Photo/Illutration Kawasaki Heavy Industries’ shipyard in Kobe, where it builds and repairs submarines for the Maritime Self-Defense Force, in July (Asahi Shimbun file photo)

Kawasaki Heavy Industries Ltd. dipped into slush funds worth 1.7 billion yen ($10.8 million) to entertain and provide gifts to Maritime Self-Defense Force submarine crew members, a report found.

The money was accumulated over a six-year period through fiscal 2023 via fictitious transactions for submarine repair work, according to a special investigation committee’s report released by KHI on Dec. 27.

However, using fictitious transactions to stay on the good side of the submariners had been going on for at least 40 years, revealing the cozy relationship between the public and private sectors over defense equipment, the report showed.

The fraudulent behavior involved KHI’s Kobe shipyard in the city’s Chuo Ward, which aside from building ships is in charge of inspecting and repairing submarines for the MSDF.

A tax investigation of KHI by the Osaka Regional Taxation Bureau uncovered the fraud, and KHI established a special investigation committee in June.

According to the report, fictitious transactions between KHI and three subcontractors KHI were repeatedly made under the guise of legitimate material orders for submarine repairs.

The funds generated by the bogus transactions were pooled by the subcontractors to create the slush fund, according to the report.

Crew members also requested gifts and KHI was happy to oblige, the report noted.

In addition to equipment used on the submarine, there were items for personal use, such as game consoles and golf equipment.

In some cases, the funds were used to cover the cost of food and beverages at social gatherings for crew members.

The report pointed out that once the fraudulent activity became entrenched it had to be continued to maintain a good relationship with submarine crews.

This meant that even when the person in charge was replaced, the “organizational culture of following precedents” was carried on, the report said.

The Defense Ministry released an interim report the same day on a special defense inspection which was carried out in response to the slush funds issue.

The report stated that KHI will be required to refund a “substantial amount of money” following the discovery of fictitious transactions between the company and its subcontractors.

As for submarine crew members who received personal items from KHI, the ministry said it is investigating the individuals on suspicion of violating the Self-Defense Forces Personnel Ethics Law.

In a survey by the ministry of approximately 2,500 unnamed individuals, including those who had served on submarines, 26 respondents answered “Yes” to the question of whether they had received gifts from companies, and 58 answered “I have seen or heard of it.”

Of the 333 respondents who said they had shared food, drink or entertainment with private companies, four said the company covered the bulk of the cost.

(This article was written by Masahiro Yuchi and Daisuke Yajima.)

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