(Provisional Translation)

December 28,2004
Financial Services Agency
The Government of Japan

Administrative Actions on Mizuho Bank

  1. A report of misconduct and other matters was submitted by Mizuho Bank pursuant to the provisions of Article 53-1 of the Banking Law and Article 35 of the enforcement regulations of the same law. The report stated that an inquiry from a customer at a business office led to the discovery that a bank employee in charge of customer liaisons had embezzled customer deposits. An internal investigation conducted by the bank revealed that the employee had withdrawn a cumulative total amount in excess of ¥1 billion over an extended period, spanning more than four years.
  2. According to the report, (1) the employee, who had held his customer liaison position for a number of years, was thoroughly familiar with the characteristics of customers who are, for example, old, wealthy, trustful of the bank and likely to entrust a bank employee with various types of paper work, and (2) the employee repeatedly withdrew customers' money improperly by violating the bank's internal regulations when processing customers' requests outside the bank premises, such as when he took custody of customers' money for a time deposit. The proper bank procedure would have called for his filling in pertinent forms with required information in accordance with the customer's request, and furnishing the customer with a copy of the forms in exchange for the customer's passbook.
  3. Following the submission of the report, the FSA ordered the bank pursuant to Article 24 of the Banking Law to furnish a report describing the cause that led to the misconduct and the reasons why the misconduct was not discovered for a number of years, and conducted an examination. The examination revealed the presence of serious problems with the bank's management posture toward compliance and its internal control system as follows:
(1) In November 2002, the Internal Audit Committee, headed by the bank's President, received a report of a trend analysis regarding embezzlement and other improprieties, accompanied by recommendations on tasks to prevent recurrence of such improprieties. In spite of this report, the bank management did not initiate effective measures, a testimony to the fact that the management's attitude toward compliance was less than satisfactory.
(2) As a consequence, no fundamental measures to prevent the recurrence of improprieties similar to those that had occurred in the past were devised or implemented, and no bank-wide compliance system was established. Operational controls by managers at business offices were thus never sufficiently strengthened and the exercise of operational and personnel controls on employees who hold the same positions over extended periods of time within the same departments remain ineffective.
(3) At business offices too, everyday check-and-balance mechanism functioned insufficiently. For example, operational control procedures pertaining to the processing of customer requests outside the bank premises that are required to be followed by the bank's internal regulations to prevent wrongdoing (such as a control exercised by a manager by making a solo visit with customers whose business is handled outside of the bank's business office) were not thoroughly complied with.
(4) An audit of a business office by the Internal Audit Division pointed out weaknesses in the customer liaison operations and internal control problems that related to the misconduct under investigation. Nonetheless, the absence of awareness about prevention and early discovery of misconduct on the part of officers and employees led to the failure by the bank to discover the misconduct by itself. The misconduct was revealed only when a customer made an inquiry. This failure illustrates the ineffectiveness of the internal control system that prevented a self-correcting mechanism from functioning.
  1. For the reasons stated above, the FSA issued the business improvement order to the bank today pursuant to Article 26-1 of the Banking Law:
(1) The system of internal controls must be expanded and strengthened by incorporating the following perspectives so as to construct a compliance system and ensure sound operations:
(i) A clear demonstration of management's intent to firmly establish compliance (including a clear statement of where responsibilities reside).
(ii) Creation of fundamental measures to prevent the recurrence of similar improprieties as a way to establish a compliance system for the entire bank.
(iii) Strengthening of an everyday check-and-balance mechanism relating to the handling of customer business outside of business office premises.
(iv) Assurance of effective internal control functions (reexamination of the methods of auditing business office operations in connection with embezzlement and other types of misconduct, thorough implementation of audits and strengthening of post-audit follow-up)
(2) A plan to improve business operations encompassing the points described in (1) above (including the improvement and establishment of a governance system to ensure that the improvement plan is implemented, and a clear assignment of responsibilities to ensure effectiveness) must be submitted by January 28, 2005, and implemented promptly.
(3) Subsequent to the implementation of (2) described above and until the plan to improve such operations is fully implemented, a quarterly report of progress and implementation status must be prepared, starting with the period ending March 2005, and submitted by the 15th day of the following month.


03-3506-6000 (ex.3321)

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