Japan’s second biggest bank, Mizuho Bank, has said at least
four senior executives in charge of legal compliance knew about loan
transactions with crime-syndicate members for more than two years from 2010 but
that they did not alert the bank's chief executive or its board, media reports
said.

According to the Wall
Street Journal, a week after the Financial Services Agency slapped the core
banking unit of Mizuho Financial Group with an order to submit a plan to
improve its operations, the explanation was the first time that the bank has
provided any insight into how senior management came to know about the loans
extended through its credit loan unit.

The scandal has attracted the attention
of people in the highest levels of Japan's government with even the
head of the central bank weighing in on the matter, the newspaper said.

The irony of the affair will not be lost on some foreign firms, including wealth managers, who have found the Japan market difficult to penetrate; in 2004, Citigroup's private bank was forced to leave the country for regulatory infractions. The market remains dominated by domestic players. The affair illustrates, however, that "know your client" issues are universal.

Mizuho said at least four top executives knew about loan
transactions with members of a criminal group. Toshitsugu Okabe, the bank's
deputy president, told reporters last Friday that some senior executives,
including deputy presidents who were in charge of compliance at various points
in time from 2010, had learned of the transactions linked to criminal groups.

"I have to say senior executives (including deputy
presidents) should have known about it as they were informed of the details of
such transactions," Okabe said was quoted as saying. The senior executive,
however, denied that Mizuho is connected to any criminal organisation, it said.

Apologizing for the bank's actions, he said that compliance
was insufficient on this matter as well as in the loan screening process.

"We consider this problem to be very regrettable, and
we want (Mizuho) to take steps immediately to improve its operations and run
its businesses in a proper way," Bank of Japan Govenor Haruhiko Kuroda was
quoted as saying.

WealthBriefingAsia
sought to contact the bank over the weekend but was unable to reach the firm.
There was no mention of the matter on the Mizuho corporate website.

Mizuho had around 230 transactions with criminal groups such
as the yakuza. They were mostly automobile loans made through its credit loan
unit but financed by the bank, totaling around ¥200 million ($2 million),
according to the FSA and Mizuho.

Mizuho said that its bankers discovered the transactions in
2010 and started warning the credit-loan unit not to accept further loan
requests from customers identified as members of criminal organizations. But
they didn't cut off the existing loans or inform top executives or the
regulators until instructed by the FSA in March, which uncovered the
transactions in a routine bank inspection in December, the WSJ said.