Japan's Mob Modernizes

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.

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.

Of course, financial manipulation takes a lot of sophistication, but Yakuza 2.0 has become adept at recruiting the necessary talent. As Yohei Kojima, an organized crime analyst at the National Police Agency, notes, "The problem is not just the yakuza themselves but the wide variety of people willing to work with them." One sign of the yakuza's growing financial involvement: the Tokyo Stock Exchange has begun holding seminars for the police on how to cope with white-collar crimes of the sort favored by mobsters.

Then there's the matter of foreign competition. Rising immigration into Japan in recent years has prompted hysterical media reports about local gangs being squeezed out by rapacious Chinese and Russians. In reality, Japan's mobsters have usually managed to co-opt outsiders. "I've heard directly from the yakuza that they don't feel invaded," says Atsushi Mizoguchi, author of several books on the yakuza. To the contrary, there have been numerous reports of recent crimes, such as the kidnapping of a Tokyo woman last summer, involving collaboration between Japanese, Chinese and Korean mafiosi. Mizoguchi says that the yakuza are happy to let foreign gangs operate in niche businesses, such as drug dealing among immigrants, that don't threaten the yakuza's core practices. It's a strategy not unlike that pursued by Japan Inc., where business leaders have let foreign companies into the domestic market but drawn the line when outsiders have tried to take over Japanese firms.

It's helped the Yamaguchi-gumi that it has more experience operating globally than many Japanese corporations. Indeed, the yakuza were early pioneers of the internationalization of organized crime. The process started when the Japanese tourist industry exploded in the 1960s and '70s, with the yakuza organizing sex tours and drug deals across Southeast Asia. Nowadays they're known to work closely with the Russian mafia, buying seafood spirited illegally out of Russian waters and selling it for huge markups in Japan. One new sphere of operations is Uzbekistan, from which the Yamaguchi-gumi has been known to charter direct flights—perhaps to transport Uzbek women for prostitution.

Amid the changes, Japan's cops worry that the modernized mobsters are increasingly contemptuous of old yakuza traditions, such as a strict ban on hurting women and children. The result is a recent spike in gang-related violence, at least according to media reports; in the last year, for example, there have been shots exchanged between the yakuza and police in ordinary residential neighborhoods. This is leading to one positive trend, however: growing public disillusionment with the gangsters. That's partly a result of their brutality and partly a product of tough times. "During the bubble period, the yakuza's image among juvenile delinquents was good," says Mizoguchi. "They were wearing nice clothes, driving expensive cars, drinking in cool bars." But nowadays many yakuza—especially those outside the Yamaguchi—"are poor."

As a result, law-enforcement officials say, the mobsters are finding it increasingly difficult to recruit fresh members. According to Mizoguchi, the Yamaguchi-gumi recently responded to the problem by instituting a makeshift pension system designed to give senior gang members an incentive to move aside for younger ones. Still, no one is talking about the yakuza's demise just yet—they're just too deeply ingrained a part of Japanese society. Just look at those spreadsheets.