IWAKI, Fukushima Prefecture--A credit union here is suspected of using the names of depositors--including a dead client--to create bogus accounts and extend fake loans to conceal its financial difficulties, the Asahi Shimbun learned.

According to sources, Iwaki Shinkumi Ltd. drained its own “B funds” to send loans to the fictitious accounts to cover repayments for soured loans of the credit union’s larger clients.

The Financial Services Agency is expected to investigate what industry sources say is an extremely unusual scheme for a financial institution to pretend it is sound.

90 ACCOUNTS, 90 HANKO

According to sources, suspicions that the credit union was engaged in fraudulent activities surfaced in autumn 2024.

Some credit union members who have invested in Iwaki Shinkumi Ltd. petitioned the Iwaki Branch of the Fukushima District Court to preserve potential evidence of fictitious loans.

The branch granted the motion in February and conducted a verification of documents at the credit union’s head office.

One document preserved as evidence contained a list of about 90 fictitious accounts with a total loan balance exceeding 1.7 billion yen ($11.7 million) as of autumn 2024, the sources said.

The court branch also preserved as evidence about 90 “hanko” seals that were used for the fictious loans.

DETERIORATING BUSINESS CONDITIONS

According to the sources, Iwaki Shinkumi’s head office would select the name of a real depositor, create a seal in the depositor’s name without gaining permission, and then forge documents to open a fake account under that name.

The address and other information of the depositor were genuine.

Loan procedures were carried out at the credit union’s branches using documents forged by the head office and people in charge of lending, the sources said.

Loans worth several million yen to several tens of millions of yen were sent to each fake account.

The loan documents were not accompanied by a seal impression certificate or other articles normally required to obtain a loan, the sources said.

According to the sources, the credit union was suffering from loans it extended to large clients that fell into financial difficulty and could not repay the debt.

Financial companies are required to set up a “bad debt” reserve to cover potential losses due to the inability of borrowers to repay loans.

The sources said the credit union used its “B funds” to cover the nonperforming loans instead of the reserve fund to avoid the appearance of financial deterioration.

These fraudulent activities are said to have continued for at least 10 years.

APPLICATION FROM AFTERLIFE

Several depositors told The Asahi Shimbun they were unaware that their names had been used for additional accounts and loans.

In one case, a loan was extended to the account of a client who died in 2009.

The dead Iwaki city resident supposedly received a loan of 39.5 million yen in October 2024 to repay a debt owed to an acquaintance.

The loan request was circulated within the credit union and was finally approved by the chair of Iwaki Shinkumi, according to the sources.

A loan application and promissory note featured a handwritten signature and a seal with the man’s last name stamped on them, sources said.

‘TOTALLY BOGUS’

In another case, a man in his 60s was listed as receiving a loan of more than 10 million yen in summer 2024.

When he learned about the loan, he was mortified.

The man said he created an account at the credit union about 20 years ago when he was refinancing a loan from another financial institution.

He had already repaid the loan, and his Iwaki Shinkumi account has since been dormant.

The credit union’s fake documents for the fictitious loan said the man underwent repeated credit check interviews at a branch.

The man said he has never been to the branch in question.

The phone number written on the loan documents was different from the man’s, and the seal used was not his, the man said.

“I’m scared. It’s totally bogus,” the man said.

THIRD-PARTY INVESTIGATION

Credit unions are community-based financial institutions whose members, including individuals and companies, support each other. They mainly provide financial support to small, medium and micro-enterprises.

Unlike for-profit banks under the Banking Law, credit unions operate on a nonprofit basis under the Small and Medium-Sized Enterprise Cooperatives Law.

As a general rule, credit unions allow only their members to make deposits.

Iwaki Shinkumi was established in 1948 and has been known by the nickname “Iwashin.”

As of March, the credit union had 15 branches, mainly in Iwaki city, and about 41,800 members with deposits totaling 204.1 billion yen and loans worth 121.5 billion yen.

In November 2024, the credit union announced that “the former management had provided indirect loans to large lenders under the names of individuals.”

A third-party committee has been investigating the allegations.

A representative of Iwaki Shinkumi said it cannot respond to individual questions before the third-party committee’s findings.

(This article was compiled from reports written by Nobuya Sawa, senior staff writer, and Tabito Fukutomi.)