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Kobe Steel raids focus on decades of inaction

Japanese company's data fakery stretches back to 1970s

Kobe Steel's headquarters in Japan. The steelmaker is facing tough penalties for its years of data fabrication.

TOKYO -- Japanese investigators have expanded their probe into Kobe Steel's data-tampering scandal, targeting a company they believe should have righted itself long ago.

The Tokyo District Public Prosecutors Office, working with the Tokyo Metropolitan Police Department, raided the steelmaker's Tokyo and Kobe offices on Tuesday, along with three plants, according to sources close to the probe. This move comes amid a raft of data-doctoring scandals in Japan, such as those at group companies of Mitsubishi Materials and Toray Industries.

But Kobe Steel is a special case, since it has a lengthy rap sheet on falsifying information. In 2006, it came to light that the company fabricated the amount of soot and smoke produced at steel mills. In 2008, group company Nippon Koshuha Steel was caught faking strength test data for steel materials. As recently as 2016, another subsidiary, Shinko Wire Stainless, misrepresented test data.

The group had a chance to turn over a new leaf in each of those instances, but to no avail. "They have not reformed themselves despite the problem appearing in the past, pointing to a problem with the company's internal culture," a senior investigative official said.

The U.S. Department of Justice asked Kobe Steel subsidiary in October of last year to turn over documents and submit to questioning. Kobe Steel could be slapped with harsh penalties, a U.S. lawyer says. Autoparts supplier Takata was also subject to a Justice Department probe over faulty air bags. That resulted in a large financial settlement and an admission of wrongdoing from the Japanese company.

Japanese authorities are also looking to take a tougher stance on falsification of product quality. No Japanese regulations directly address such issues. Instead, prosecutors rely on an antitrust law section that bans the willful misrepresentation of product information. Persons found guilty face up to five years in prison and a potential fine. Companies could be slapped with a 300 million yen ($2.73 million) fine.

Kobe Steel's data fixing goes all the way back to the 1970s and spans a number of executives past and present.

Over 40 employees at 23 locations have been found to have contributed to the cheating in just the most recent scandal. Companies outside Japan, including household names like General Motors, account for a third of the clients that received suspect material. And the products at issue have been wide-ranging, covering aluminum, copper and steel. One senior investigator believes that the gross misconduct has occurred at the organizational level for years.

However, prosecutors may also consider the fact that 99.8% of Kobe Steel clients affected by the scandal have said the products they received are safe. There has not been any confirmed damage or injuries directly resulting from the data manipulation.

Authorities may also face hurdles in winning criminal indictments against those implicated in the scandal. The Japanese manufacturing sector has employed a practice called tokusai, in which clients sometimes knowingly accept products whose quality metrics fall below specifications, as long as the finished products still meet performance standards.

Some Kobe Steel group companies would treat substandard products judged safe as tokusai orders without informing the customer. The employees involved might not have realized that what they were doing was illegal.

A Toyo Tire & Rubber unit had to pay 10 million yen last year for doctoring performance data on earthquake shock absorbers. But the company's executives managed to avoid being charged.

Kobe Steel posted a 71.1 billion yen pretax profit for the year ended March. "At this point, there has been almost no loss of customers," a senior executive said. The impact of the scandal so far appears limited. But the company's brand could wither in the long run, along with trust in Japan's manufacturing.

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