Written by Yiming Zhang
Edited by Sarah Mejia
According to “Mizuho: Ex-CEO Told of Loans,” a recent article written by Atsuko Fukase in The Wall Street Journal,Mizuho Bank of Japan has made poor loan decisions. As a result, the bank is suffering a loss of reputation since Mizuho bank loans to criminal groups.
Currently, Mizuho Bank is involved in loaning to criminal groups, something not permitted by the law. The bank deceived the public by announcing that its former CEO, Satoru Nishibori, did not know about the illegal loan transactions occurring in his tenure; however, facts prove that he did know about these illicit loans prior to public exposure. Yasuhiro Sato, the present CEO of Mizuho Bank and Mizuho Financial Group, has exposed the truth. The bank had 230 transactions of up to $2 million associated with criminal groups. The investigation is an ongoing one.
Because of its shady loan dealings with criminal elements (the use of the fund has not been revealed yet), Mizuho Bank now has credibility and ethical problems. The top management of the bank has the responsibility of addressing these unethical loan transactions. Furthermore, in my opinion, those executives who participated in the illegal transactions also deserve some kind of punishment—either the loss of their jobs or a reduction in salary—for not alerting the board. However, no punishment has been imposed on those executives to date. As the CEO of the Mizuho organization, Sato, although not the original culprit, has been relieved of his social duties since he is responsible for the whole company and its mistakes. The public has reacted negatively to this scandal. For Mizuho to regain its once positive reputation, the bank needs to implement internal punishment according to the results of the investigation.
Although The Wall Street Journal has done a thorough job of investigating this corruption, some questions still remain. As the article states, the loan transaction started as early as July 2010. Yet, it took Sato more than three years to recognize the fatal flaw in the accounts of his important subsidiary company. It seems incredible that the CEO did not paid much attention to a $2 million loan. This oversight represents a significant failure for the CEO. In this sense, the case has some similarities with the case of Enron. The boards of both the bank and oil company demonstrated weaknesses in governance. The Mizuho board did not raise questions or concerns regarding the tremendous amount of cash flow, while Enron’s board did not see how the company overstated its revenue while underestimating its liability.
Despite demonstrating similar behaviors, Mizuho and Enron acted for different reasons. Although Sato did not lead the downfall of the bank and its reputation, the bank itself has certain vulnerabilities that might trigger unethical transactions. The borrowers representing criminal groups might have threatened executives to lend the money. The only legal and effective way to prevent such extortion is by strengthening the regulation of public security. Even with viable options, the bank failed.
Another question that needs to be addressed concerns how the Mizuho group communicated with the public. The article states that the Mizuho group gave a misleading report to the public by trying to conceal the fact that it loaned to gangsters. To deal with this offensive behavior, a specialized investigation committee, which can enlist third-party auditors, should be set up to be in charge of the report.
Overall, Yasuhiro Sato has done a relatively good job in remedying the situation, but there remains room for improvement. As a CEO, Sato will bear responsibility for this gigantic mistake which he did not commit. Those who are accountable to the transactions should face consequences; the trade is always inevitably done by more than one group. The Mizuho has been punished, and the criminal groups should be punished as well. Perhaps bank accounts used by the groups can be frozen so that they no longer have access to the money.
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