SCAMS, FRAUD, PHONE AND ATM SCAMS AND LOAN SHARKING IN JAPAN

SCAMS IN JAPAN

In March 2008, a university students and his girlfriend were arrested for faking the molestation f a man on a subway in effort to demand compensation from the man. The girl pretended to be touched by the man after which she and her boyfriend complained to police that she had been molested.

In December 2007, a man was arrested for making ¥1.25 billion from a pyramid-scheme scam in which he convinced 83 investors to put their money into software that he claimed predicted the results of horse races. He promised dividends of 5 to 15 percent a month, gave bonuses for bringing new investors into the scheme and promised to return of money invested but often suspended the dividend payments after only a few weeks.

In June 2008, 59-year-old Isamu Kuroiwa, was arrested for scamming 40,000 individual investors out of ¥65 billion in a non-existent shrimp-farming business (the World Ocean Farm) in the Philippines. Investors were told they would receive dividends every 10 days and double their investment in a year. In typical pyramid-scheme fashion investors did receive dividends initially but these stopped being paid about a year and half before Kuroiwa’s arrest. In May 2009, Kuroiwa was sentenced to 14 years in prison by a Tokyo court for defrauded 25,000 out investors of $270 million.

Some scammers continue robbing people of their money even after they are caught because they go unpunished, By one estimate 6,200 people suffered loses of ¥1.27 billion in damages between 2006 and 2008 because they scammed by people who were not punished after being caught. The scammers included companies that used fraudulent methods to sell health care devises, real estate, cosmetics and futons..

In December 2008 it was revealed that the family of a girl who disappeared when she was nine in 2003 was swindled out of $680,000 by a couple that said they knew where the girls was. The couple convinced the family of the missing girl they knew where the girl was agot the girl’s father to pay out money 470 occasions between July 2004 and November 2008.

The number of cases of fraud and embezzlement decreased 16.3 percent to 44,363 in 2010 due largely to a decline in billing fraud according to the NPA.

Phone and ATM Scams in Japan

In 2004, “ore ore” (“It’s me calling”) scams were frequently reported. In this scam a person impersonating a relative or a police officer called and asked family members to send money to a bank account. In most cases the person said the money was needed to pay compensation for a traffic accident. The scams netted $140 million in the first nine months of 2004. In one case six men netted $45,000 in a single phone scam.

People posing as tax officials and calling victims to offer refunds managed to net ¥2.45 billion in 2,158 fraudulent cash transfers using ATM machines in an 11 months period in 2007. The amounts stolen was a 650 percent increase from the same period in 2006. Most of the victims were 60 or older. They were told they would get a tax refund of medical refund if they went to an ATM machine and followed a special “procedure” with an “identity code” and “refund code” given to them via cell phone message which were actually instructions on how to transfer money to an account controlled by people involved in the scam.

The financial cost of bank-transfer scams was almost ¥20 billion in the first six months of 2008. There are so many bank-transfer scams involving ATM, the National Police Agency wanted to ban the wearing of sunglasses and surgical masks at ATMs.

Loan Sharking in Japan

Loan sharking become serious problem in the early 2000s. Police estimate that 120,000 people got into serious trouble with loan sharks in 2002, an increase of 2.6 times over the previous year. In the worst cases the victims were required to pay back their original loan with an interest rate of 170,000 percent a year. Some loan sharks operate on their own; others are members the yakuza.

Loan sharks typically ensnare lenders with loans of a few tens of thousand yen and quickly slap them with high interest rates that work out to around 10,000 percent a year. This means a loan of ¥10,000 requires repayment of ¥30,000 in just 10 days. Tactics to get payments include threats of violence and threatening calls to the home, workplace or children’s schools.

See Consumer Loans, Economics and Daily Life, Economic Customs

Loan Shark Methods in Japan

The loan sharks often use sophisticated methods to find candidates---often targeting people who are known to be badly in debt---and tempt them with a barrage of advertising. Typically they entice potential victims with direct mail advertising, billboards, tissue packets or cell phone calls or get list of people with money problems from unscrupulous bank employees. The victims are given loans through bank transfers made from accounts taken out under false names. In some cases loan sharks put money in people’s accounts and then demand they pay it back with big interest.

Loan sharks typically attract customers with advertisements with promises like “We want to build a bridge to your heart with 100 percent loans,” “Pearson welcomes you with a smile,” or “We’re not concerned about you past, your bankruptcies or bad debts.” The customers are then told they can get a loan with 15 percent interest over 10 days (which works out to 500 percent a year). [Source: Mark Magnier, Los Angeles Times, September 22, 2003]

Often loan sharks works in groups of seemingly independent companies. Once they customers falls behind in making payments, he or she receives a call from another company that promises to settle the debts, but ends up charging even higher interest rates. In many cases the sharks try to get someone to cosign the loan they can go after them if the original victim doesn’t pay, commits suicide or skips town.

Loan sharks have made midnight visits to victims, forced female borrowers to take up prostitution and abducted borrowers and forced them to call family members and beg for money. One threatening phone call recorded by a victim went; “If you don’t have money make money! Sell your kidney. That’ll bring in $25,000. Sell your liver. Sell your eyeball for $8,000. Just get the money!” In another recorded message the caller threatened: “Your child will be injected by drugs.” “Be careful your house could catch fire.”

Loan Shark Victims in Japan

Some people turn to loan sharks because they have gone into debt trying to maintain their standard of living. Some blame the problem on banks that do not lend money to individuals, leaving them no choice but to turn to loan sharks. One loan shark told the Yomiuri Shimbun, “As long a there are people who need money, but are unable to borrow from regular moneylenders, our business won’t disappear.”

When victims get into trouble they often don’t get help because they are ashamed to be in financial trouble and keep paying because they have a strong sense of duty.

Some loan shark victims have committed suicide. In August 2003, three elderly victims from Osaka sat together on a railroad track and were run over by a train. One left behind note that read: “My husband and brother have become entangled in a grave predicament along with me. We have suffered too much. We have no choice but to kill ourselves.” The three originally borrowed ¥15,000. After paying back ¥100,000 their loan shark still demanded more money. Pleas to the police for help accomplished little.

Hiroshi Ogawa---an ex-pitcher for the Lotte Marines who once led the Japan League in strikeouts--- became so in debt to loan sharks he murdered an elderly woman and stole her money to pay off his debts. He had gone to the house of a businessman to borrow ¥30,000 to pay interest on a loan. The businessman wasn’t there so he tried to convince his housekeeper to give him money but she refused. Ogawa then knocked her unconscious, stole ¥1.75 million and threw the housekeeper in a river, then rushed to a meeting with the loan shark to pay the interest.

Cracking Down on Loan Sharks in Japan

Police have traditionally looked the other way on loan sharking cases, acting under the belief that the victims are responsible for the messes they have got themselves into. The victims of the Osaka triple suicide sought help from the police four times but were brushed off each time.

Charging interest of more than 29.2 percent a years and making verbal and physical threats is illegal in Japan. In 2003, the laws were beefed up with harsher penalties. But the penalties have not been the problem. Enforcement has. There are many loopholes that allow loan sharks to escape and police still don’t go after loan sharks very aggressively.

In 2002, police arrested about 600 people on loan sharking charges. In Tokyo there were 238 arrests but only 12 received prison sentences. In 2003, they police began going after high profile cases.

In 2003, Susumu Kajiyama---a senior member of Gorykai and former Yamaguchi-gumi yakuza member known as the “loan-shark emperor” who reportedly oversaw 1,000 loan sharks.”was arrested on loan sharking and money laundering charges. More than $2 million in one hundred dollars was seized from his safe deposit box affiliated with a Las Vegas hotel. It is suspected that he was laundering money through the casino. In February 2005 he was sentenced to seven years in prison and fined ¥30 million for money laundering but demands to have his profits seized were rejected.

Moneylending, Cashing Services and Loan Sharks

The Moneylending Business law---intended to keep consumer loan companies from charging too high interest rates---went effect in June 2010. It has bankrupted several consumer loan companies and has been a boon for loan sharks and other shady money-lending practices. In a survey of 2,000 people conducted by the Japan Financial Service Association 52.8 percent of the respondents said they used illegal moneylenders because legal lenders wouldn’t give them loans. [Source: Yomiuri Shimbun , December 7, 2010]

A homemaker in her 40s in Yachiyo, Chiba Prefecture, told the Yomiuri Shimbun said she had been receiving frequent voicemail messages since last month from a man offering moneylending services. The man's messages said there was no screening process for loans and urged the woman to contact him quickly.On one occasion she answered a call from the man, and he told her his moneylending service required no collateral, conducted no screening and could lend money immediately.She then began receiving letters at her home offering the same service, but she was suspicious because the letters did not include a moneylending business registration number. [Ibid]

The woman has used consumer loan services for eight years, without telling her husband, to cover the costs of educating their child. Her outstanding loans currently total about 650,000 yen, and she makes repayments of about 25,000 yen a month."Our life is hard, and there's nothing I can do but put up with it. But if I receive a call [from the man] again, I might borrow some money," she said. [Ibid]

A loan shark who gave The Yomiuri Shimbun an interview last month said, "I receive 90 phone calls a day," indicating three cell phones resting on a table. He said he has been receiving an increasing number of new applications, mainly from homemakers, since the law was revised. "If a person borrows 30,000 yen, I get 42,000 yen in repayment 10 days later," he said, suggesting an interest rate far beyond the legally permitted range of 15 percent to 20 percent per annum. [Ibid]

A growing number of people are also getting money from so-called cashing business, which pays people cash in exchange for buying things with their credit cards. A man who runs a cashing business in Chiyoda Ward, Tokyo, to the Yomiuri Shimbun scheme "resembles a pawn shop." If a customer needs 100,000 yen in cash, for example, he or she buys a 125,000 yen so-called cash voucher with a credit card. In what is called the repurchasing method, the business owner then buys the voucher from the customer for 100,000 yen in cash. Repurchasing is not illegal, the man said, but the customer who received 100,000 yen in cash will be charged 125,000 yen by the credit card company one or two months later. The 25,000 yen difference is a de facto interest payment, equal to as much as 300 percent annual interest. This is far higher than the maximum interest rates of 15 percent to 20 percent set under the Investment Deposit and Interest Rate Law and other laws. [Source: Yomiuri Shimbun , November 22, 2010]

Another scheme in existence is called a cashback method, center officials said.One 58-year-old former business owner in Tokyo has used it 10 times to obtain money for his day-to-day expenses. In his case, he used his credit card to buy a ring priced at 200,000 yen online. After that, 174,580 yen was immediately transferred into his bank account under the name "cash-back." The ring delivered to him two or three days later looked like a toy. But the man said: "Consumer loan companies won't lend me money. I like getting the cash so soon." [Ibid]

Welfare Cheats in Japan

In November 2011, the Yomiuri Shimbun reported: A man in his 50s living in the suburbs of Tokyo makes his living as a health food wholesaler, using a car he borrows from a friend. But he conceals his income from the government, so he can receive welfare payments. "I know it's against the law, but I want to save some money," he said. To make sure the government does not find out about his earnings, he deals in cash and does not provide receipts. [Source: Yomiuri Shimbun, November 21, 2011]

Cases of people receiving welfare benefits illegally are increasing as more people underreport or do not report their incomes. According to the Health, Labor and Welfare Ministry, 19,726 cases of illegal welfare payments totaling about 10.2 billion yen were discovered during fiscal 2009, about double the 9,264 cases amounting to 5.8 billion yen recorded in fiscal 2003.

About 60 percent, or 11,874, of the cases were payments received by people underreporting or failing to report earnings. Twenty percent, or 4,022, were cases of not declaring pension incomes. There were also 1,225 payments received by those not declaring insurance income or savings. The ministry said the increase in uncovering fraud was due to more thorough checks of welfare payments against information on withholding and other taxes. A senior police official said the real number of fraud cases is probably higher as there are cases involving gangsters.

Sophia University Prof. Ichisaburo Tochimoto said rampant illegal welfare payments can lead to prejudice against truly needy people and an increased sense of distrust in the public system. "The government should strengthen fraud-prevention measures and build a system where illegal payments are not permitted," he said.

Welfare Scams Involving Gangster in Japan

In 2007, according to a Yomiuri Shimbun report, a former gangster was arrested in Takikawa, Hokkaido, for conspiring with a taxi service to pad fares for trips to a hospital about 100 kilometers away in Sapporo. Along with his wife, the man, 46, who has already been convicted, is believed to have received up to 130 million yen in benefits per year, accounting for about 10 percent of the municipality's welfare budget. The two are believed to have received more than 200 million yen in total in the fraud, and some of the money is said to have gone to the man's criminal organization. The city government was unaware of the fraud for more than a year after the payments started.

A former senior official of the Hokkaido prefectural police who was in charge of the case said the amount was absurdly high, and the city should have discovered it sooner. "Several gangsters told me it is very easy to get money from government offices. They said, 'All we need to do is bang on the desk and intimidate them,'" he said.

There are many similar incidents, including a case in July, in which a gangster was arrested in Adachi Ward, Tokyo, for illegally receiving 11 million yen in welfare payments. Alarmed by these cases, the ministry notified municipal offices to contact police if they received dubious welfare applications and to refrain from paying benefits in principle when applications were filed by gangsters.

But the ministry only cited the "attitude when applying" or " living conditions" as benchmarks to decide whether police should check applications. An official in charge of welfare in Aichi Prefecture said it was hard to weed out gang members since no one overtly acts like a gangster when applying.

A recent court decision stunned municipal governments regarding police checks. The Miyazaki District Court on Oct. 3 ordered the Miyazaki municipal government to withdraw its rejection of a welfare application filed by a 60-year-old man. The city rejected the application because the Miyazaki prefectural police identified the man as a member of an organized crime group affiliated with the Yamaguchi-gumi crime syndicate. The court ruling said the decision on whether to pay the benefits should be made without relying solely on police information.

The city was apparently bewildered by the decision, questioning how it could check the man's background without an investigation as it has no authority to conduct criminal investigations. The city said it could not prevent illegal activities if it was unable to use police information. Others in the national and local governments are also questioning the ruling, and there is a great deal of anticipation surrounding an appeal court's ruling on the case.

Alabi Firms That Sell Fake Documents

Takuya Itakura and Yohei Odakura wrote in the Yomiuri Shimbun, “More than 30 firms across Japan are producing and selling false employment and tax documents. The Yomiuri Shimbun tracked down one company, located in a corner of a Tokyo entertainment district, where love hotels, bars and other establishments are packed together. Operating from a one-room apartment, the company had four personal computers, four fixed-line phones, a copying machine and a printer. "We can easily make [bogus] documents using machines that can be found in any company office," the alibi company's 40-year-old president said. "We don't need to get approval [from any authority]. We only have to pay for the paper we use."

The company, which started operating five years ago, has about 200 registered customers and monthly sales of about 1.5 million yen, he said. According to the president, most clients are workers at adult entertainment establishments who want to keep their profession secret, or people unable to borrow money from financial institutions due to their low income. The bogus documents are apparently used when people sign leases for apartments or want to increase their loan limit at consumer finance companies.

The company created and registered a fictitious temporary staffing company and issues employment certificates---documents that confirm the holder's workplace---under the name of the paper firm. The company also creates fake withholding tax slips, which certify annual income and withholding tax payments, altered to show any income amount a customer requests. The firm uses accounting software to calculate the tax amount.

Creating a bogus document takes about 20 minutes and costs the customer 5,000 yen. The president said the implementation of the revised Moneylending Business Law in June last year had been good for business, with the number of inquiries to the company doubling since then. The revised law prohibits people from borrowing more than one-third of their annual income from financial institutions, a limit intended to reduce the number of people who go bankrupt.

Debtors unable to borrow more money stampeded to the company for forged withholding slips after the law came into effect, the president said. Employees of real estate companies and consumer finance firms also wanted false documents created for customers who were unable to take out loans, he said.

The company also has many inquiries from people who appear to be members of criminal organizations, the president said. "We just sell documents that meet people's needs," he said. "We ask our customers to sign a written consent form that states they won't misuse the documents."

Police Can’t Stop Firms from Selling Fake Documents Because There is No Law Against It

Takuya Itakura and Yohei Odakura wrote in the Yomiuri Shimbun, “Police are powerless in cracking down on shady business that sell false documents that could be used for criminal purposes, a Yomiuri Shimbun investigation has found. Police authorities are keeping a strict watch on what are called "alibi companies," but currently there is no law that directly regulates their operations.” [Source: Takuya Itakura and Yohei Odakura , Yomiuri Shimbun, December 9, 2011]

Under current laws, making a false entry in a private document is punishable in only a few cases, such as doctors who make bogus entries in medical certificates. Company owners and executives, including those of alibi firms, who are authorized to create documents such as withholding slips, cannot be charged if they make a false entry on these certificates--even if they are only nominal owners or executives.

In September, the Hokkaido prefectural police detected an alibi company that had created a false withholding tax slip for a customer who was among a group of swindlers arrested on suspicion of fraudulently borrowing a mortgage loan by using bogus withholding tax certificates. The police decided it would be difficult to arrest the company's president and employees on suspicion of forging a private document. Instead, the case was handled as a suspected violation of the Local Tax Law because they had lied to an official of the Sapporo municipal tax office.

The National Police Agency sent data and an analysis of alibi companies to police departments across the nation after the September case was exposed. However, for now at least, the police have their hands tied when it comes to dealing with these firms. "Alibi companies themselves aren't illegal, so it's very difficult to crack down on them. But we are concerned that these companies could be used to commit crimes," an NPA official said. "If we find illegal activity is going on, we'll come down on these companies with every law and ordinance we can."

Emiko Osako, a lawyer and vice chairperson of the task force on consumer affair issues at the Japan Federation of Bar Associations, says alibi companies are problematic because they have strong ties to fraud rings. "It's necessary to establish regulations with a limited application, such as banning making false entries on tax documents," she said.

Image Sources: Jun from Goods from Japan, Japan-Photo.de

Text Sources: New York Times, Washington Post, Los Angeles Times, Daily Yomiuri, Times of London, Japan National Tourist Organization (JNTO), National Geographic, The New Yorker, Time, Newsweek, Reuters, AP, Lonely Planet Guides, Compton’s Encyclopedia and various books and other publications.

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© 2009 Jeffrey Hays

Last updated April 2012

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