A Rotten Picture at Olympus

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Sculpture by Thomas Keeley for TIME

Rarely in the history of Japan Inc. has there been a more remarkable board meeting. On Nov. 25, the directors of Olympus Corp. gathered at their Tokyo headquarters, their company under siege. Once a solid international brand, a maker of cameras and medical equipment, the company is now at the center of a global investigation as to whether, and to what extent, its top management was involved in funneling billions of dollars in allegedly illicit payments to offshore accounts. Investigators believe those payments, made for over a decade, may have mostly ended up in the hands of organized criminal groups in Japan. The company denies any yakuza connection, but if one is proved, Olympus will be delisted and almost certainly cease to exist in its current form.

At the center of the meeting was Michael C. Woodford, 51, the company's former president and CEO turned whistle-blower. Woodford brought his suspicions about the payments to the man who had been his mentor at Olympus, chairman Tsuyoshi Kikukawa. He was brushed off and then fired on Oct. 14 after asking for Kikukawa's resignation. Woodford fled Japan that same day for his native Britain. Although he didn't name specific threats, he says he did so out of fear for his safety. He then went public with his suspicions, and amid the worsening scandal, Kikukawa stepped down on Oct. 26.

When Woodford returned to Tokyo for the board meeting (though fired, he was still on the board because of a quirk in Japan's corporate-governance rules), all hell had broken loose. He was mobbed by cameramen and reporters as he arrived at Narita airport and was protected by several police officers as he made his way into town. "I find myself in a John Grisham novel," Woodford later said. But the Olympus scandal is not fiction; it may, in fact, turn into the biggest corporate scandal in Japanese history.

If suspicions about yakuza involvement are proved accurate, it will not be the first time Japan Inc. has been linked to organized crime. Throughout the 1990s, the Japanese government ramped up its efforts to crack down on standard criminal activity like prostitution and gambling. In response, the yakuza went white collar. It started with small stuff like shareholder intimidation. Then, in 1997, six executives, including the chairman of what was then Japan's largest bank, Dai-Ichi Kangyo, were convicted of making payments to a gangster who later admitted he was an extortionist and was also convicted.

The yakuza continued to cast a sinister pall in ensuing years — even over foreign-owned firms. In early 2008, Lehman Brothers' Tokyo office was defrauded of $355 million it loaned to a biotech company for what it thought was medical-equipment financing. The money was simply stolen in what investigators believed was a yakuza scam (though the suspicion was not proved). By then, according to American journalist Jake Adelstein, who for years has written about the yakuza, Japan's Securities and Exchange Surveillance Commission (SESC) suspected hundreds of companies of having been infiltrated by yakuza.

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