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Lending Scandal Adds To Corporate Japan’s Compliance Woes

Regional lender in Japan, Suruga Bank, apologized this week and admitted that staff may have knowingly processed loan documents that were falsified for a struggling property investment scheme, adding to the list of corporate scandals plaguing the country, reports in Bloomberg said.

The publication reported Wednesday (May 16) that the lender pointed to increasing pressure to grow profits as one reason for failing to adequately screen loans and related documents  shares in the bank dropped 14 percent. It’s the latest in a series of high-profile corporate scandals that includes Mitsubishi Materials, Kobe Steel and Toshiba Last year, all three conglomerates admitted to falsifying information on documents in an effort to boost sales.

Bucephalus Research Partnership Founder Robert Medd said, “Since the 1980s, many Japanese companies have struggled to deliver growth, had debt and a corporate culture that emphasized subservience. In effect, the perfect storm for corporate malfeasance.”

Bloomberg added that Japan has struggled to encourage foreign businesses to operate with confidence in the country as a result of the scandals. Reports pointed to research from the Japan Association for Chief Financial Officers released last year, which found nearly three-quarters of CFOs had either seen or heard of “inappropriate” actions related to accounting fraud or embezzlement.

Meanwhile, Prime Minister Shinzō Abe and a government panel introduced revisions to the nation’s corporate governance code. Officials are now promoting the use of independent advisory committees to decide executive hires and pay.

“I suspect more scandals will emerge, but governance will very quickly start to improve,” Medd added. “The change will flush out lots of past bad behavior. Ironically, the more scandals now, the less in the future.”

Separate research from the nation’s Financial Services Agency found an increase in the number of independent directors appointed in the last four years.

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