FOCUS: Construction industry's dependence on slush funds remains unchanged+

TOKYO, Feb. 13 Kyodo -
The Japanese construction industry's tendency to try to win orders behind
closed doors using slush funds as leverage has been highlighted again with the
arrests of people on suspicion of involvement in an Oita-based consultant
company's alleged tax evasion.

The prosecutors arrested five suspects Monday and seven others, including
65-year-old Norihisa Oga, president of consultant company Daiko, on Tuesday in
the case.
Oga, who doubles as president of a Daiko-affiliated interior work firm called
Light Black, allegedly conspired with the other suspects to evade corporate
taxes totaling 292 million yen by failing to declare 976 million yen income
during two business years through May 31, 2006. The income allegedly included
slush funds, or under-the-table money, and commissions the interior firm
received from construction contractor Kajima Corp. over the construction of two
Canon Inc. plants.
On the outskirts of the city of Oita in August 2003, Canon Chairman Fujio
Mitarai, who was then president of the company, visited four candidate sites
for new Canon plants guided by Oita Gov. Katsusada Hirose. Among the entourage
was Oga.
Oga was neither a prefectural government official nor a Canon employee.
''It was an inspection tour to coincide with Mitarai's trip to his hometown.
Mitarai had asked Oga to make arrangements for a vehicle to take him to his
hometown,'' a Canon spokesman told Kyodo News.
Mitarai, who is also chairman of Japan's most powerful business lobby, the
Japan Business Federation popularly known as Nippon Keidanren, said, ''He's a
childhood friend, but there have been no business talks between us.''
But in the construction industry in Oita Prefecture in southwestern Japan,
Oga's name has often been mentioned in connection with Canon, a major precision
machinery and electronics maker. Gov. Hirose said, ''He taught me various
things (about attracting Canon plants to Oita).''
Companies that wanted construction orders repeatedly called on Daiko, and
Kajima, one of Japan's largest construction contractors, was also among them.
Slush funds at general contractors have repeatedly come to light since around
1993 when the Tokyo District Public Prosecutors Office started building cases
of corruption on such contractors.
Competition in the private sector has intensified in recent years due partly to
dwindling public works projects. An industry source said the construction
industry has habitually relied on slush funds to bribe people to carry out
business deals.
A former executive in charge of sales at a midsize general contractor said,
''We pooled slush funds by funneling money to subcontractors in the form of
construction expenses.''
For example, he said, a construction company salesman asked a subcontractor to
return 60 million yen out of 100 million yen paid to it, and the slush fund
thus created was used for such purposes as bid rigging.
Another former construction company executive in charge of measures to deal
with local governments and communities admitted that recent slush funds have
derived from subcontractors' padded construction expenses. ''This way
subcontractors don't leak anything, and even if the case is exposed, the
problem is limited to the subcontractors.''
''The business model in which slush funds are required remains the same. Money
that can't be brought into the open is necessary,'' he said.
Initial reports on suspicions about Kajima's alleged slush funds and Oga's
alleged tax evasion appeared at the end of 2007. The finance team in charge of
tax evasion cases in the special investigative squad at the public prosecutors
office was quietly in contact with tax authorities.
The investigation accelerated in January, when the case was transferred from
the finance team to the special No. 2 team which is in charge of corruption and
fraud. In late January, the team started questioning Kajima officials.
At the same time, about a dozen teams of prosecutors and officials were
mobilized from the Tokyo High Public Prosecutors Office and other offices to
step up the probe.
A prosecution source said, ''Because the case involves a huge amount of slush
funds, there will be a full-scale investigation into the role played by Kajima
in tax-evasion maneuvering.''
==Kyodo