Unreported Funds — The dark side of factions / Fundraising Party Tickets Sold in Small Lots, Evading Public Disclosure

The Yomiuri Shimbun

16:11 JST, December 21, 2023

This is the second installment of a series about the dark side of Japan’s political factions, examining unreported funds accumulated from political fundraising parties.

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A male secretary for a mid-level lawmaker who belongs to the Liberal Democratic Party’s Abe faction recently spoke about the revenue from ticket sales for political fundraising parties, which is suspected of being used as hidden funds.

According to the secretary, the lawmaker often relied on a prominent local businessman who runs several businesses.

“If we said ‘¥100,000 times five please,’ they would say ‘alright,’” the secretary explained.

When the lawmaker’s side asked the businessman to purchase fundraising party tickets worth ¥500,000, for example, the lawmaker’s side would ask that the purchase be made by five of the businessman’s group companies, each buying tickets worth ¥100,000.

This is because the Political Funds Control Law does not require the name or other information about a buyer of party tickets under ¥200,000 to be stated in political funds reports. The standard is lenient compared to donations — information must be disclosed about people who give over ¥50,000 a year.

Some supporters are reluctant to have their names publicized because they don’t want to be associated with a particular “political color.” For lawmakers, the fact that purchasers’ names are not made public makes it easier to sell party tickets and achieve the sales quotas assigned by their factions.

“It was mutually beneficial, so the collaboration was smooth,” the secretary said.

The Abe faction and the Nikai faction are being suspected of violating the Political Funds Control Law in relation to their political fundraising parties. The factions allegedly failed to report parts of their fundraising party incomes on political funds reports in the past five years through last year. The unreported amounts may add up to ¥500 million for the Abe faction and ¥100 million for the Nikkai faction.

The secretary admitted receiving kickbacks for the ticket sales that exceeded the lawmaker’s sales quota, after helping the lawmaker’s supporters make purchases by keeping the amount per organization to ¥200,000 or less.

Costly politics

“The public’s current distrust of politics and criticism of the LDP are centered on the lack of ethics among individual politicians, the large amount of political funds and lack of transparency, and heavily factionalized and rigid party management.”

So says a document prepared by the LDP, but it is not referring to the current scandal. The statement is from the LDP’s political reform outline adopted after reflecting on the 1989 Recruit scandal, which involved unlisted shares being transferred to powerful political and business figures. It also calls for thorough disclosure of political funds and specifically states the need to clarify income and expenditures from political fundraising parties.

However, the principles and lessons learned from the scandal were not applied, and another scandal is again shaking the credibility of the LDP.

LDP factions came to rely on fundraising party income largely because of legal amendments in 1994 that prohibit corporate and group donations to factions and individual politicians. These changes were made after public distrust in politics surged following the Recruit scandal and the general contractor corruption scandal.

As the factions’ financial strength declined, they began to rely heavily on fundraising parties.

According to the Abe faction’s political funds reports, 60% of its total income of approximately ¥1.09 billion for the five years through 2022 came from fundraising parties. This is 50% more than the amount from donations.

“Politics costs a lot of money. We need money that can be used freely,” said a secretary of an Abe faction lawmaker. The faction provides “ice” and “mochi rice cake” funds in summer and winter to support faction members’ political activities.

However, the secretary said, “It’s not remotely enough.” Interactions with supporters in the lawmaker’s constituency require a lot of funds, according to the secretary.

‘Can be fixed’

The Political Funds Control Law is lawmaker-initiated legislation enacted in 1948 in an effort to make political funds transparent. The law has been revised whenever issues of politics and money came up, but it still has many loopholes even today. It has been claimed that politicians deliberately leave in loopholes to benefit themselves.

The criteria for disclosing party ticket purchasers was revised in 1994 from people who bought “over ¥1 million” to “over ¥200,000.” It has not been revised since then.

In many cases, the venue and meal expenses are kept low compared to the income from ticket sales, creating a persistent view that the “parties are in name only, and are in effect donations to factions.”

It is also difficult for outside interests to monitor faction’s money. The law requires any political group led by Diet members or candidates to be audited by chartered accountants, but audits are limited to expenditures, and factions do not fall under this definition in the first place.

A secretary of a Abe faction member said, “The laxity of the law led lawmakers to generate hidden funds.”

LDP Secretary General Toshimitsu Motegi said Monday, “We must urgently consider measures to ensure the transparency [of faction money], including revision of the Political Funds Control Law.”

Whether the law should be revised will be on the agenda of next year’s ordinary Diet session.

According to Nihon University Prof. Emeritus Tomoaki Iwai, “Just correcting the deficiencies on political fund reports will weaken lawmakers’ compliance.”

Iwai proposes to introduce the principle of guilt by association, in which lawmakers would lose their job if their treasurer is found guilty.

The public is closely watching whether cracks in the law can be filled.