Tag Archives: Organized Crime

Bitcoin Exchange Kraken Joins The Mt Gox Investigation; The collapse still shrouded in darkness

Bitcoin exchange Kraken  announced on Wednesday that it had been chosen to support the investigation of Mt Gox’s collapse. The announcement was made at the second Mt Gox creditors’ meeting held in Tokyo District Court.

Kraken, is a San Francisco based bitcoin exchange known for its top share in Euro trading, that launched trading in Japanese yen in October. Payward Inc. is the corporation that operates it. Kraken was selected by the trustee in charge of the liquidation of Mt Gox, and approved by the Tokyo District Court to support the investigation of missing bitcoin and the distribution of remaining assets to the creditors.

Representative of Kraken and The Mt Gox Trustee
Jesse Powell, CEO of Kraken (left)  and Nobuaki Kobayashi (right) , trustee appointed by the Tokyo District Court to handle Mt Gox liquidation

 Nine months after Mt Gox, once the world’s biggest bitcoin exchange based in Japan filed for bankruptcy in February of this year after losing half a billion US $ worth of bitcoins that belonged to about 127,000 creditors around the world, darkness still enshrouds the police investigation. There is also an independent investigation launched by a handful of security and law experts from the bitcoin community in Tokyo.

After the first hearing held in July, Mt Gox’s creditors started questioning the ability and motivation of Nobuaki Kobayashi, the trustee appointed by the Tokyo District Court to liquidate Mt Gox’s assets.

“Because less  than 1% of the victims in this care are Japanese victims, the Japanese police and the trustee don’t seem to put all their efforts in finding out the truth, ” A creditor based in Tokyo explained his concerns.

Established in July 2011 in the State of Delaware,  Payward (Kraken)  was chosen because it “acts as the founding and principal member of DATA, a self-regulatory organization for bitcoin operators in the U.S., and JADA, in Japan,” Nobuaki Kobayashi explained in his report released on Wednesday. Payward accepted to support for Mt Gox’s bankruptcy distributions with no charge up to 500 hours in total of consulting service, after purchasing Mt Gox’s equipment formatted after deleting all the saved data and software.

“Mark Karpeles, the CEO of Mt Gox was in a bad position, having started first.” Jesse Powell, CEO of Kraken explained. “It’s very difficult to hire trustworthy, talented people who are capable of building a military grade security systems, and back then in 2010 or 2011, the market was so small, it didn’t really make sense to justify spending US$10 million in this infrastructure. So he had the misfortune to be the first and the last after what happened, although I consider there were probably things that he could have done better to prevent this from happening. We are not even sure of what really happened at this point.”

Despite numerous requests by creditors for transparency, the Japanese trustee said he was requested by the Metropolitan Police Department not to disclose the addresses managed by Mt Gox. After five months of frustration, some creditors finally see a light in the tunnel.

Skepticism about Kraken’s Ability to Solve The Problem

The arrival of Kraken seems to have put a bit of faith in the crowd of creditors who were afraid to leave their assets in the hand of a trustee who did not seem to understand bitcoin and who refused the help offered by the bitcoin community that put in place their own probe. “The more minds the better,” Jesse Powell the CEO of Kraken said, “but it would be up to the trustee to choose who enters the battle, so Kraken will be able to use the resources available.”

“It seems Kraken has been given a lot of responsibility, they now are dealing with finding the bitcoins, and giving the money back to creditors. I think as far as the bitcoin investigation and money returning goes, it’s now in good hands, ” a creditor said after the second creditors’ meeting that took place on Wednesday.

Some see Kraken as an opportunist. Others wonder if it will even take a look at the rumours of potential organized crime involvement in the collapse of Mt Gox.

“Probably Kraken is fairly trustworthy, their best effort may be more fair and cheaper than the trustee. It just seems grossly unprofessional of a bankruptcy trustee to just hand things over to another private company. It’s like if some hedge fund was given the task of sorting out the Bernie Madoff case. It’s just a way for Kobayashi to absolve himself of responsibility, ” A Mt Gox creditor told JSRC after the announcement of the involvement of Kraken in the investigation.

Rumors of organized crime involvement in Mt Gox collapse

The trustee in charge of Mt Gox’s liquidation, who never revealed the amount he is paying himself to do his job, said at a press conference held in Tokyo on Wednesday that he was indeed concerned by organized crime involvement in the business. “As the trustee of Mt Gox, I believe that it is important to discover ties to organized crime if there are any, and I am strongly thinking about doing so in the near future. However, when I was appointed by the Tokyo District Court to liquidate Mt Gox, it has not registered any additional clients and no trade was possible under my supervision after it filed for bankruptcy protection. I have been in charge of Mt Gox after its bankruptcy, so in that sense I believe there was no involvement of organized crime with Mt Gox. I do not know what happened before I stepped in. I am therefore not aware of any ties with organized crime, at this point.”

A former employee of Mt Gox said they repeatedly tried to report suspicious activities to authorities when they were still running, but never received a response of any kind.In Japan, politicians, banks, businessmen and the mob are traditionally linked. But all changed officially in October of 2011, when the Organized Crime exclusionary law went into effect. The new ordinances did not have exceptions for foreign companies and they make doing transactions with organized crime groups (the yakuza, extreme right wing etc) a criminal offense.


Japan is oddly perhaps the most bitcoin friendly country. The Japanese banking law doesn’t allow lenders to broker bitcoin transactions or set up accounts for customers to store the digital assets. At the same time, current rules reportedly don’t prevent brokerages and asset managers from managing clients’ bitcoins. Even Rakuten Super Logistics, an order logistics company owned by Japan-based e-commerce giant Rakuten, has begun accepting bitcoin payments for its shipping services.

In 2011, bitcoin was new to Japan and still is. Regulations are not yet set in place.

Tsutomu Okubo, a lawmaker from the Democratic Party of Japan (DPJ) and former vice finance minister, called on the government to rectify the lack of regulation in March 2014, after Mt Gox filed for bankruptcy after being allegedly hacked. Officials from the Finance Ministry, Financial Services Agency and Bank of Japan responded they’re not in a position to oversee bitcoin.

Japan is oddly perhaps the most bitcoin friendly country. The Japanese banking law doesn’t allow lenders to broker bitcoin transactions or set up accounts for customers to store the digital assets. At the same time, current rules reportedly don’t prevent brokerages and asset managers from managing clients’ bitcoins. Even Rakuten Super Logistics, an order logistics company owned by Japan-based e-commerce giant Rakuten, has begun accepting bitcoin payments for its shipping services.

Bitflyer can’t face legal compliance requirements such as what exist in the U.S. because they don’t deal foreign customers, and they are backed by politicians in favor of bitcoin, such as Mineyuki Fukuda, head of the Japanese government’s IT Strategy Committee and its leading bitcoin proponent.

“Japan is way ahead of other countries when it comes to cooperation between bitcoin operators and regulators, which you don’t see in the US, Europe or Singapore,” Yuzo Kano, an ex-Goldman Sachs trader and CEO of Bitflyer said.

Banking sources say Japan’s government is falling behind the curve as bitcoin grew rapidly over the past five years. “Banks and governments don’t welcome bitcoin, because it screws their power system,” bitcoin lovers say. But Japan is a bitcoin paradise. It may also be a paradise for unsavoury elements.

Financial frauds with yakuza involvement are not rare in Japan. In the 1990’s, the Japanese government budgeted funds to help failing mortgage firms to keep going. At the time, government officials said that part of those companies’ loans involved organized crime money.

“Of course there is no guarantee that the same won’t happen to us. My co-founder and I worked together for at least 13 years, so I have faith in him, we are very cautious of who has access to certain things, and this requires signatures and people to approve, for example a new code for example. I think we are pretty well protected. We are always prepared for the worse.” Powell told JSRC. “Kraken is founded initially from the USA’s most strict compliances, it is the same in Japan, we proceed with a strict back ground check, including attempts to identify organized crime activities and trading.” Ayako Miyaguchi, the head of Kraken’s operation in Japan told reporters.

“As far as I am concerned we have no organized crime money transactions at Kraken. We have a very strong compliance and customer policy. So we are following that very closely. We report suspicious transactions, and we have strict limits on the amounts that a client can transfer. I don’t think we are an easy exchange to launder money through.” Powell explained.

Japan is the one of few countries in the world, with Finland not to consider bitcoin a currency but a commodity. Despite concerns over the possible hack committed against or within the Japan based exchange that collapsed in February, Mt Gox and despite concerns over bitcoin used for possible money laundering. In the U.S., each state has a different regulation for businesses that deal with crypto currencies, while Russia and China said bitcoin is illegal under current law.

In late 2011, the Olympus 1.7 billion dollar accounting scandal and the heroic stance taken by its British CEO, Michael Woodford, hit Japan’s corporate world and triggered a great amount of interest in the media because it brought up possible yakuza links in the cover-up, despite the company’s denial. Ironically, several years ago, Fujitsu Ltd., a security company hired by Mt Gox’s trustee, fired its president for alleged ties to the yakuza. It was an allegation denied by the president who took court actions to clear his reputation. Mizuho Bank has been in trouble in recent years of failing to deal with millions of dollars of loans made to yakuza related entities.In other words, it isn’t rare that corporate or financial scandals give rise to speculations over yakuza participation.

“I think it’s a very sad indictment of corporate Japan that that’s the working assumption,” Peter Godwin, managing partner at law firm Herbert Smith in Tokyo, told Reuters, when asked why the corporate controversies often stir talk about yakuza.







Notes On The Yakuza Lobby: How The Underworld Asserts Itself In The Political Sphere

For the student of Japanese politics and anti-social forces I’ve linked to further resources here in this post.

(From Foreign Policy 12/14/2012TOKYO — Japan’s leaders are going on trial this month — in the court of public opinion, though some of them may be concerned about facing the more traditional kind.

Prime Minister Yoshihiko Noda of the Democratic Party of Japan (DPJ), who has been in power for a bit over a year, dissolved Japan’s parliament, the Diet on Nov. 16 after a series of scandals drove his poll numbers to an all-time low. The final straw was his appointment of mob-linked Justice Minister Keishu Tanaka, who resigned on Oct. 23 — ostensibly for health reasons. A weekly magazine had reported on Oct. 11 that Tanaka had strong ties to the yakuza, Japan’s organized crime groups — which presumably isn’t great for one’s health.

For the rest of article please go to the FP website.

Because of Japan’s personal privacy protection laws, created by ethically challenged politicians to discourage magazine reporters from writing about their scandals and organized crime ties, I’m limited in what I can post here for readers who would like to know more about the Japanese ruling coalition and its ties to the underworld–but here are some useful items.

This links to a PDF showing  Political contributions from a Yamaguchi-gumi boss to a DPJ member. Of the donors, only Jun Shinohara (篠原寿) was officially recognized by the Tokyo Metropolitan Police Department as being a member of the Yamaguchi-gumi Mio-gumi, aka Goryo-kai, now known as the Yamaguchi-gumi Shimizu-ikka. His company, Media 21, was also recognized as a Yamaguchi-gumi front company in police materials circa 2007.  (The Yamaguchi-gumi is Japan’s largest organized crime group.) Mr. Shinohara was also an advisor for Tadamasa Goto, one of the most notorious and ruthless Yamaguchi-gumi bosses who was exiled from the group on October 14th, 2008–showing that the Yamaguchi-gumi has some ethical standards.

Many of Shinohara’s front companies share the same address as Media 21. I was only able to post 3 pages out of 34 pages of supporting documents due to privacy concerns. Note: Political donation records are public domain materials.  There is no evidence that anyone working for Mr. Shinohara or at his companies is also connected to organized crime or was connected to organized crime and no such implication is meant. Only Media 21 was listed as a Yamaguchi-gumi front company although it shares the same address as several other companies. 

You may notice in the records that Media 21 was listed in earlier submitted donation records as a company in Chiba and then corrected in pen. The Tokyo Prosecutors Office received a complaint that the mix-up was a deliberate attempt to disguise connections between former DPJ head, Seiji Maehara and the Yamaguchi-gumi, but this has not been proven. Attempts to contact Shinohara as to his current relationship with organized crime were unsuccessful.

The book  The Taboos About Japan That No One Can Write (誰も書けなかった日本のタブー)also has interesting chapter on the donations made by yakuza members to other DPJ member including Prime Minister Noda (as of 12/14/2012).  Senator Shoji Nishida (LDP) also wrote a well-researched piece about the problematic donations from yakuza members to the DPJ in the December 2011 edition of WILL Magazine. The article is entitled, “The DPJ Rule and Money” (民主党とカネ). Other sources, such as the Yukan Fuji article on the Yamaguchi-gumi support of the DPJ or Shincho 45 (October 2010) which had an interesting article called “The DPJ and The Yamaguchi-gumi (民主党と山口組)” are not publicly available but can found in the library or be purchased. Copyright restrictions don’t allow me to post the materials here.


The Taboos Of Japan That No One Can Write About (誰も書けなかった日本のタブー)has a fairly well-written chapter on dubious donations by yakuza associates to several members of the DPJ, including soon to be former Prime Minister Yoshihiko Noda.



Living With The Mob: Yakuza Deeply Rooted In Japan


The Tattooed Men are not easy to live with.
Once the yakuza move in, they don't move out easily.


by David McNeill and Jake Adelstein

A bloody dispute between two rival Yakuza groups in a southern Japanese city has led to a historic fight-back by local people.  But rooting out the mob from society will not be easy. Continue reading Living With The Mob: Yakuza Deeply Rooted In Japan

From The Guardian: Residents go to courts to evict yakuza

By Justin McCurry in Tokyo
From the guardian.co.uk
Tuesday August 26 2008

Residents of a city in western Japan this week became the first to turn to the courts for help in ridding their neighbourhood of organised crime, amid fears that they will become the next victims of a violent power struggle.

Around 600 residents of Kurume, in Fukuoka prefecture, have asked a local court to order members of the Dojinkai yakuza gang to vacate an office building in the middle of a busy shopping district.
Continue reading From The Guardian: Residents go to courts to evict yakuza