Japanese Bribe Case Study

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  • Topic: Lockheed L-1011, Lockheed bribery scandals, All Nippon Airways
  • Pages : 5 (1620 words )
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  • Published : October 21, 2012
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THE CASE OF THE JAPANESE BRIBE

I. BACKGROUND OF THE CASE
1976: Former Japanese Prime Minister Kakuei Tanaka was arrested on charges of taking bribes amounting to $1.8 Million Dollars from Lockheed Aircraft Company. Tanaka’s secretary and several other government officials were arrested together with former Prime Minister Tanaka. Takeo Miki was ousted from office on suspicion of concealing Tanaka’s dealings with Lockheed Aircraft Company. In Holland, Prince Bernhard resigned from 300 government positions held for allegedly having received $1.1 Million in bribes from Lockheed Aircraft Company in connection with the purchase of 138 F-104 Starfighter Jets. In Italy, Giovanni Leone, the Italian President in 1970 together with Prime Ministers Aldo Moro and Mariano Rumor were also accused of accepting bribes from Lockheed in connection with the purchase of $100 Million worth of aircraft during the late 1960s. Scandinavia, South Africa, Turkey, Greece and Nigeria were also among the 15 countries in which Lockheed admitted to having handed out payments and that at least $202 Million in commissions were made by the company since 1970. Lockheed started using bribes since 1958 in order to outsell Grumman Aircraft, a competitor, for the Japanese Air Force contract. As per his testimony, William Findley of Arthur Young & Co. the auditors for Lockheed, engaged the services of Yoshio Kodama to act as middleman between Lockheed and the Japanese Government in order to secure the government contract for the purchase of military aircrafts. Several bribes were made by the company to ensure the contract in its favour. In 1972, Lockheed rehired Kodama as consultant to sell its aircraft to Japan. Lockheed was in dire need to sell its aircraft owing to a series of financial disasters, cost overruns, pushing the company to the brink of bankruptcy in 1970. A controversial loan guarantee awarded the company amounting to $250 Million helped the aircraft company in averting the bankruptcy. Lockheed President, Mr. Carl Kotchian anxiously anticipated making the sales since the company has not been making its projected sales of aircraft worldwide. Mr. Kotchian believed that Japan is a largely-untapped market and if Lockheed penetrates the Japanese market, the company can generate $400 Million and thus, improve the company’s financial status and ensure the jobs of thousands of the firm’s employees. Kodama eventually succeeded in engineering a contract for Lockheed with the All Nippon Airways, beating McDonnell Douglas, its active competitor. For the sale, Kodama askes and received $9 Million as pay-off money from 1972 to 1975. Allegedly, much of the money went to then Prime Minister Tanaka and other government officials for interceding with All Nippon Airways on behalf of Lockheed Aircraft Company. Mr. Kotchian admitted full knowledge about where the money was going and that he was persuaded by the assurance that in making the payoff, Lockheed was sure to get the contract with All Nippon Airways. Subsequently, Lockheed netted $1.3 Billion from the contract. Mr. Kotchian defended the payoff as “in keeping with Japanese business practices”, meaning that I order to do business in Japan, one has to make payoffs, further, Kotchian reiterated that the transaction did not violate any American Laws and that Lockheed needed to adjust to the existing “functioning systems” in order to be competitive and guarantee the jobs of thousands of its employees, as well as ensure continuing profitability. Otherwise, the company would be bankrupt and thousands will lose their jobs. In August 1975, after investigations conducted by the U.S. Government, Lockheed admitted to making $22 Million in secret payoffs and in subsequent Senate investigations in 1976, the deals were made public, causing Japan to cancel the billion dollar contract with Lockheed. In 1979, Lockheed pleaded guilty to concealing the bribes by writing them off as “marketing costs”. Lockheed was not...
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