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Why Japanese break the law

The scandal at Nomura Securities, the subject of this month's cover story, carries an important lesson for anyone dealing with Japan. Japanese financial institutions have a very different attitude to the law than do their western counterparts. Not to put a finer point on it, they have little moral compunction about breaking the law when it suits them.

That sounds a serious charge. But it goes some way to explain why Nomura, less than two years after it was caught illegally paying off sokaiya - gangsters who threaten to disturb annual shareholders' meetings - was doing exactly the same thing again.

And, if you believe that Nomura's blatant disregard of the law was an exception, consider how the overseas securities subsidiaries of Japan's banks operate. Legally, they are not allowed to team up with their colleagues from the parent bank to market to clients in Japan. This is prohibited by Article 65 of the Securities Law (the equivalent of the US's Glass-Steagall). But it is an open secret that they all do.

Or consider the case of the securities arm of one public-sector bank. When we contacted this bank recently to request an interview about the firm's activities in the Euro-MTN market, an official told us: "We are active selling MTNs to regional banks.

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