A DRAMATIC probe into Japan's recent financial scandals began
yesterday with public testimony from two fallen kingpins of the
tainted securities industry.
The testimony, however, was just the opening bell for a debate
over whether Japan should create a Western-style enforcement agency,
a reform that would move this country farther from its unique style
More witnesses from Japan's closed financial world will testify
before parliament over the next week. The hearings are an unusual
spectacle for Japan, but are judged necessary due to the shame and
resentment many Japanese have felt over the level of corruption
In coming weeks, the ruling Liberal Democratic Party is expected
to decide whether to bring an alien institution to Japan: an
independent policing agency to watchdog the huge, successful, but
now dishonored securities industry.
The first witnesses in the parliamentary hearings were Setsuya
Tabuchi, former chairman of Nomura Securities Co., and Takuya
Iwasaki, former president of Nikko Securities Co. Both men resigned
in disgrace last July after their firms, along with other securities
firms, were accused of compensating wealthy clients for stock market
losses. Both firms also are accused of manipulating stock prices for
During Thursday's hearings, the two witnesses were hidden from
public view while they testified; cameras were barred.
Advocates of a securities watchdog agency cite the United States
Securities and Exchange Commission as a model. An SEC was introduced
into Japan by US officials during the American occupation after
World War II, but was dismantled one month after the occupation
"In Japan, people do not like open conflict," says Chuo
University law professor Takashi Kanai. "A violation is treated with
quiet advice, not a lawsuit."
A series of securities and banking scandals this summer has
raised a basic dilemma: Can Japan keep a system of secretive ties
between executives, bureaucrats, and politicians - a system
increasingly cited in the West as a reason to put up barriers to
Japanese goods and money?
"You still have here in Japan a regulatory practice, a management
philosophy, that sees the markets as an instrument of government
purpose," says Kenneth Courtis, a Tokyo-based economist for Deutsche
"A world breeze of liberalism is sweeping from Vladivostok to
Vancouver," he adds. "But it stops in Japan."
The first day of testimony revealed a common practice in Japan:
Government bureaucrats use close ties with business leaders to guide
business to success abroad, rather than regulating business
In his testimony, Mr. Tabuchi, who remains an adviser to Nomura,
revealed lax attitudes among the managers of the world's largest
securities firm: "We now have to ... stress the importance of
complying with government notifications and with ethics among our
Many of the industry's leaders have admitted mistakes and are
calling for more openness in how the Finance Ministry both guides
and cajoles the securities market.
"We cannot but accept criticism that our country's securities
market does not have the fairness and transparency to meet
international standards," the Japan Securities Business Association
stated in an ethics policy issued after the scandal broke. …