Misconduct by Iwaki Shinkumi: Improper Practices Are Serious, Unacceptable for Financial Institution
According to a report released in late May by its third-party committee, Iwaki Shinkumi repeatedly conducted improper lending to major clients, whose financial condition had deteriorated, and concealed the practice for about 20 years starting in 2004.
The credit cooperative created shell companies and engaged in backdoor lending. It also opened fake accounts by using the names of general depositors without their consent.
Iwaki Shinkumi's loan balance stands at about ¥120 billion, and there were 1,293 cases of loan irregularities involving a total of ¥24.7 billion. The lender's lack of awareness regarding compliance with laws and regulations is utterly astonishing.
Credibility is the most crucial factor for financial institutions, which have a high public profile. Nevertheless, successive executives and other officials at Iwaki Shinkumi continued to systematically cover up the misconduct.
The influence of a former chairman, who was at the helm for 20 years until his resignation in November last year, was enormous. His power strengthened a corporate culture in which employees could not speak out. It is evident that this situation created a breeding ground for fraud and resulted in serious governance failures at the credit cooperative.
After the Great East Japan Earthquake, the government injected ¥17.5 billion in public funds into Iwaki Shinkumi in January 2012 to support the economy of disaster-hit areas. The public funding reinforced Iwaki Shinkumi's business strength, so the credit cooperative dealt with some of its fraudulent loans as losses. Such an act completely lacks any sense of ethics.
In an investigation conducted by the third-party committee that was set up in November last year under the previous management team, Iwaki Shinkumi was reportedly uncooperative. It told the committee that it had destroyed a related computer and failed to submit necessary documents, among other actions.
Given that situation, the current leadership, who took up their positions last month after a management reshuffle, deemed that an additional investigation was necessary and set up a special investigation panel consisting of lawyers and other experts.
About ¥850 million to ¥1 billion in loans extended by the credit cooperative remains unaccounted for. The current management team is reportedly considering seeking damages from their predecessors and filing a criminal complaint against them. Although the moves come too late, the financial institution's misconduct should be elucidated thoroughly from both a civil and criminal perspective.
There are about 140 credit cooperatives nationwide, and deposits and lending are limited to their members, in principle. The deposit balance of credit cooperatives nationwide totals about ¥24 trillion, and their lending amounts to about ¥14 trillion. Credit cooperatives are nonprofit entities in which members support one another. This means they are the financial institutions that are closest to local communities.
Nevertheless, the Financial Services Agency failed to detect Iwaki Shinkumi's misconduct for many years, so it bears a grave responsibility. Because public funds were injected into the credit cooperative, the FSA was supposed to have monitored the cooperative's management strictly. So, what brought about this situation? The supervisory systems of all the credit cooperatives also need to be checked thoroughly.
(From The Yomiuri Shimbun, July 13, 2025)
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