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Abe scandals

Is Japan's Finance Ministry at the breaking point?

Confusion reigns as former tax agency chief Sagawa testifies on document tampering

Former senior Finance Ministry official Nobuhisa Sagawa exits the lower house of the Diet in Tokyo after his testimony on March 27.

TOKYO -- Former Finance Ministry official Nobuhisa Sagawa insisted in testimony before both houses of the Diet on Tuesday that there were no instructions to alter documents at the center of a dodgy real estate deal, but offered no insights into the motivations for the falsifications. But the series of events and the conditions in the ministry leading to the wrongdoing indicate serious problems within the Finance Ministry itself.

On March 2, the day the Asahi Shimbun newspaper reported about the alleged tampering of land sale documents at the Finance Ministry, ministry officials gathered in the minister's office at 8 a.m., an hour earlier than they usually started work. In front of Finance Minister Taro Aso lined up Vice Finance Minister Junichi Fukuda, Deputy Vice Finance Minister Koji Yano, financial bureau chief Mitsuru Ota and other officials. "It'll be fine. It's not like it was covered up," one official said. No one in the room could have predicted the confusion within the ministry that followed.

The Finance Ministry, the most powerful administrative agency in Japan, has been shaken to its core. The ministry has been under fire over its sloppy responses to the allegation that officials intentionally altered documents related to the sale of state-owned land to Moritomo Gakuen, a private school operator. The confusion among the ministry elite who usually wield considerable power over other ministries as the budget-compiling agency reminded some of the ministry's confusion after another financial scandal in the late 1990s.

Only a week after the March 2 meeting, the Diet descended into chaos, with opposition lawmakers condemning the ministry and the government. The ministry had been conducting an internal investigation into the matter but the probe had been stymied by "the fear among financial bureau employees of being singled out," a ministry official said. The ministry could not confirm whether the documents in question had really been tampered with. With the internal investigation still ongoing, ministry officials were forced on March 8 to comply with a request to submit all relevant documents to the Diet.

Gathering the documents turned out to be troublesome. Ministry staff brought paper copies of the land sale documents from the Kinki regional bureau in Osaka to the ministry headquarters in Tokyo by shinkansen bullet train. Only a few days later, on March 12, the documents, which had been brought to Tokyo in a manner that many noted was rather strange at a time when file-sharing software is widely available, were found to have been tampered with.

The Ministry of Finance headquarters building in Tokyo.

Then the Ministry of Land, Infrastructure, Transport and Tourism said it had informed the Finance Ministry on March 5 about documents that may have been the doctored papers in question, before the alterations were made. That raised questions about the Finance Ministry's responses. Critics argued that the Finance Ministry pretended that it did not hear about the possibility from the Ministry of Land, Infrastructure, Transport and Tourism, and so that it did not properly seek cooperation from prosecutors as required when it was gathering documents under investigation by the prosecutors. "It was supposed to meet all the demands of parliament," a Finance Ministry official sighed. Many ministry staff were similarly exhausted.

On March 9, Sagawa, at the time the finance bureau chief who had been answering parliamentary questions regarding the scandal, resigned as head of the National Tax Agency. On March 12, the ministry made public the entire document tampering issue. "[We] made public everything [we] could," a ministry official said. But the issue is far from resolved. No one knows how the ministry will be affected after Sagawa's sworn testimony before the Diet on Tuesday.

What led Japan's most powerful agency into such a mess? The answer is with the distance between ministry staff.

The Finance Ministry is responsible for a wide range of administrative tasks, from budgeting to tax reform to monetary policy. The sale of state-owned land is handled by local finance bureaus. It is something that takes place away from the ministry's mainstream. 

Local finance bureaus have only a few career staff transferred from headquarters in Tokyo, including the bureau chief. Headquarters staff do not ordinarily even meet many of the people working at local offices. Sales of state-owned land are handled by local offices, and usually the financial bureau at the Tokyo headquarters does not get involved. Goings-on at the Kinki regional bureau, therefore, was a distant matter for people in Tokyo.

At the upper house budget committee meeting on March 19, Shigeharu Aoyama of the ruling Liberal Democratic Party said: "The Finance Ministry wields the exclusive power to compile a budget, and even members of the Diet cannot lobby unless they are obedient to the ministry. The ministry has become condescending, which likely is what led to the falsification of official documents." He even suggested that the tax agency be separated from the ministry as a revenue agency.

When sloppy handling of public pension records by the Social Insurance Agency came to light in the past, some suggested establishing a revenue service for collecting taxes and pension premiums, but ministry officials did not take the idea seriously.

The clout of the Finance Ministry has been diminishing under the second Abe administration. With the ministry compelled to concede to the prime minister's office regarding two postponements of consumption tax increases, a government official said, "The MOF is no longer able to do anything without gauging the response of the prime minister's office."

One former government minister, who asked not to be named, pointed out that this distance between the ministry and the prime minister's office played a key role in the document falsification.

He explained that the sale of the state-owned land to Moritomo Gakuen school was a botched deal in which the Kinki regional bureau, unable to find a buyer, was forced to sell the land to Moritomo on "special conditions" after a request from Yasunori Kagoike, the former head of the school. To explain to headquarters why the bureau had had to sell the land under special conditions, the bureau "used, as it were," politicians including Abe's wife Akie, with whom Kagoike claimed a close relationship, the former minister said.

The issue of the sale came up in the Diet last year and Abe was subjected to grilling by opposition lawmakers. The financial bureau thought it should not allow the small failed land deal to sour the relationship between the ministry and the prime minister's office. This led to the doctoring of the Moritomo documents.

It remains to be seen whether this analysis is correct. The crucial points are whether other senior finance ministry officials, in addition to those at the financial bureau, knew of the document tampering and whether the prime minister's office requested or suggested the falsification. If top officials of other ministry bureaus knew of the tampering, the ministry could face breakup, ministry officials fear.

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