FBI to probe `delays' at Daiwa
Thursday 28 September 1995
The Federal Bureau of Investigation in New York along with US banking regulators are anxious to find out why it took Daiwa bank over two months to alert the authorities to the biggest fraud ever to hit a Japanese bank.
The 44 year-old Mr Iguchi, who will face a preliminary hearing on 10 October on charges of making false entries to defraud a bank, first owned up to Daiwa in a letter to its Japanese headquarters in Osaka dated 13 July.
However, it was not until mid-September that Daiwa passed the information to the authorities, after the bank dispatched a large internal team of investigators to uncover the details of Mr Iguchi's 30,000 plus unauthorised trades.
It also appears that during the period before the authorities were alerted, the bank sold some of its preferred stock worth $500 million.
"They did not want to alert the markets to the fact that they were having to liquidate these portfolios," said one trader close to the operations.
While not commenting specifically on the issue of the delay, the FBI spokesman said it was something that "the bank (Daiwa) will have to answer".
The FBI confirmed that it has set up a white collar crime squad to probe every angle of the scandal. "This is turning into a significant case. It will go in many directions."
The failure to spot Mr Iguchi's irregular dealings, which were not in complex derivative instruments but simply US government bonds, has also been deeply embarrassing for the New York supervisory authorities.
Following the bond scandal at Salomon Brothers in 1991 they had substantially sharpened their vigilance. The passage of the Foreign Bank Supervision Enhancement Act, also in 1991, meant the Federal Reserve, along with the bank department of New York State, has been responsible for regulating Daiwa's activities there.
"We carried out an annual examination of the branch," a spokesman of the Federal Reserve confirmed, without going any further into why Mr Iguchi's activities apparently went unnoticed.
Mr Iguchi is believed to have repeatedly sold securities from the bank's own portfolio to cover accumulated losses on bond trading.
Also under scrutiny is the bank's own internal auditing of the New York branch, which was apparently carried out by Japanese auditors who may not have been fully familiar with the Wall Street environment
Comment, Page 23
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