The Recruit Scandal リクルート事件 Prepared by Alan Li Overview • Insider trading and corruption scandal that forced many prominent Japanese politicians to resign in 1988 • Recruit, a relatively new head-hunting and job match- making company, offered a considerate amount of shares from its subsidiary, Recruit Cosmos, to top Japanese officials before the shares went public. • After the stocks went public, the share prices skyrocketed, giving an average profit of ¥66 million (about $705,000) to each involving individuals • One of the four major scandals in Post WWII Japan Politics in Japan • Liberal Democratic Party and corporations share an interdependent relationship-LDP being the largest and most influential party in Japan provides consistent and favorable policies for corporations, and corporations in turn pour in big money for LDP to outspend their opponents. • A Bureaucratic-industrial complex • the LDP depended upon the bureaucracy for technical expertise and legislative initiative; the bureaucracy depended upon the LDP for parliamentary majorities in favor of government legislation. and for jobs upon retirement: the LDP depended upon big business for electoral funding; big business depended upon the LDP for political backing. advantageous policies. and political stability; big business depended upon bureaucracy for favours in the drawing up and implementing of legislation (and more broadly in the exercise of bureaucratic discretion):the bureaucracy depended upon big business for jobs upon retirement. Recruit • Before Recruit, Lockheed Scandal was the worst – The downfall of Prime Minister Tanaka • Because of the interdependency between Japanese politicians and the corporate world, Recruit, a relatively new company, wanted to become part of the “system” • A three men firm in 1961, to a firm worth $3.28 billion in 1988. (Multiple governmental pay-offs suspected) • Recruit Cosmos was its most dynamic subsidiary • Its founder, Hiromasa Ezoe, intended to use the wealth of the company to buy his way into politics, even the prime minister post. The Bribery • In late 1984 Recruit Cosmos sold seventy-six leading bureaucrats, corporate and media heads and LDP and opposition party leaders 1.2 million shares. • It sold a further million shares to thirty friendly companies in April 1985 and a final 687,000 shares to eighty of the elite in August 1986. • In return, Recruit received a vast number of tangible and intangible benefits. – New parachuted executives with connections and insider infos – Profit rose due to a favorable relationship with Telecommunication giant NTT. – Ezoe (the founder) got appointed to four important governmental commitees. Breaking the Story • In June 1988 some reporters from Asahi Shimbun at a district office discovered that the deputy mayor of Kawasaki had issued a special permit to Recruit to build a 20-storey building on prime land, in return for pre-listed shares. • The editors of the newspaper tried to kill the story, but it got leaked anyway. • On July 5th it was revealed that the scandal involved the “Big Three” in LDP: Noburu Takeshita (竹下 登), Kiichi Miyazawa (宮澤 喜一), and Shintaro Abe (安倍 晋太郎) • Eventually it was revealed that 159 members of the elite had received shares. Investigation • Yusuke Yoshinaga, the investigator that brought down Tanaka in the Lockheed Scandal, was again appointed as the head of a 32- member investigation team within Tokuso, Tokyo District Public Prosecutor’s office. • The Tokuso is an autonomous institution within the Ministry of Justice. – Full power to interview suspects, arrange deals, make arrests, and decide which case goes to court. – Brought down many business leaders and senior officials that were associated with Recruit – However, tougher resistance from LDP – But pressure mounted both in the Diet (congress) and in public to demand the resignation of Takeshita, the prime minister – Dirty stuff happened, as one secretary committed suicide in order to protect the reputation of his “lord” Aftermath • Takeshita finally resigned, top officials interviewed by congress • However, there was “insufficient evidence” to carry the investigation further, and the case was closed on May 29, 1989?. • A lot of people got indicted, but few were convicted. • The Mid-echelon officials took most of the heat and blame, many resigned and being investigated. • Most top officials got away with charges after they voluntarily resigned. Some of them re-emerged later on to regain their prominence. Aftermath • The Recruit and Uno scandals provoked three central questions about the future Japanese politics: – whether the government would enact genuine reforms to prevent similar abuses in the future; – whether Recruit represented a watershed in public attitudes towards corruption, and; – Whether the LDP would lose power. – The answer to all three questions was, no! • No laws enacted to counter the corruption? • Recruit continued to exist, public silent, no demonstrations or movement for a more transparent government • Most of the officials involved returned to politics Reason of Rampant Corruption • Public Acceptation – Culture that politicians need to “pay” the voters for votes, holding parties and taking care of guests from the constituency, taking them to tours and such. – Which is common in East Asian countries – In the U. S. the expenses of politicians were under more scrutiny. – LDP members were expected to spend more for they are the largest party, and they often offer money and personal connections to voters. – It seemed that the key voters expect to be paid for their influence. Reason Cont. • Source of Income – From Superiors, business executives, and constituents who donate to diet members in return of support, favor, and assistance. – Buying shell companies created by your boss • Political Structure – Premier will be the leader of party that won the majority in Diet – LDP dominance after WWII – LDP president elected by diet party members and regional reps – Thus total members involved is rather small and wide range corruption feasible and effective. • takari – Japanese voters take it for granted that politicians will give them gifts for support. – Japanese people vote for the one they feel personally related to. (Thus the importance of Koenkai, supporter’s club) – Their allegiance, once established and well maintained, will transform into extreme loyalty and could become hereditary, a part of family tradition. – Japanese voters’ demands are more oriented to personal relationship/or immediate profits than are American voters. • Nareai – The co-existence of conflicting ideals – People on one hand wish a corruption-free, transparency political atmosphere but on the other hand tolerate the rampant corruption because they got stuff done – Or, as long as the politicians pay them off, they won’t have much problem with the current system. – So in another word, hypocrites. Result • People fear the downfall of top officials will be the downfall of the whole system of which they receive gifts and favors in return of their votes, and mostly tolerate their deeds. • Middle-echelon officials are mostly the scapegoats to be punished for show (thought top officials often guarantee the well-being of their family) • Top officials rarely receive severe punishments that could end their political career, and often re-surface and regain their power after a couple of years. • Lack of supra-societal values that aim to create a better society may contribute to the corruption problem, too. .