UNITED STATES-JAPAN: Daiwa Crackdown Sparks Different Perceptions

By Farhan Haq Reprint | | Print |

NEW YORK, Nov 3 1995 (IPS) - The indictment in New York of Japan’s Daiwa Bank is just the latest incident of a split in perceptions between the United States and Japan.

U.S. officials are convinced that the bank, the tenth largest in Japan and 19th largest in the world, colluded with a rogue trader in covering up losses totalling 1.1 billion dollars.

But Daiwa officials and Japanese analysts claim the problem the bank faces may be rooted in a culture where trust of one’s employees is paramount to a company.

On Thursday, U.S. Attorney Mary Jo White indicted Daiwa on charges of trying to cover up the losses, allegedly caused by the actions of New York-based trader, Toshihide Iguchi. U.S. prosecutors also ordered Daiwa to cease its U.S. business activities — a demand Daiwa now says it will meet by February 1996.

One Japanese expert, speaking on condition of anonymity, says the indictments could unleash further antipathy to the United States in Japan.

In particular, he says, the indictments reveal two completely different attitudes in banking between the two countries.

“The United States and Japan have two different cultures,” he argues. “In Japan, banking is based on trust; everyone is connected closely to each other, like a family. In this case, (Daiwa) had to trust its executives.”

Daiwa argues that it has committed no crime, but instead was duped by Iguchi, the 44-year-old vice president of the bank’s New York branch. Iguchi was arrested Sep 23 and charged with making unauthorised sales of federal securities, losing 1.1 billion dollars in the process over 11 years — or some 400,000 dollars each trading day.

In Daiwa’s version of events, the bank took prompt action to inform U.S. authorities of Iguchi’s losses once it had fully understood what had happened. Daiwa officials contend their only lapse was in trusting their young executive.

“We really believed in him,” former Daiwa president Akira Fujita, who announced his own resignation Oct 9, said after Iguchi’s arrest. “He created a system where he was in charge of everything.”

Tim Metz, a spokesman at Abernathy McGregor and Scanlon — Daiwa’s public relations firm here — contends that Iguchi’s prominent role in New York helped obscure his trading practices for many years.

“If the guy who’s counting whether you’re ahead or behind is the one who’s responsible for putting you behind, it would be easy for them not to know what was going on,” Metz says.

But White said officials intentionally tried to hide the losses caused by Iguchi’s trades after he briefed then-president Fujita in late July.

Citing information provided by Iguchi himself, the attorney’s office argued that bank officials, including New York manager Masahiro Tsuda, met with Iguchi Jul 28 and decided to disclose his trading losses “in some form” by November. But until then, the indictment said, the bankers planned to hide the losses between the New York branch and Daiwa’s Japanese operations.

One Japanese managing director for Daiwa is accused of asking Iguchi to destroy his documented confession. The bank as a whole then planned to shift Iguchi to its Japanese offices and redistribute the losses via a Cayman Islands branch, the indictment claimed.

Tsuda was arrested Thursday and released on bail. White says Daiwa may face fines of 1.3 billion dollars for “egregious corporate conduct and crimes at the highest level of a major financial institution.”

Daiwa’s new president, Takashi Kaiho, dismissed White’s claims in a statement released from the bank’s New York branch.

“Blaming Daiwa Bank in the criminal courts for thievery and other unauthorised activities makes no sense,” Kaiho said. “It is clear that the bank remains the sole victim of Mr. Iguchi’s wrongdoing. Not a single customer of the bank suffered any financial loss.”

By contrast, when Britain’s Barings Bank announced the loss of 1.4 billion dollars in unauthorised trading by Nick Leeson, a Singapore-based trader, the bank was forced to shut down. The last major U.S. action against a bank — defunct Bank of Credit and Commerce International (BCCI) — also was part of a scandal in which creditors lost billions of dollars.

Nonetheless, Kaiho said Daiwa will comply with U.S. demands that it either shut down or sell its U.S. branches by next Feb 2. He announced the bank will restructure its operations to serve Japan and Southeast Asia.

“Our withdrawal from the United States is a regrettable but necessary step,” Kaiho said. “In our discussions with the U.S. regulatory authorities, we concluded that to oppose their desire for our withdrawal would cause unnecessary conflict between the bank and the authorities and could be harmful to the international banking industry.”

The indictment comes at a delicate moment in U.S.-Japan relations. President Bill Clinton is scheduled to visit Japan later this month.

Earlier this week, U.S. Defense Secretary William Perry had to apologise profusely on a visit to Tokyo for the rape of a 12-year- old Japanese girl by three U.S. soldiers stationed at a naval base in Okinawa. The rape has led Okinawans — and a majority of Japanese — to call for an end to U.S. bases in Japan.

The Japanese public also has been riled by media reports that the U.S. Central Intelligence Agency (CIA) placed wiretaps on senior Japanese trade negotiators.

One Japanese source says that, like the BCCI scandal, the Daiwa indictments could lead Japanese to suspect a U.S. vendetta against non-U.S. banks.

Daiwa’s problems, especially in the wake of the Barings fiasco, do not seem that different from those of many banks in an era of intense trading.

“What happens is that managements don’t ask any questions as long as things seem to be alright,” says Doug Henwood, editor of the New York-based Left Business Observer. “As long as the trading desk is working well, they don’t watch.”

But Metz, from Daiwa’s U.S. public relations firm, notes U.S. prosecutors may have believed Daiwa lied to investigators by assuring regulators that its trading and regulatory functions were separate. Iguchi, unfortunately for the bank, performed both tasks — which allowed him to rack up losses on trades and conceal them for 11 years.