Photo/Illutration Kawasaki Heavy Industries Ltd.’s Kobe factory in Kobe (Asahi Shimbun file photo)

Kawasaki Heavy Industries Ltd. is under investigation by Osaka tax authorities for allegedly creating slush funds so submarine crews attached to the Maritime Self-Defense Forces could live it up, according to sources.

The National Tax Agency’s Osaka Regional Taxation Bureau asserted the funds were raised through fictitious transactions between the repair department of the company’s Kobe Shipyard and various business partners.

It said the money was used to purchase goods, as well as food and drinks.

The Kobe-based company is one of two that builds submarines for the MSDF.

According to the Osaka bureau’s tax investigations, the company created billions of yen in slush funds, making KHI liable for additional taxes in the range of at least 600 million yen ($3.72 million).

The company’s defense-related contracts amount to around 200 billion yen annually.

On July 3, the Defense Ministry announced that it is investigating the company on suspicion of violating the Self-Defense Forces Personnel Ethics Law.

The company and Mitsubishi Heavy Industries Ltd., which is based in Tokyo, alternated in completing orders for the construction of submarines for the MSDF.

Half of the 22 submarines currently in service were built by the company.

The shipyard at the company’s base factory in Kobe where its submarines are built carries out regular dry dock inspections and repairs .

The repair department at the Kobe factory repeatedly placed fictitious orders in transactions with multiple subcontractors, according to multiple sources.

They said the department then ordered the subcontractors to pool the money, which the company used to pay for fictitious orders, in slush funds.

The department and subcontractors used the pooled funds to purchase goods that were passed on to a large number of MSDF personnel, from senior officers to ordinary crew members.

The pooled money was also used to entertain them with food and drinks.

According to sources, a wide range of goods were purchased at the request of crew members, including  personal items for use at work and at home.

The company ranked second only to Mitsubishi Heavy Industries in terms of contract value at 207.1 billion yen, according to the 2022 edition of the central procurement overview published by the Acquisition, Technology and Logistics Agency.

In addition to submarines, the company has manufactured patrol aircraft, along with transport aircraft and helicopters, for each of the Ground, Marine and Air arm of the SDF.

On July 3, the company announced on its website that it has incurred additional taxes amounting to around 600 million yen for fiscal 2023, and that tax authorities had pointed out there were inappropriate actions at some of the company’s workplaces.

KHI stated that these inappropriate actions included: the existence of fictitious transactions between the repair department at the company’s Kobe shipbuilding factory and client companies; purchases of goods, food and drink using funds generated by the fictitious transactions; and the alleged involvement of the company’s employees and MSDF submarine crew members with regard to these purchases.

The company stated that the scope of those involved and the specific flow of money and goods are being investigated by a special investigation committee. It pledged to make the results public after the investigation is completed.

KHI stated that it has not confirmed any overcharging to the Defense Ministry as of this moment.

According to sources, the company started creating slush funds about 20 years ago, and for the past several years has generated more than 100 million yen annually through six subcontractors.

 

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