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Hatoyama in Fund Donation Scandal

Rajaram Panda, Ph.D. - 12/7/2009

Japan’s Prime Minister Yukio Hatoyama is entangled in a scandal involving shady donations from which it appears difficult for him to come clean. Though scandals involving politician in Japan has become common, either in connection with defence contract or with construction companies, this is the first time a sitting Prime Minister’s involvement in a scandal leads him to his mother.

Hatoyama’s political fund management organization, Yuai Seikei Konwakai, received funds provided by his mother and the claims of the sources seemed to be falsified. Prosecutors traced about $10.4 million that Yasuko Hatoyama, 87, gave to her son over a five-year period in 2008. The fund management company had listed the names of deceased people and those who never made donations as individual donors. The Tokyo District Public Prosecutors Office suspects that Hatoyama’s organization made false reports on more than 200 million Yen in contributions, including most of the small-lot donations of up to 50,000 Yen whose donors need not be identified. If Hatoyama’s aide made false entries in violation of the Political Fund Control Law, that needs to be investigated and responsibility fixed.

In June 2009, Hatoyama had claimed that the money was his own but on 4 November 2009, when asked, during the Lower House Budget Committee meeting if the funds contained money from his mother, he did not believe that to be the case.

Individuals, except for the politicians themselves, are allowed to donate up to 1.5 million Yen a year to political fund management organizations of politicians. The suspected donation from Hatoyama’s mother far exceeds this limit. If the money was a gift to the prime minister, he may be responsible for paying a gift tax. Such a problem, would not occur if the money was a loan to Hatoyama, but it clearly runs counter to his past explanations that the money was entire his own. If Hatoyama knew the truth about the falsification of donations, he could personally be held responsible for breaking the law. Hatoyama needs to recognize the gravity of the situation.

Since the Liberal Democratic Party (LDP) that ruled Japan for over half a century after the War, it had become deeply unpopular, in part because of a long history of campaign-finance scandals among party elders. Hatoyama of the Democratic Party of Japan (DPJ), who dethroned the LDP, promised that his party would break up the cozy triangle of back-scratching and payoffs among bureaucrats, politicians and big business. But now it has transpired that not only Hatoyama, but also his brother, Kunio, also received vast sums from the mother.

It may be recalled that Hatoyama, the Prime Minister, is a Stanford-trained engineer and grandson of a prime minister, comes from an immensely wealthy and influential family. He and his brother, also a politician, grew up in a European-style family palace in Tokyo and are believed to have assets of at least $100 million. Hatoyama’s mother is the eldest daughter of the late Shojiro Ishibashi, the founder of Bridgestone Corp., and is a major shareholder in the leading tyre market.

Kunio Hatoyama is also thought to have received about the same amount as the prime minister and the total amount the Hatoyama brothers have received from their mother is roughly 2 billion Yen. Though it is claimed that the money provided to Hatoyama was “loans” and was thus not subject to the gift tax, loan documents are not available. Unless legitimate loan documents are found, Japanese tax authorities could automatically recognize funds provided from a parent to a child as a “gift”.

According to experts, the gift tax can range between 10 to 50 per cent on amounts of 1.1 million Yen or more received per year. LDP executives are claiming Hatoyama may have failed to pay hefty gift taxes for the funds reportedly transferred to him from his mother’s bank account. The Tokyo District Public Prosecutor’s Office has asked Hatoyama to give a full accounting of the case in a written statement. It is unlikely, however, that the special investigation unit of the Prosecutor’s office will seek to question Hatoyama in person regarding the Yuai Seikei Konwa-kai’s false reporting of donations in its political funds statements.

However, a criminal complaint has been filed against Hatoyama for allegedly violating the Political Funds Control Law by being negligent in the selection and supervision of the person responsible for the organisation’s accounts. Though investigators have collected account books and other items from the fund-management organizations and questioned some people, there is no evidence so far that the prime minister is involved in any wrong doing.

The Constitution stipulates that ministers of state cannot be criminally prosecuted without the agreement of the prime minister, and criminal prosecution of the prime minister also is considered to be impossible. Therefore, investigative authorities are unlikely to question Hatoyama.

If the funds are officially recognized as taxable cash gifts, Hatoyama will be obliged to pay more than 400 million yen in gift taxes. The money likely will be deemed a gift because no documents promising to return the money were ever drawn up. If Hatoyama does not come clean on this, DPJ supremo Ichiro Ozawa might consider replacing Hatoyama to retain DPJ’s political supremacy.