With the February 28 announcement that it would pay a $340 million fine rather than face further legal wrangling, Daiwa Bank, Ltd., one of Japan's 11 nationwide commercial banks, appears to have ended a five-month ordeal over its U.S. banking operations. Daiwa Bank has been a focus of international attention since last September, when it disclosed that an employee of its New York City branch had concealed trading losses of $1.1 billion in U.S. Treasury securities over a period of 11 years. The employee pleaded guilty in October to fraud charges.
U.S. officials discovered in the months that followed that Japanese banking regulators had known of the losses and aided in the efforts to conceal them. In fact, highly ranked officials in the Ministry of Finance had learned details of the scheme two months before notifying their American counterparts in apparent disregard for international agreements among bank regulators. In a document released in connection with the settlement Daiwa Bank argued that it had delayed disclosure at MOF's request. In November the Federal Reserve Board, the Federal Deposit Insurance Corp. and state banking authorities gave Daiwa Bank until February 2 to dispose of its U.S. operations (see JEI Report No. 42B, November 10, 1995). The bank met this deadline at the end of January by selling essentially all of its American assets to Sumitomo Bank, Ltd. for $3.3 billion. The Daiwa Bank incident also was the subject of hearings in both the House of Representatives and the Senate (see JEI Report No. 47B, December 22, 1995).
The fine although less than the $1.3 billion originally sought and roughly half as large as the regulatory penalties assessed against two Wall Street firms in the late 1980s and early 1990s is thought to be the largest ever paid in a criminal case. Still pending after the bank's settlement are cases against individual Daiwa Bank officials as well as the possibility of a merger with Sumitomo or another Japanese bank. By the end of February Japanese analysts were emphasizing the possibility that Daiwa Bank might remain independent.