Cryptocurrency Exchanges Regulation In June, Japan’s largest cryptocurrency exchange, bitFlyer, suspended the creation of all new accounts and conducted an overhaul of its internal management systems amid stricter regulation and demands by the Japanese Financial Services Agency (the "FSA") to address flaws in its money laundering prevention, know your customer and transaction monitoring divisions.
In late July, following multiple instances of theft and repeated findings of security shortcomings and mismanagement by cryptocurrency exchanges (as reported in our previous 2018 updates), the FSA announced it was considering changing the legal basis by which it regulates cryptocurrency exchanges in Japan. Cryptocurrencies are currently regarded as electronic money and regulated under the Payment Services Act, but the FSA proposes changing this model so that cryptocurrencies are to be legally treated as financial products under the Financial Instruments and Exchange Act ("FIEA"). This move would require cryptocurrency exchanges to provide more robust customer protections, in particular to hold private and institutional assets separately as stipulated by the FIEA.
Instances of bribery and corruption at the Ministry of Education, Culture, Sports, Science and Technology and Tokyo Medical University
Two senior officials at Japan's Ministry of Education, Culture, Sports, Science and Technology have been arrested over bribery allegations in two separate instances.
The former director-general of the Ministry's Science and Technology Policy Bureau was arrested on 4 July 2018 for accepting a personal bribe from the Tokyo Medical University in 2017. The university inflated the Ministry official's son's entrance examination results to secure him a university place in exchange for consideration for a multimillion yen Ministry grant. Tokyo Medical University was subsequently granted JPY 35 million in 2017 after failing to be selected for the same Ministry grant program the previous fiscal year. During the investigation into this act of bribery, it has emerged that Tokyo Medical University has systematically discriminated against female applicants by manipulating their entrance test scores since 2011 (lowering their marks by as much as 10%) in order to keep the female student population low, because university authorities considered that women tend to quit medical careers after starting families.
On 26 July, a second high-ranking Ministry official (the former director-general for International Affairs at the Education Ministry) was arrested (and formally indicted on 15 August) on a charge of accepting bribes worth about JPY 1.5 million from a medical-care consulting company executive in relation to a disaster response programme at the Japan Aerospace Exploration Agency ("JAXA"), where the official was posted as a director in part to evaluate business contracts. The official is accused of handing out favours and preferential treatment to the medical consulting firm, including among other things arranging for a JAXA astronaut to give a speech at the Tokyo Medical University in 2016, with which the medical consulting firm has commercial relations.
Further data falsification and improper lending scandals
On 20 July 2018 the former president of bankrupt travel agency Tellmeclub was found to be guilty of falsifying the company's financial records with non-existent profits in order to obtain bank funding. She has been given a six year prison sentence for fraud. She has also been found guilty of hiding JPY 10 million from her lawyers and bankruptcy trustees and disclosing only approx. JPY 570,000 in cash when filing for personal bankruptcy in April 2017.
As reported in our April update, the FSA is currently investigating Suruga Bank Ltd. in connection with loans it made to retail customers for housing investments. The customers invested in women-only housing schemes operated by Tokyo-based Smart Days, which subsequently filed for bankruptcy, owing JPY 6.6 billion, causing most investors to lose their source of rental income whilst continuing to owe money loaned to them by Suruga Bank. As reported in our April update, senior bank officials are alleged to have systematically falsified copies of investors' bank books used to examine investors' ability to repay the loans. One individual investor is seeking damages of JPY 230 million from Suruga Bank for its failure to check his original bank book, granting him a loan despite knowing his income was insufficient and giving him insufficient warning over the risk involved.
On 15 August, it was also reported that Suruga Bank had "deceived" Tokyo Star Bank into extending an additional JPY 300 million in loans to Star Days by offering its false support in the knowledge that Smart Days could not recover financially. A senior Suruga Bank executive is accused of presenting a new "reconstruction plan" at a board meeting attended by Tokyo Star Bank as a distraction to conceal the gravity of the financial situation at Smart Days. Smart Days subsequently refinanced all its loans from the Tokyo Star Bank from another financial institution in Tokyo and ultimately became insolvent. Suruga Bank is reported to have terminated its relationship with Smart Days shortly after Tokyo Star Bank extended this new loan.