Updated, 7:03 p.m. | TOKYO – The used-car dealers that dot the outskirts of Tokyo and other Japanese cities are an unlikely link between one of Japan’s biggest banks and the country’s yakuza gangsters.
On Monday, the banking unit of the Mizuho Financial Group released the results of an internal investigation that outlined how such dealers, through a consumer finance company affiliated with Mizuho, made at least $2 million in small loans to buyers with links to Japan’s organized crime syndicates without properly vetting their backgrounds. The syndicates use the loans to help finance their activities.
Mizuho Bank, which bought and bundled these loans from its affiliate, found gangster-linked loans on its books in 2010 but failed to inform the authorities, according to a report by outside lawyers appointed by the bank to investigate the case.
But the lawyers said they could find no evidence that Mizuho officials intentionally tried to hide the loans from investigators.
Mizuho’s management instead simply “failed to appreciate the gravity of collaborating with organized crime,” Hideki Nakagomi, who headed the panel of lawyers, said on Monday. He acknowledged that many officials at the bank had told the investigators “they did not remember what happened.”
Mizuho, based in Tokyo, announced late on Monday that its president and chief executive, Yasuhiro Sato, would keep his job, though he and 53 other current and past executives will take a pay cut for up to six months. Mr. Sato also serves as president and chief executive of the bank’s parent, the Mizuho Financial Group.
“I apologize from the bottom of my heart,” Mr. Sato said at a news conference, bowing deeply in front of cameras. “I take very seriously the fact that we find ourselves in this situation.”
The group’s chairman, Takashi Tsukamoto, who plays a mostly advisory role at Mizuho, will step down.
The scandal has done little damage to the company’s stock, which actually rose 2.45 percent on Monday after news of the report.
The shady lending came to light after the Japanese banking regulator, the Financial Services Agency, censured Mizuho last month over its handling of the loans. The loans underscore how organized crime groups continue to draw money from the financial system here despite efforts to shut them out.
Used-car loans have long been known to be part of illicit fund-raising schemes run by gangsters. In one often-used method, gang members conspire with a dealer to buy a car — like a slick, black Mercedes-Benz of the type favored by gangsters here — for a far higher amount than the usual asking price, then apply for a used-car loan to cover the inflated price. The scheme gives gangsters access to easy financing; the car can be sold or fitted with new license plates so it can be used to apply for further loans, according to local news reports.
Members of organized crime groups are not supposed to have such access to financing from big banks like Mizuho as a result of a 1991 law that made money-laundering illegal. Since then, the Japanese authorities have bolstered rules requiring that banks more vigorously scrutinize potential clients to check for any ties to organized crime. Mizuho said its loan officials typically checked applications against its nationwide database of known members of organized crime groups and their associates.
But the auto loans in question, about 230 transactions totaling about $2 million, were made by the Orient Corporation, a much smaller consumer financing company affiliated with Mizuho that carried out far less stringent background checks on potential buyers, the report from the outside panel said. Last week, an investigation by the daily Mainichi Shimbun said used-car loans from Orient, known as Orico, were typically approved in about 15 minutes with minimal identification checks that were conducted by fax.
Mizuho periodically bought up bundles of these loans from Orico and did not stringently check each loan, the report said. When some gangster-linked loans came to light during a routine internal inspection, Mizuho instructed Orico not to give further loans to those gangsters. But it did not cut off existing loans or inform the authorities.
The bank initially said that knowledge of the matter went only as far as the bank’s compliance officers but later acknowledged that Mr. Sato and other members of Mizuho’s board had been aware.
Still, the report put the bank’s hesitance down to a mistake and not an intentional cover-up. Mizuho has not been fined, though regulators have come under pressure from experts and the media to punish the bank with penalties. Some lawmakers have called on Mr. Sato to testify in Parliament.
Analysts attribute much of the scandal to confusion and disorganization within Mizuho, affecting its handling of the loans. The Mizuho Financial Group, created 13 years ago from mergers during the final years of Japan’s financial crisis, has been riddled with factions and infighting.
Its internal discord came to light in 2002, when widespread computer malfunctions crippled its network of automated teller machines and disrupted or delayed at least 2.5 million transactions. The bank attributed those problems to poor integration of the information technology systems used by its legacy banks, the Dai-Ichi Kango Bank, Fuji Bank and the Industrial Bank of Japan.
The report on Monday from the lawyers’ panel found that the constant infighting, plus another A.T.M. shutdown after the 2011 tsunami and nuclear disaster, diverted the bank’s attention away from dealing appropriately with loans to gangsters.
“There was a failure of governance at the bank, and much of that seemed to come down to a culture of bad relations inside the bank left over from its merger,” said Nobukatsu Ono, an assistant professor of management and economics at Kaetsu University in Tokyo.
Professor Ono also said the case showed the still-murky ties between lesser-known names in Japanese finance and the criminal underworld. In 2009, Shinginko Tokyo, a bank set up by the city’s municipal government to finance small and midsize businesses, collapsed after many of its loans were found to have been made to organized crime.
“I’d like to think that those ties are no longer prevalent at Japan’s biggest banks,” he said. “But that’s less clear elsewhere, for example at consumer credit companies like Orico.”
Mizuho promised on Monday to step up its vigilance against doing business with mobsters, saying it would share its detailed client databases with affiliates like Orico. Other banks in Japan have said they will take similar steps.
Taro Aso, who heads Japan’s Finance Ministry and financial regulator, said officials would study Mizuho’s plans to improve its governance — submitted to the ministry on Monday — before deciding on any further administrative penalties.
“It’s an extremely big problem that the outside panel has said there were relations with antisocial forces,” Mr. Aso said, using a euphemism for organized crime. “We must make sure that kind of thing does not happen. It’s the worst thing a bank can do.”