Japan Watchdog To Probe Mob Bank Loan Scandal

Japan's top three banks are to be investigated in the wake of a loans-to-mobsters scandal, the country's financial watchdog has revealed.

The Financial Services Agency (FSA) will look at the business dealings of scandal-hit major lender Mizuho, as well as rivals Mitsubishi UFJ and Sumitomo Mitsui Banking Corp, an agency spokesman said, without disclosing further details.

The widening investigation would probe a range of issues including the banks' risk management systems, Jiji Press news agency said.

The scandal has made headlines for weeks in Japanese media, and reportedly sparked a police investigation into corporate ties with organised crime.

Finance minister Taro Aso says the transactions are a "huge problem"

The widening regulatory probe comes a day after a panel of lawyers hired by Mizuho to look into its links with organised crime said bank executives knew it was doing business with gangsters but failed to stop the practice.

"Many officials and board members were aware of, or were in a position to be aware of, the issue," said the panel's 100-page report.

"However they failed to recognise it as a problem, believing that the compliance division ... was taking care of it."

A former yakuza member, showing his missing little finger

Mizuho has been under fire since it emerged last month that it processed hundreds of loans worth about $2m (£1.2m) for the country's notorious yakuza crime syndicates, which are involved in activities ranging from prostitution and drugs to extortion and corporate crime.

Finance minister Taro Aso called the Mizuho transactions a "huge problem", and said the bank's initial - and incorrect - claims to regulators that executives knew nothing about the loans was "the worst thing a bank can do".

Mr Aso also appeared to take aim at the FSA, saying that "we have to improve what we are supposed to be doing", following questions about the watchdog's handling of the high-profile case.

Mizuho has submitted its own report to regulators and said that 54 former and current executives will be punished, including chairman Takashi Tsukamoto who is to step down from his post but stay on as head of the parent company.

The yakuza gangs, which themselves are not illegal, have historically been tolerated by the authorities, although there are periodic clampdowns on some of their less savoury activities.

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