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Nonprofit corporation sold, used in fraudulent investment scheme

This partially retouched picture shows internal documents from an NPO corporation broker. Both the names and headquarter addresses of corporations before and after their sale are listed in the papers. (Mainichi)
This partially retouched screen capture from the website of the Deposit Insurance Corporation of Japan shows bank accounts that were created under the name of "Life Plan" NPO corporation but are now suspended for their suspected criminal use. (Mainichi)

Specified nonprofit corporations, which are not meant to be for profit and are operated by citizens for the public good, have become targets of commercial transactions, and one such corporation was bought and used to set up bank accounts for a suspected investment fraud scheme, a Mainichi Shimbun investigation has found.

At least 11 such entities, known generally in Japan as NPO (nonprofit organization) corporations, were put up for sale across the country, and six of them actually changed hands. The 20-year-old Law to Promote Specified Nonprofit Activities, or the so-called NPO law, which regulates those bodies, does not prohibit their sale, but experts are seeking legal revisions to stop such deals, saying they are beyond the original scope of the existing legal framework.

Six of the 11 NPO corporations were posted on a broker's website, with the highest price tag at 3.6 million yen. Their names and addresses, except for the prefecture, were blacked out, but extensive interviews with people familiar with the corporations have helped identify all of them. It was confirmed that one of the six, located in Kanagawa Prefecture, was purchased for 400,000 yen in April of this year.

In addition, internal documents obtained from two brokers specializing in the sale of such entities revealed that five more NPO corporations were sold for between 150,000 yen and 1,020,000 yen each.

The 11 corporations were located in Tokyo, Aichi, Hyogo and other prefectures, and were mostly dormant. Some of them did not have offices at the addresses reported to municipal governments supervising them, and the whereabouts of their representatives listed on corporate registers was unknown, making the nature of the organizations unclear.

An NPO corporation named "Life Plan," which was set up in Saitama Prefecture to support people in need, was sold for 150,000 yen to a broker in Tokyo around 2011, and then apparently resold to a group of suspected fraudsters in August of that year. The group opened multiple bank accounts under the corporation's name, and used them to receive wire transfers from victims of their fraudulent investment scheme. Police later arrested a male member of the group, which allegedly pocketed some 100 million yen from victims. According to the Deposit Insurance Corporation of Japan, 15 accounts linked to the corporation were frozen due to suspected criminal use.

According to the brokers, dissolving an NPO corporation costs about 50,000 yen, including the price to announce its dissolution in an official gazette. Setting up a new one costs only several thousand yen, but it takes about six months to receive certification from local governments. With the sale and purchase of NPO corporations, however, "the seller can make money immediately, and the buyer can use it (the purchased corporation) right away," said a Tokyo broker. The broker insisted that the possibility of abuse after sales is "the buyer's problem, not ours."

Another broker said they advise customers that it is not illegal to sell and buy NPO corporations, but that such deals are not envisioned under relevant laws either, so "avoiding detection by authorities is desirable."

When asked about commercial transactions of NPO corporations, a representative from the Cabinet Office, which oversees the NPO law, commented, "We do not have a specific view."

Hiroaki Sekiguchi, president of the Coalition for Legislation to Support Citizens' Organizations, said that this is perhaps the first time that details of commercial transactions of NPO corporations have been confirmed. "They run counter to the spirit of the NPO law and should not be allowed," he said.

Under current regulations, "police can communicate opinions" to local governments in charge of NPO corporations in cases involving organized crime groups, but there is a possibility that the arrangement is not working effectively, according to Sekiguchi. "We should consider changing the law so that law enforcement officials are required to provide relevant information to those regulators," he said.

One of the factors behind the buying and selling of NPO corporations is the aging of their members. Sekiguchi says efforts must be made to increase options for the continuation of their operations or to create programs to promote their dissolution.

A Saitama Prefectural official overseeing NPO corporations learned about the Life Plan transaction for the first time following an inquiry from the Mainichi Shimbun. Police never informed the prefectural office in charge about the allegedly fraudulent use of bank accounts made under the name of the NPO corporation.

Such entities are required by the NPO law to submit reports on their activities once every year, but Life Plan filed a report only in fiscal 2009, when it was established. The prefectural office prodded the corporation to submit the required reports on several occasions between fiscal 2010 and 2012 but received none, and canceled its certification in July 2015, citing its failure to file reports for three years.

The prefectural official said commercial transactions and misuse of NPO corporations are not acceptable as those actions betray society's trust in them. However, the current system does not have a regulatory mechanism in place to curb such moves, making "no fundamental solution available," the official said.

(Japanese original by Taiji Mukohata, Ryuji Tanaka and Takeshi Terada, Special Reports Group)

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