Commentary: Are Japan's Prosecutors On A Secret Mission?

It was the death that shook a nation. By hanging himself in a Tokyo hotel room on Feb. 19, Japanese parliamentarian Shokei Arai narrowly avoided the disgrace of arrest for alleged financial crimes. But his suicide also marked a new turn in the war against corruption in high places, a war that has driven three less well-known public servants and businessmen to kill themselves this year.

What shocks the Japanese is that the investigations seem to be getting serious. Few believe the government truly intends to unravel the tight mesh of suspect behavior that connects the politicians and ministries with the businesses they are supposed to regulate. Says a Japanese fund manager: "It's just tokage no shippo kiri"--cutting off a lizard's tail. Lop off a few corrupt officials, and the system will generate others. Yet these investigations are more than a sham, even though they will not usher in real reform. They offer an insight into how competing interests can clash in Japan--and create an ambiguous environment that few but the savviest insiders can navigate.

EASY PICKINGS. Arai, a dashing, self-styled reformer, apparently did what many Japanese politicians do. He opened an account with a major securities firm, Nikko Securities Co., under the name of a friend and allegedly pressured the firm to guarantee him stock profits illegally through in-house discretionary trading. Although prosecutors apparently have the goods on many politicians, they chose to go after Arai. Why? Because he was easy pickings. The first and only Diet member of Korean descent, he had few strong protectors, and he had abandoned the ruling Liberal Democratic Party for a while to join a new "reformist" party. When he rejoined the LDP fold a few years ago, none of its powerful factions would accept him.

Worse yet, as a former elite bureaucrat at the Ministry of Finance, Arai suited the prosecutors' recent campaign to rein in MOF. Even as they were chasing Arai, prosecutors were zeroing in on Ministry of Finance officials for allegedly indulging in settai--wining and dining with executives who picked up the tab in exchange for sensitive information. Like Arai, the prosecutors' targets at MOF lacked the clout and prestige that could have shielded them.

But it's a mistake to think the prosecutors are just playing a meaningless game by going after marginal figures. Some observers believe the prosecutors genuinely believe that the Ministry of Finance is jeopardizing their country. Given the MOF's bungling of economic policy and financial regulation, "the prosecutors' intention is to save and protect Japan's bureaucratic system," says Takao Toshikawa, special correspondent for the monthly Oriental Economist. But because they are facing off against the combined might of the LDP and the Ministry of Finance, the prosecutors have so far only been able to pick off stragglers like Arai.

This guerrilla war is likely to drag on, since MOF cannot stop these investigations completely. Japanese prosecutors are accountable only to themselves. The prosecutor-general outranks the Justice Ministry's top administrative minister and answers only to a commission of other top prosecutors. Because of reverberations from a previous attempt by a Justice Minister to intervene in prosecutorial activities, "it is very dangerous for politicians to tell prosecutors what to do," says political commentator Minoru Morita.

STALEMATE. What is more, onetime law-enforcement officials are gaining power. Former prosecutors and judges now run five key financial industry regulatory agencies. Another new watchdog agency appears likely to be headed by a former prosecutor. And new Finance Minister Hikaru Matsunaga served as a prosecutor before turning politician.

The result of all this will probably be a stalemate. The prosecutors will keep pushing, while the MOF and the LDP will not fundamentally change. But the prosecutors will succeed in creating new ambiguities in the Japanese system. By defining settai as bribery, they are now calling into question a practice that has flourished for centuries.

For foreign companies in Japan, this development just adds to the difficulty of understanding what's acceptable in business. "It isn't clear what the rules are," says Glen Fukushima, president of the American Chamber of Commerce in Japan. "Even if transparency is formally increased, personal relationships in Japan being what they are, newcomers often are forced to take unconventional measures to compensate." Meanwhile, he suggests, Japanese players will prove savvier at adjusting to the new rules, unclear as they are. And that, perhaps, is how the Japanese like it.

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