TT-642 -- Another Olympus-style Scandal: JTI, ebiz news from Japan

* * * * * * * * * T E R R I E 'S T A K E * * * * * * *
A weekly roundup of news & information from Terrie Lloyd.
(http://www.terrie.com)

General Edition Sunday, December 11, 2011, Issue No. 642

+++ INDEX

- What's New -- Another Olympus-style Scandal: JTI
- News -- TEPCO claims "ownership" of radiation belongs to
others
- Candidate Roundup/Vacancies
- Upcoming Events
- Corrections/Feedback
- News Credits

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+++ WHAT'S NEW

A few weeks ago, after writing about the emerging Olympus
scandal and how it read like a thriller novel, we received
a tip from a reader that there is another potentially worse
Japanese corporate scandal in the works, involving the
international subsidiary of Japan Tobacco, JTI. At first we
didn't take it seriously, because the reporter group
breaking the story were working out of Belgrade, and, well,
some of the accusations seemed pretty far-fetched --
smuggling, illegal counterfeiting factories, financing the
Syrian Assad regime with indirect kickbacks, and other
things.

This view seemed to be confirmed in a November 4 news item
from Reuters, which reported the fact that there were
accusations against JTI by the reporter group, Organized
Crime and Corruption Reporting Project (OCCRP), and which
on requesting comment from JTI Reuters received the
response that: "These matters have all been properly
addressed and handled within JTI in line with our overall
stance towards anti-illicit trade and my understanding is
that it has been all solved or addressed already as far as
JTI is concerned." The spokesperson, Hideyuki Yamamoto
based at Japan Tobacco here in Tokyo then went on to
dismiss the credibility of the whistleblowers by saying
that the information in the OCCRP report had been
circulated for the past two years or so by people believed
to have been fired by JTI.

So, this could all be a hoax, or as Yamamoto seems to be
intimating in his comments to Reuters, a case of sour
grapes by a fired employee. However, one of the people who
was fired was in fact a senior manager in JTI's own
investigating team, Dave Reynolds, and the information
being "circulated" was none other than an April 2010 report
by Mr. Reynolds to Japan Tobacco in Tokyo saying that his
investigative unit was being harassed and even had email
accounts hacked by parties hired by the top management in
JTI, i.e., his own top management were trying to impede
his group's investigations. Reynolds implored in his letter
for the addressee, a Haruhiko Yamada here in Tokyo, to take
the situation seriously and do something about its errant
subsidiary.

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[...Article continues]

Reynolds was the VP of Global Brand Integrity at JTI and
was fired just days after rendering the report. Shades of
Olympus? He is certainly no lightweight. Much like Michael
Woodford of Olympus, Mr. Reynolds has a strong resume,
which includes his current position (we found him on
Linked In and subsequently had an email conversation with
him) as SIO for Criminal Activities at the FBI. Prior to
JTI he was a Foreign Services Officer at the US Department
of State and earlier on an intelligence officer at the CIA.
A guy like Mr. Reynolds probably doesn't need to make stuff
up as is contained in his report, which you can find on the
OCCRP website. http://www.reportingproject.net/. Go to the
Story Documents tab, and look at PDF #10.

Actually Reynold's April 10th report was the climax of a
number of reports his team had provided JTI senior
management on smuggling, intimidation, blind eyes turned to
counterfeiting, kickbacks, Russian mob involvement, and
other nefarious activities. He specifically stated in his
final letter to Japan Tobacco that he thought the
activities of some of the senior (non-Japanese) management
in JTI itself bordered on being illegal and appeared to be
in contravention with a 2007 agreement between the EU and
JTI that required JTI to report all instances of smuggling
that it uncovered. Pretty serious charges.

Since Reynolds was fired, OCCRP says it has uncovered
further and more recent documents from March-May this year
which show that the hanky panky is still going on. JTI's
Middle East business partner, IBCS, run by a fellow named
Rami Makhlouf, is doing substantial business with the
Syrian government and according to an EU report funds them
through his activities. IBCS doesn't seem to care much
about the EU sanctions and as an example shipped 90m duty
free cigarettes to Syria four days after the sanctions
were put in place. Further, on May 27th, JTI itself shipped
84,000 cases of cigarettes to the Syrian government's GOT
organization, including 20,000 cases free of charge. We
wonder if JTI can explain why they effectively gave 200m
cigarettes, worth around US$15m to a government that will
clearly sell them and pocket the change? Further, we wonder
if JTI's parent, Japan Tobacco, can defend why it hasn't
taken disciplinary action against its subsidiary's senior
management for such actions?

We're surprised that this case hasn't seen more light of
day in the Japanese press. Probably because OCCRP is in
Eastern Europe and because Japan Tobacco here in Tokyo is
good at stonewalling. Unfortunately for Japan Tobacco,
OCCRP has accumulated an impressive stack of apparently
authentic documents to buttress its case, and although the
EU's policing organization for the tobacco industry, OLAF,
doesn't seem very effective, here in Tokyo, Japan Tobacco
is opening itself up for a law suit relating to senior
management being aware of potentially illegal activities
and not doing anything about it.

In our opinion, after speaking to OCCRP and confirming
with Reynolds that the documentation is authentic, Japan
Tobacco needs to appoint an investigative committee here in
Tokyo to find out what its senior managers at JTI have been
doing and potentially hiding. In Europe JTI has legal
liability if the OCCRP allegations are true (see
http://ec.europa.eu/anti_fraud/budget/cig_smug/2007_en.html).
Further, the Tokyo Prosecutors office should also get
involved, reviewing the many documents that OCCRP has, to
see if any Japanese laws have been broken. At very least
there should be some action against those directors
responsible for management control of JTI.

What the JTI case does suggest is that Olympus is just the
tip of the iceberg, it's not a one-off situation. As
Japanese firms which are used to keeping skeletons in the
family closet start to go international, they need to
understand that there are rules and people which they
can't control and it is all too easy to have things wobble
out of control.

The JTI case will also confirm for many foreign
shareholders that major Japanese firms are not serious
about corporate governance, and that this will ultimately
be a problem for the Japanese government. Indeed, the JTI
case is much more a government problem than Olympus was,
since the government owns 50% of Japan Tobacco. Given that
point, we believe that the DPJ should tell Japan Tobacco's
top management to get the problem sorted out before it
potentially embarrasses the country even more than the
Olympus case has done.

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+++ NEWS

-> TEPCO claims "ownership" of radiation belongs to others
-> Whaling fleet subsidized from Tohoku funds
-> Meiji baby powder turning into scandal
-> Just 238,000 taxis
-> Jetstar to significantly increase employees

=> TEPCO claims "ownership" of radiation belongs to others

In a farcical court appearance, the lawyers for Tokyo
Electric Power Company (TEPCO) have tried the novel
approach of claiming that the radiation fall-out from its
exploding reactors "belongs" to the prefectures and cities
it landed on, rather than TEPCO itself. The claim was an
attempt to disavow liability for the fall-out and
subsequent remediation and compensation costs. Fortunately
the court threw out the claim. ***Ed: Yup, OK, TEPCO has to
pay out JPY20trn in compensation so it has the right to try
to reduce its obligations -- but there is a moral limit and
trying on an argument like this just makes TEPCO look even
more despicable in the public's eyes. Do these guys have
any commonsense?** (Source: TT commentary from
thereporter.com, Dec 8, 2011)

http://www.thereporter.com/opinion/ci_19495482

=> Whaling fleet subsidized from Tohoku funds

A storm of criticism has been unleashed abroad by a
Fisheries Agency admission that JPY2.28bn is being used
from the Tohoku Disaster Recovery funds to pay for this
years whaling fleet expenses in the Southern Ocean. The use
of the funds was defended as supplying work for ports where
some of the whaling fleet is based, such as Ishinomaki.
However, Sea Shepherd is saying that not only is the
diversion immoral but that also donations from the public
form part of the amount being used. ***Ed: Whether this
last accusation is true or not is hard to prove, but there
is no doubt that money going to the whaling fleet and its
protection is clearly NOT going to the victims of the
tsunami. (Source: TT commentary from independent.co.uk,
Dec 9, 2011)

http://ind.pn/taETpk

=> Meiji baby powder turning into scandal

Not catching cesium in its Step baby milk powder is bad
enough, but it has now emerged that Meiji Milk actually
ignored customer concerns after a blogger announced
independent test results on his website. The level of
radiation is below government mandated levels, at 30.8
becquerels per kilogram, but since Step is used by
mothers with babies 9 months and up, consumers are shocked
to say the least about the presence of Cesium in the
powder. ***Ed: This is really an unbelievable situation,
and we're surprised it hasn't become a full-blown scandal
yet -- we're guessing it will. Japanese mothers are highly
sensitive to the health needs of their babies, as evidenced
by the piles of water bottles even now in apartments around
the city with young families. Our guess is that Meiji's
Step powder sales will plummet after this.** (Source: TT
commentary from japantimes.co.jp, Dec 11, 2011)

http://www.japantimes.co.jp/text/nn20111211a1.html

=> Just 238,000 taxis

Legislation passed in 2009 to consolidate the cab industry,
coupled with an ongoing sluggish domestic economy have
dealt a major blow to taxi firms, reducing the number of
cabs in service from a peak of 400,000 cabs some years ago,
to just 197,400 company cars and 41,200 private cars. This
is the lowest number in 33 years. ***Ed: Darn cabs are
getting expensive, too. JPY750 for just 2km -- who wants
to be paying that kind of money when the trains are so
much more reliable?** (Source: TT commentary from
e.nikkei.com, Dec 11, 2011)

http://e.nikkei.com/e/ac/tnks/Nni20111210D10JFF04.htm

=> Jetstar to significantly increase employees

Jetstar Japan seems to be doing well these days,
announcing that it plans to hire up to 450 cabin crew in
the next 3-5 years, coinciding with its expansion plans for
Japan. Overall, the company says it will hire 1,500
employees in the next 5 years. This coincides with the
firm's plans to start flying domestically in Japan from
next year, and outbound international flights from 2013.
(Source: TT commentary from e.nikkei.com, Dec 9, 2011)

http://e.nikkei.com/e/ac/tnks/Nni20111208D0812N03.htm

NOTE: Broken links
Many online news sources remove their articles after just a
few days of posting them, thus breaking our links -- we
apologize for the inconvenience.

***------------------------****-------------------------***

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+++ UPCOMING EVENTS/ANNOUNCEMENTS

No events for this week.

***------------------------****-------------------------***

+++ CORRECTIONS/FEEDBACK

In this section we run comments and corrections submitted
by readers. We encourage you to spot our mistakes and
amplify our points, by email, to editors@terrie.com.

*** In TT641 we delved into possible reasons for the
Japanese permanent singles rate increasing as it has.

=> Reader comments:

Excellent analysis of an important issue.

One thought, I think it's important to look carefully at
the big percentage citing "because of work and study
commitments." In addition to people working hard to support
themselves, I also think that there is an unfortunate trend
in Japan in the past 10 years or so for companies to keep
their staffs extremely lean, and to push them to work even
harder. In other words, frankly I think that companies are
to blame in part for this problem of people not dating and
procreating, due to the way that they treat their
employees.

For example, I hear anecdotally many tales of employees at
Japanese firms who work until late (e.g. 10 or 11 pm)
every single night. These are not just isolated cases, but
entire workplaces with large numbers of people where this
is the norm, and sadly is considered normal. Of course this
is not something new in Japan, but I do believe it's
getting worse as pressure on companies is stronger than it
was in the better days of the economy, and they try to do
more with less. It always seems to be the employees who
take the brunt of it.

With this kind of work schedule, there is no time to meet
anyone in after-work activities, and then employees spend
the whole weekend trying to recover from the workweek. Even
if one of these hard workers should have a girlfriend, she
would probably dump them soon because they wouldn't see
them much and they wouldn't be much fun to be around when
they do. And if one of them is already married, not much
time or energy for baby-making, or child-rearing.

The karoshi cases that come up with depressing frequency
also show examples of what some Japanese companies
(amazingly) consider appropriate ways to manage their human
resources. For every person who dies from such exhausting
work schedules, there are undoubtedly scores more who are
tired, depressed, and/or isolated from working so hard, and
that as a result are unable to engage in dating or
procreating.

I see many companies in Japan putting up "work-life
balance" posters but I think that more fundamental change
is needed. Sadly, I don't see it coming anytime soon.

***********************************************************
END

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