Thursday, October 3, 2013
EDITORIAL: Banks Cannot Shirk Social Responsibility
TOKYO (Nikkei)--The revelations of Mizuho Bank's links with criminal organizations serve as a strong reminder that financial institutions need to keep a closer eye on how they conduct themselves in society.
The unit of Mizuho Financial Group Inc. (8411) received a business improvement order from the Financial Services Agency in late September for its role in supplying 230 loans totaling 200 million yen to what it knew were "anti-social forces."
These transgressions show that the bank placed little importance on the concept of social responsibility even as the central and local governments are working with the private sector to fight underground syndicates. The bank owes the public a detailed explanation of its role in the matter and why it allowed the lending activity to continue.
Mizuho Bank channeled money to criminal organizations through a consumer credit company, which screened customer applications for automobile loans. The loans extended by the consumer credit firm were then financed by the bank.
This joint lending practice is not in and of itself illegal; Many banks take this approach to more flexibly meet the needs of their customers, such as those seeking financing for car purchases and education.
The problem lies in the customer-screening process. The outsourcing of this step -- as Mizuho Bank did -- makes it possible for lenders to extend loans without knowing much about who is receiving the money. Banks need to act immediately if they learn that the money is going to a suspicious destination. This includes terminating loans to consumer credit companies.
Why The Delay?
Mizuho Bank found out as long ago as December 2010 that loans it was partnering on were being funneled to criminal organizations, but it nevertheless failed to take action. What is worse is that the transactions were kept secret from top executives for more than two years. It is doubtful that the company has been complying with the law.
The question is why did Mizuho Bank leave the issue unattended for so long. It has remained silent since the FSA issued the business improvement order. To put shareholders and depositors at ease, it owes the public a full account of its role in the matter.
Large organizations with long histories are more prone to being infested with illegal transactions and relationships. In 2007, Bank of Tokyo-Mitsubishi UFJ was sanctioned for doing business with criminal groups. All financial institutions need to thoroughly review their screening processes and measures for ensuring legal compliance.
Banks play an integral role in people's lives by taking depositors' savings and supplying the money to the market. Organizations so crucial to society cannot under any circumstances undermine the public's trust.
(The Nikkei, Oct. 3 morning edition)