomo Heavy Industries Ltd. and a subsidiary.

Mitsubishi Electric said it will set aside ¥77.3 billion on a consolidated basis to reimburse the ministry and other organizations.

For the year ending next March, the company said it now projects a consolidated net profit of ¥50 billion, down a whopping ¥70 billion from its previous forecast.

To prevent a recurrence of any similar incident, the ministry will expand surprise inspections and boost penalties. It will also impose fines of up to four times the overcharges, while introducing a leniency program for firms that voluntarily report irregularities.