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Ex-Deutsche salesman says was told to mask Japan pension expenses
June 17, 2014 / 10:32 AM / 3 years ago

Ex-Deutsche salesman says was told to mask Japan pension expenses

TOKYO, June 17 (Reuters) - A former Deutsche Securities salesman in Tokyo said he was told to hide evidence of entertaining public pension officials, and that an executive who in 2013 became head of the investment bank in Japan had been informed of the potentially illegal practice.

Shigeru Echigo, the former salesman, told a court hearing in Tokyo on Tuesday that entertaining pension fund officials was a widespread practice within the bank and made new claims of how high up knowledge of the practice had climbed.

Echigo said he was told by a superior that Makoto Kuwahara, now head of Deutsche Bank’s Japanese securities arm, was made aware of the practice in the wake of the AIJ scandal that rattled Japan’s financial industry in early 2012.

Takayuki Inoue, a spokesman for Deutsche in Tokyo, said the bank had no comment. He declined to make Kuwahara and other executives available for comment, citing company policy not to comment on the matter.

Echigo, 37, is being prosecuted for bribery for charging around $9,000 in expenses to the bank, Germany’s biggest, for entertaining a former executive at a pension affiliated with trading house Mitsui & Co. He has pleaded guilty and is due to be sentenced on July 16.

Japanese law treats officials at pension funds that manage public money as the equivalent of public servants, meaning that spending to entertain and win business from them can be prosecuted as bribery.

Echigo, who appeared on Tuesday at his second hearing in Tokyo District Court since his arrest in December, said he was told by his manager that sales staff were expected to spend to win business from public pension funds.

When pressed by a prosecutor, he said he had never believed such expenses would be prosecuted as a form of bribery.

“If you told me to give someone 10 yen to get their business, I would have rejected that, but I thought that entertainment in the form of eating out and golf outings was normal practice,” Echigo said. “My understanding was lax.”

Echigo said he had been told not to put the words “entertainment” and “pension fund” in the same email to avoid detection by Japan’s securities regulators during an audit.

At the hearing Echigo said Mitsuhisa Murata, currently head of the German bank’s asset management operations in Japan, told him that he had brought the issue to Kuwahara following the early 2012 scandal involving Tokyo-based fund manager AIJ Investment Advisors.

Kuwahara was promoted to president of Deutsche Securities Inc and chief country officer in March 2013, two months before the Securities and Exchange Surveillance Commission (SESC) began probing the entertainment as part of an audit of the bank.

Prior to the promotion Kuwahara held the title of head of global markets, which had oversight over the sales group at the heart of the entertainment scandal.

Echigo said Murata, a manager of the pension sales group at the time, had participated in the entertainment of pension funds and encouraged him to take clients on overseas trips because such treatment was especially effective in winning business.

COMPLIANCE LAPSES

Deutsche Securities was ordered by Japan’s Financial Services Agency in December to bolster its compliance after regulators found it had spent a total of about $217,000 on entertaining pension fund officials between 2010 and 2012.

In acknowledging compliance lapses, Deutsche announced in December that it would revamp its system of oversight and said it was dismissing some employees involved in the entertaining. It also cut the salaries of its chairman, president and chief operating officer.

An internal report prepared by the SESC and reviewed by Reuters cited a pattern of spending that people involved have said included nights out at hostess bars and trips to Germany for pension fund officials.

On one occasion cited in the SESC report, the chairman of Tokyo-based Deutsche Securities Inc, Norimichi Kanari, was present at the entertaining of a pension fund official in October 2011. Murata was aware of such entertaining and the manipulation of expense receipts, but gave the practice his “tacit consent, believing it necessary to promote the business,” the report said.

The entertainment of pension fund managers came under the spotlight after regulators found that AIJ Investment Advisors had lost more than $1 billion in pension money and falsified reports to investors to cover up its losses.

The SESC found evidence that AIJ executives had used lavish entertainment as a way to keep pension officials investing with it, and began probing entertainment policies across Japan’s financial industry, people with knowledge of those investigations have said.

In December, Deutsche announced it had closed its Pension Sales Group and outlined a raft of measures to bolster compliance. These included new guidelines that outlawed offering entertainment to quasi-public officials or paying for clients’ travel and accommodation on overseas trips. ($1 = 101.7900 Japanese Yen) (Reporting by Nathan Layne; Editing by Ryan Woo)

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