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A JAPANESE LAUNDRY WORTH $1 BILLION?
He remains a legend in Las Vegas. Flying in from Tokyo on his private DC-9, often accompanied by dozens of his friends, Ken Mizuno would hit the baccarat pits at the glittery Mirage Hotel & Casino, at times dropping $100,000 on a single hand. Local officials estimate that over a three-year period, Mizuno lost as much as $60 million at the tables. The problem was, law-enforcement officials in the U.S. and Japan now believe, the cash wasn't his to spend.
Mizuno himself was arrested in Tokyo last summer and has pleaded not guilty to fraud and tax evasion; his attorney did not return BUSINESS WEEK's telephone calls. But officials on both sides of the Pacific are convinced that the property developer is one of dozens of money-laundering foot soldiers working for Japan's powerful yakuza organized-crime networks. "There's more money-laundering activity by them than drug trafficking" in the U.S., says Jim E. Moody, chief of the Federal Bureau of Investigation's erganized-crime and drug section. In all, other FBI officials estimate, upwards of $1 billion in illicit money was channeled to the U.S. as Japanese mobsters joined in the real estate boom of the 1980s.
COMMON TARGETS. U.S. Customs and FBI officials are said to be looking into the $108 million purchase in 1988 of the famed Riviera Country Club in Los Angeles by a construction company owned by Kaneno and Noboru Watanabe, a father-son team with alleged ties to Shin Kanemaru. Kanemaru, the longtime power broker of Japanese politics, resigned from the Diet last autumn after the discovery that he had accepted an illegal campaign donation from the head of a delivery service with yakuza ties.
The Watanabes, in a letter to Riviera members, denied a May 2 Los Angeles Times report that they and their company used dirty money to buy the club, although they admit knowing Kanemaru. "Mr. Noboru Watanabe has advised us that there is no ground for the allegations," Riviera General Manager Peter J. Pino wrote in the May 4 letter. BUSINESS WEEK did not reach Kanemaru for comment.
The Riviera is just the kind of investment Japanese crime families might covet. The networks earn an estimated $10 billion a year from drugs, prostitution, and other illegal activities, according to the Japanese National Police. They pour much of the proceeds into investment companies, which "systematically infiltrate" cash-churning U.S. and Japanese businesses "to launder their illegal funds," according to an FBI report. Golf clubs have been common targets (table).
There are several ways the money could travel. Mizuno is charged with overselling by about 20 times memberships in his Ibaraki Country Club, two hours north of Tokyo, then funneling the excess cash into U.S. investments--notably two golf clubs that now have been seized by U.S. Customs as security for his Japanese debts. But organized-crime leaders also infiltrated Japanese banking institutions, helping to secure loans for front companies they established, the FBI says.
Such activity has been widely assumed in Japan but was not well-known in the U.S. until last August, when an informant with ties to the yakuza told a Senate subcommittee that he had firsthand knowledge of at least 50 transactions to buy properties in Hawaii alone. The witness--known only as "Mr. Bully"--told the subcommittee that Pebble Beach Golf Links was purchased by Japanese executive Minoru Isutani in 1990 with loans from a Tokyo bank's development unit with links to the yakuza.
MONEY TRAIL. Isutani, who had hoped to sell Pebble Beach memberships in Japan for up to $740,000 apiece, sold the club at a $340 million loss in 1992, after local officials blocked development plans. Isutani says he was visited by FBI agents in Tokyo in 1991, but no action was taken. "I am clear of these allegations," he told the San Francisco Examiner last year.
The FBI has active investigations into yakuza money laundering in Los Angeles, Las Vegas, Honolulu, and Palm Springs, Calif. Worried that the money-laundering activities could be the first step toward drug and prostitution operations, the bureau is looking as well at Japanese investments in such cash-generating activities as pachinko pinball parlors and karaoke bars. But FBI efforts have been stymied by the absence of money-laundering laws in Japan.
Until tougher laws are written, FBI and Customs officials will continue to follow the money. One favorite target is Vegas, where casinos have traditionally catered to cash-rich Asians. That's where agents ran across the late Ginji Yasuda, whose 1988 attempt to get a license to run the Aladdin Hotel & Casino failed after an investigation into his possible mob connections. And that's where they got their first look at Ken Mizuno, the man with money to burn.DIRTY GREEN
ON THE GREENS
How the Japanese allegedly use Ameri-
can country clubs to launder cash
1 Investors lend illegally obtained money to a private investment company
2 Investment company uses new cash to buy a golf club or resort in the U.S.
3 The resort property collects huge fees for new members
4 Resort fees--the "clean" money--are funneled back to original investors
5 Eventually, the investment company sells its properties, sometimes at a loss
DATA: FEDERAL BUREAU OF INVESTIGATION, BUSINESS WEEK
Ronald Grover in Los Angeles, with Catherine Yang in Washington and Robert Neff in Tokyo