The Modernizing Mob

If you ever want to see Japanese gangsters at work, look no further than Tokyo's Shinjuku area, which holds a Tori-No-Ichi festival each November. Members of the yakuza, Japan's storied mafia, show up to accept tribute from business owners in the nearby red-light district, who shell out hard cash to ensure the coming year will be free from "difficulties." It's a system that's gone on for decades, if not longer. Except that nowadays the gangsters use computer spreadsheets to track payments and coordinate by text message.

Follow your favorite NEWSWEEK columnists

Customize the Newsweek homepage to feature the latest word from your favorite columnists.

As the scene in Shinjuku suggests, the Japanese mob is still very much alive, and parts of it are thriving. But years of recession, forced restructuring and global competition haven't just changed the way Japan Inc. does business; they've also forced Japan's criminals to adapt. Back when the country's economy was booming, a hood's work was fairly predictable: gambling, protection rackets, and maybe a little drug dealing could ensure a comfortable life. But nowadays, in an age of tougher laws, greater competition and a shrinking, aging domestic market, only those gangsters who can change with the times are flourishing; others are growing poor or dropping out entirely. "What's been going on in the underworld parallels what's been going on in the legitimate business world," says David Kaplan, coauthor of "Yakuza: Japan's Criminal Underworld," a leading book on the Japanese mob. "They've had to write off bad loans. They've had to globalize."

Perhaps the most striking change can be summed up in a single word: consolidation. Contrary to Japan's reputation, prior to the recession much of its economy was highly fragmented, a legacy of government barriers that protected domestic companies from outside competition. Then came the downturn of the 1990s, which, coupled with a gradual opening to the outside world, triggered a process of winnowing and absorption, as less efficient corporate competitors were driven out of business or swallowed up by their foes. A remarkably similar process has occurred in the world of organized crime. The big winner, by all accounts, is the group known as the Yamaguchi-gumi. According to national police estimates, Japan now has about 85,000 gangsters (down from some 180,000 40 years ago); of them, around half are now thought to be members of the Yamaguchi-gumi or its affiliates, and most of the remainder belong to just two other organizations.

This change is the result of pressure from many sides. Japan's gangsters grew fat during the years of the "bubble economy," and in the early '90s, their growing power led to a serious crackdown. A 1992 law made it harder for them to operate openly and torpedoed their cozy relationship with the police (who traditionally tolerated certain gang activities, especially gambling, as long as the yakuza didn't hurt ordinary people). As police pressured smaller mafia groups out of existence, only the most creative—and ruthless—survived. The Yamaguchi-gumi has since started pushing into Tokyo from its base in the western port of Kobe, awakening fears of imminent mob war.

The 1990s slump also led to a sharp cut in the public-works contracts that once served as the bread and butter of yakuza-allied construction companies. But savvier gangsters were already focusing on growth industries like the bankruptcy business. According to Kaplan, gangsters in Japan function like attorneys and arbitrators in the West, settling creditor claims and recovering assets. They've also become big investors. "After the bubble, American investment companies like Goldman Sachs and Merrill Lynch came in and bought up distressed assets like golf courses," notes Mitsuhiro Suganuma, an ex-member of Japan's security service. "So did the Yamaguchi-gumi."

And the Yamaguchi have proven the most inventive at coming up with new scams. Earlier this year, authorities revealed that an affiliated gangster had taken over a tech company that, among other things, was running one of Japan's leading Web sites for college alumni. Police said that he was planning to sell off the company after hyping its shares. And last year, police arrested two Yamaguchi members over a con involving the abuse of government credit guarantees for small businesses.