These are troubled times at Olympus, Japan’s optical equipment maker, long considered as infallible the Greek Gods themselves in the eyes of the Japanese public and amongst investors. After months of allegations of corporate malfeasance, bad investments and illegal acts at the company, on November 11, the Tokyo Metropolitan Police officially began an investigation into the company and its top executives for breach of trust, falsifying securities reports, violations of the organized crime countermeasures laws and possibly the Tokyo Organized Crime Exclusionary ordinances, which went into effect on October 1. Japan’s Financial Services Agency (FSA) is also investigating the company and when their investigation is complete, they are expected to formally file a criminal complaint with the Tokyo Prosecutor’s Office (TPO). The investigation is headed by the Criminal Investigation Bureau Criminal Investigation Division 2 (捜査二課), the white-collar crimes investigation unit. Their detectives began an informal investigation this summer. In recent weeks, they have begun working with the Organized Crime Control Division as well, a sign they are looking to see if anti-social forces, i.e. the yakuza, were involved in some of the transactions. Contacted, Olympus repeated previous denials of being aware of any connections to organized crime in their business transactions.

Meanwhile, the TPO Special Investigative Division which has the same rights of search, seizure and arrest as the police are also proactively gathering data on their own.

Since this October when the fired CEO of Olympus, Michael Woodford, publicly revealed that Olympus had suspicious accounting activity and mysterious investments that appeared illegal and/or fraudulent, Olympus has denied any wrongdoing. The firm initially asserted that Woodford had been let go because of clashes in management style and “cultural differences.” The mainstream Japanese media bought that story, while the alternative Japanese press, which has been writing about the Olympus scandal for months did not. Neither did the Western press.  While Olympus stock shares plummeted, by the end of October Tsuyoshi Kikukawa, “the emperor of Olympus” and de facto leader since early 2001, resigned as chairman to a board position.

Police sources and sources within the FSA, state that on November 4, the Tokyo Metropolitan Police Department informally notified Olympus that they would soon be requesting a voluntary submission of accounting records.

Anyone in corporate Japan understands that if the police ask for something and you don’t give it to them, the police simply request a court order and then make a very public raid, judiciously leaked to the media in advance. Television firms always get a leak so they have footage and in exchange, they don’t run the story in advance. Newspapers, still bound to a “scoop mentality” are often left out of the loop until the raids take place.

According to Olympus employees and law enforcement sources, the notification of the police prompted Olympus to hold a press conference on November 8 with its new president Shuichi Takayama, who admitted a degree of corporate malfeasance, to spin the message better. Mr. Takayama asserted that Olympus may have spent more than ¥100 billion ($1.29 billion) on past acquisitions to conceal huge investment losses from shareholders and the public. However, how this was done and who was responsible, and where the money went, he could not or would not say. The reasons given for covering up the losses were ostensibly that Olympus wanted to keep their stock prices high.

The practice of covering up bad debts and erasing them from the records in Japan is called funshokukessan (粉飾決算) or literally, “window dressing accounts.” Depending on how it was done, related charges can include violations of the commerce law, fraud, and forgery. In Olympus’s case, there are possible violations of the anti-organized crime laws since some of the firms involved in the concealment of losses have anti-social connections, and there is at least one senior board member with social ties to a yakuza boss.  

With Japan’s top regulatory and law enforcement entities on the case---the whole extent of the Olympus scandal, which is a microcosm of endemic corruption, corporate malfeasance, and incompetence in modern Japan---is not likely to go way.

So far, only Japan’s largest newspaper, The Yomiuri Shimbun, has reported in detail on the existence of the criminal investigation of Olympus by the Tokyo Metropolitan Police Department. The newspaper did not name the division in charge of the investigation.

The majority of the reporting on the Olympus case has focused on Olympus’s acquisition of three companies, what some related parties are calling “The Unholy Trinity,” between 2006-2008. For these purchases, Olympus paid the equivalent of $770 million total and then wrote them down 76 percent of their value for a more than $500 million loss. All three companies, while allegedly separate entities, shared the same auditor, and two shared the same address. The second transaction that has drawn great scrutiny involved the purchase of a UK medical instruments maker, Gyrus Group, for an exorbitant price. In the transaction, Olympus allegedly paid nearly $687 million to consulting firms in “advisory fees.”  One of those firms has now vanished without a trace.

However, prior to either of these transactions, Olympus via ITX, a once independent investment firm where Olympus was a major shareholder, appears to have lost billions of yen as well in bad investments. ITX executive, Akinobu Yokoo and his younger brother, former Nomura Securities broker, Nobumasa Yokoo, are believed to have played an advisory role in all the investments and purchases made by Olympus since 2003. Nobuo Yokoo also served as a director in the "unholy trinity." He left Nomura Securities in 1998, after Olympus’s pay offs to organized crime backed racketeers resulted in the arrests and convictions of several Nomura executives for violations of the commerce laws, and a full-scale purge at the company of those connected to anti-social forces.

According to police sources, the investigation into Olympus began this summer with the publication of an article about Olympus’s bad investments in a non-advertising based independent news magazine called Facta. The magazine is well known to investigative journalists but not widely know, until recently, by the Japanese public. The financial magazine Zaiten followed up on the story by writing an exposé on Olympus’s investment branch, ITX. Woodford, an executive at Olympus, was given a copy of the Facta article and began asking hard questions—questions that resulted in his ouster. 

Investigators at the Tokyo Metropolitan Police Department are avid readers of the weekly magazines. One notes, “It costs money and time to set up companies to hide losses. People don’t do that work out of the goodness of their hearts—they get paid for it. Convicted felons ran some of the companies Olympus ‘invested’ in. That does not bode well.”

One of the companies, News Chef, while operating under the name News was headed by Kenichi Nishimura, a remarkable fraudster with extensive organized crime connections, according to police. According to legal records, he was the CEO of the company from July 1998 until late August 2003. During that time-period, he began a $100 million fraud scheme in which Nishimura and company alleged they possessed the technology to make energy from water. Nishimura was arrested in 2006, and sentenced to hard labor in 2007 for violations of the investment laws.

J-Bridge, a shareholder in an SPC (special purpose company) which Olympus used to invest in the unholy trinity, was listed as a yakuza front operation by the Financial Services Agency (FSA) in 2009. The same firm was a major shareholder of the bankrupt and disgraced Incubator Bank of Japan. The former chairman of that bank, Takeshi Kimura, is now on trial for obstructing an audit by the Financial Services Agency. Another former chairman of J-Bridge, Hidetaka Noda, was arrested in April of 2009 for insider trading and tampering with evidence. He was found guilty on December 10, 2009 and sentenced to three years of hard labor, with a suspended sentence for five years. He was fined approximately $500,000. It was said to be Japan's first insider trading conviction involving cross-border trading.

On background, an investigator told this reporter, “Olympus has been lying for years. They lied to their own CEO, Woodford. They lied to the public when they fired him. Why should anyone believe they are telling the whole truth now? A cursory examination of the companies involved in hiding the alleged losses reveals many of them to be organized crime front companies, connected at one time to the Yamaguchi-gumi and affiliate groups. And so they have come up with the best cover story they can make up.” Japan’s mafia groups are primarily composed of three gangs; the Yamaguchi-gumi is the largest with nearly 40,000 members. The organizations themselves are not banned but regulated and monitored.

Police and organized crime sources, including senior yakuza members have confirmed that Olympus made tributary payments to one of Japan’s largest organized crime groups up until at least 2008 and may still be making them now. A top executive at Olympus has socialized and gambled with an underworld kingpin of one powerful organized crime faction. The gang boss has several front companies in the Shinjuku area where Olympus’s is headquartered and a background in finance as well. It is not certain whether those connections are relevant in the investigation but law enforcement and regulatory agencies are not ignoring them.

On the November 10, the Tokyo Stock Exchange put Olympus on a watch-list for potential delisting, what in Japan is called the 監理ポスト(kanri-post), a supervisory post. When asked if Olympus’s possible links to anti-social forces played a role in the decision, the TSE said, “The accounting problems at Olympus are significant. Speaking in general, in addition to many other factors, any links to anti-social forces aka the yakuza are now grounds for delisting.

No one can say how far the investigation will go but for Japan’s law enforcement and regulatory agencies, Olympus is looking much less like the Kingdom of the Gods and more and more like a Cretan maze.  It remains to be seen whether they will actually locate and slay the Minotaur in the process of solving the labyrinth. 

Jake Adelstein is an investigative journalist, consultant, and the author of Tokyo Vice: An American Reporter on the Police Beat in Japan. He is also a board member of the Washington, D.C.-based Polaris Project Japan, which combats human trafficking and the exploitation of women and children in the sex trade.