Over the past couple decades, the world's financial press, major dailies, and news magazines have offered extensive coverage of the rising clout of organized crime.
By August of 1993 for example, Daniel Bell, writing for The New Republic, could write that a world once dominated by conflict between capitalism and communism had been effectively supplanted by one "divided between the corrupt and the clean." In May, 1988, New York Times columnist Thomas Friedman said the new split is between the "free-market kleptocracies (Mafia regimes) and free-market democracies." More recently, governments have issued their own warnings.
In September 2000, the Associated press reviewed a Crime Threat Assessment issued by the Clinton administration, a report warning that organized crime cartels including Japan's notorious homegrown version of the mafia — called yakuza — had by then become a direct threat to the national security of the United States. The financial capacity of crime organizations is a major reason for their rising clout on the global stage.
Organized crime launders $1.5 trillion to $3 trillion a year through the world's economy, an amount far larger than the national budgets of many nations. This is some of the world's dirtiest money, gained in part from politicians' direct looting of public treasuries, but also from the global trade in weapons, dangerous drugs, and sexual slavery involving millions of women and children; the Far Eastern Economic Review has reported that, in Japan, for example, the sex industry's total earnings equal the nation's defense budget.
Over the past couple decades, governments have responded by targeting the crime lords' bankers with laws putting a crimp on laundering. Prominent names in banking have subsequently been implicated in handling some the world's dirtiest money. But the world's bankers are only part of the story.
A lengthy string of press reports over the past several years suggest that much more attention needs to be directed toward organized crime's suppliers, possibly including at least some of America's own publicly traded timber companies.
For socially responsible investors, the upshot is that there's more due diligence involved in choosing timber companies than the sustainability of their operations. It also seems that at least some responsibility for due diligence — and for disclosure to shareholder — seems to rest squarely with the timber companies themselves. This need may be nowhere so evident as in the case of timber companies supplying Japan's construction industry.
In February, 1995, for example, a Reuters report out of Tokyo said that organized crime has been involved in Japan's construction industry for decades, and has its tentacles in some 900 construction-related firms.
In 1998, the South China Morning Post repeated that estimate, and said that Japanese police data on mob involvement in the nation's construction industry showed that Japan's mobsters stood to make about $9 billion just in the reconstruction needed after a major earthquake hit the port city of Kobe.
In October, 1993, Business Week said we should pity the Japanese trade team, because "It must be rough arguing that Japan's construction industry is clean." Later that same month, the International Herald Tribune reported "deep webs of corruption" between Japan's politicians and its construction industry, going on to say that ordinary Japanese people had long suspected that their nation's ambitious construction boom was little more than a means of "turning construction companies into lavish political contributors."
In March, 1994, the Wall Street Journal reported that Japanese prosecutors had raided the home of Kishiro Nakamura, a former construction minister, as part of their investigation of an influence-peddling scandal. The Journal returned to the story in November, saying that Japan's top five general contractors had been "hit hard" by the political bribery scandal. The Far Eastern Economic Review said that the surfacing of the scandal wasn't a reflection of something new, and quoted a Japanese observer who alleged that it had long been true of Japan's construction politics. Speaking more broadly, a Japanese economist interviewed in 1994 by Sydney's The Australian said the "The bigger the company is, the closer its links are to the underworld."
It's been a story that just wouldn't go away. In early 1999, Forbes magazine published an article blaming Japan's gangsters for "inefficiencies" in the construction industry. During the decade of the nineties, according to a wide array of news reports, Japanese politicians spent $1 trillion in pork-barrel construction projects, many of them reportedly awarded to firms with mob links. When a Japanese diplomat denied Forbes' mob ties to construction firms, Forbes deputy editor Nigel Holloway said the magazine would stand by the contents of the article, according to Kyodo News Service.
The gangland-contaminated construction industry has been no minor matter.
In 1993, initial reports of the emerging scandal rocked the Japanese stock market, with the Wall Street Journal reporting that "Tokyo equities fell broadly and sharply" as the construction sector's problems unfolded.
In its 1998 report, the South China Morning Post said anyone looking for the seat of Japan's economic crisis need look no further than the construction industry. In May, 2001, Business Week reported that "An astonishing one in six Japanese workers is employed in construction." While no one has said that all construction firms in the country are equally involved with crime lords, the story has just been too big for any Japan-watcher to ignore.
The impact on forests of the world has also been substantial. Japan's two-decade construction boom has taken down wild forests on both sides of the Pacific Ocean, stretching from grizzly bear habitat in Montana to sun bear habitat in Malaysia. In April, 2001, CNN reported that Japan is the largest importer of timber in the international market, and has been criticized as "a major factor in destruction of the world's forests."
According to CNN, Japan has just two percent of the world's population, but consumes more than 33 percent of internationally traded wood products. Greenpeace Japan forests campaigner Mikkio Fukuda told CNN that the Japanese people have recently been "shocked" to learn that the timbers their country uses "are destroying the ancient forests outside of Japan."
America's timber exports to Japan have been too hot to ignore in the United States. Labor has pointed out that exporting raw, unprocessed logs to Japan amounts to exporting the jobs that could be gained in processing the logs at home.
Environmentalists have said that Japan's demands on American forests have come simultaneously with record-level demands on the home front, subjecting forest wildlife to pressures from near and far.
Former Worldwatch Institute staffer and Northwest Environment Watch founder Alan Durning, for instance, has said that logging roads now have access to more of the Pacific Northwest than its salmon do. Over the past decade, logging has played a major role in jeopardizing the region's salmon fishing industry.
But few controversies over U.S. exports to Japan have caused more controversy than the illegal export of logs from our National Forest system.
Despite the illegality of such exports, however, Congress may have simply ignored them. In 1989, for example, when Forest Service criminal investigator John McCormick was quoted in an Associated Press story saying that Congress "controls the purse strings" for the law enforcement budget. There were no full time investigators assigned to the exports controversy, and McCormick said, "We still don't have the blessings of the powers-that-be to go ahead with it." He said that it was thus hard to know exactly how extensive the problem was.
While exports from federal forest lands were banned, there was little if any restraint on private landowners' exports, and the late 1980s saw record levels of such exports as Japan paid "at least three to four times" more than the American market, according to sources cited by AP. In February, 1989, the Montana press reported that one such landowner, Plum Creek Timber Co., was exporting half its total cut, with the exports going "mostly to Japan." In 1992, for example, even two years after Japan's boom went bust, the Wall Street Journal reported that the U.S. was Japan's top supplier of wood, with $2.8 billion in exports. To get more, the logging corporations pushed even deeper into the woods.
Throughout the 1990s, Wall Street's analysts were saying that a sizable share of such companies' profits were coming from their exports to Japan, and, in January, 2001, an executive of a major Northwest timber firm, was a guest on Serious Money, a Pacific Northwest talk show about investing. The exec told the host that his company had done "quite well" selling its goods to Japan, despite the sad state of that nation's economy.
In an era of growing concern over the rising power of organized crime, it seems time to ask if American logging companies should stop sending logs to Japan and certain other Asian nations where mobsters seem to run the construction business. Because the world's financial press and major dailies have been waving a red flag on this matter for years, the necessary due diligence is far from onerous; in a way, much of it has already been done for the investors who have merely read the newspapers, and for companies obliged to know their customers.
In fact, according to a New York Times editorial of November 6, 2000, eleven of the world's biggest banks have led the way, in accepting "know your client" guidelines developed by the non-profit anti-corruption group, Transparency International.
With the world's potential laundry services leading the way, it seems time to ask why the suppliers to mob-related enterprises should not follow.
© Copyright 2001 by Lance Olsen, Project Director, Ambience Project, Institute of the Rockies, 802 East Main, Missoula MT 59802 (406)549-1179 or LanceOlsen@juno.com. This discussion paper may be freely copied and distributed, provided that no changes are made and that the copyright notice is left intact.