OZAWA FINANCIAL SCANDALS TAKE CENTER STAGE

C O N F I D E N T I A L SECTION 01 OF 02 TOKYO 000109 SIPDIS E.O. 12958: DECL: 01/19/2020 TAGS: PREL PGOV PINR JA SUBJECT: OZAWA FINANCIAL SCANDALS TAKE CENTER STAGE Classified By: Charge Jim P. Zumwalt, Reasons 1.4 (b) and (d) ¶1. (C) Summary: After the arrests of three of his former and current secretaries for their alleged role in illegal financial transactions, DPJ Secretary General Ichiro Ozawa is facing growing calls to step down as the party's number two official. Initially defiant, Ozawa -- no stranger to controversy and accusations of financial improprieties -- may in coming days yield to the prosecutors' demands to respond to questioning on what the press is calling "shady land dealings." In the meantime, PM Hatoyama continues to stand behind Ozawa even as the brewing scandal is taking a toll on the ruling party in recent opinion polls. It remains unclear what impact this latest scandal will have on Ozawa's future, the DPJ's fortunes in the July Upper House election or pressing policy concerns such as the Futenma Replacement Facility, but for the time being, most other news has been buried under wall-to-wall media coverage. End Summary. ¶2. (C) Three days before the January 18 opening session of the Diet, public prosecutors arrested former Ozawa secretary and current DPJ Lower House member Tomohiro Ishikawa for his alleged role in using illegally obtained funds for a land purchase. Prosecutors also issued warrants for one of Ozawa's former secretaries and one current secretary. Investigative sources say that Ishikawa, Ikeda, and Okubo are all linked to illegal cash transfers from general contractor Mizutani Construction Company, which had attempted to secure a contract for construction of a dam in Ozawa's home Iwate prefecture. ¶3. (C) The timing of Ishikawa's arrest was significant because, according to the Japanese constitution, a Diet member cannot be arrested while the Diet is in session, unless a resolution supporting the arrest is adopted by the Diet (which would be unlikely given the DPJ's majority in the Lower House and coalition control over the Upper House). Ishikawa is considered a close protg of Ozawa, having lived in Ozawa's house as a college student and worked for him as a private secretary. With Ozawa's strong support, Ishikawa defeated former LDP Finance and Agriculture Minister Shoichi Nakagawa in last August's Lower House election. ¶4. (C) Ozawa was initially defiant after the three arrests. Directing his anger at investigative authorities for a "politically motivated campaign" that came during the weekend of the DPJ's annual convention, Ozawa ignored initial requests for questioning and stated that "I have no intention of resigning by being put through such things." He also reiterated that no dubious money had been involved in the Tokyo land purchase and that he had fully explained this to prosecutors. Ozawa did, however, state at the convention that he may have Acting Secretary General Azuma Koshiishi take over parts of his job in the near future so that he could devote more time to clearing his name. ¶5. (C) A DPJ Diet member told the Charge that the prosecutor's action was "huge" and that the party would try to "distance itself" from this scandal. Indeed, polls conducted over the weekend (January 17-18) gave the DPJ reason to do just that: some 67 to 73 percent of respondents believed Ozawa should resign from his current post as Secretary General or quit the Diet altogether. ¶6. (C) Although Ozawa's stated determination to remain in his post was effectively approved by party executives during the convention, some were less quiet after the Saturday session. Away from Tokyo in Shizuoka prefecture on Sunday afternoon, Land Infrastructure, Transport and Tourism Seiji Maehara told the press, "If Secretary General Ozawa maintains his innocence, he should comply with prosecutors' questioning and fulfill his accountability." Maehara, a leading member of the Ryounkai, a DPJ "group" (faction) that distances itself from Ozawa, and fellow members such as State Minister for National Policy Yoshito Sengoku and former head of the TOKYO 00000109 002 OF 002 DPJ Policy Research Committee Yukio Edano, had met at a hotel in Tokyo on Friday night following the arrest of Ishikawa earlier that day. Although we do not know what was discussed, that meeting was followed by an even larger gathering the next day, with Foreign Minister Katsuya Okada, Senior Vice Finance Minister Yoshihiko Noda, Chairman of the Lower House Committee on Financial Affairs Koichiro Gemba, and former Lower House Vice Speaker Kozo Watanabe joining Sengoku and Edano. These six members, along with Lower House Committee on Environment Chairman Shinji Tarutoku, are dubbed the "nana bugyo" (Seven Magistrates") of the DPJ and, with Maehara, could end up being the senior voices in the DPJ pressuring Ozawa to take accountability for his actions. It was in fact their advocacy against Ozawa following the arrest of another aide over a different financial scandal last spring that eventually led to his resignation as DPJ President. ¶7. (C) Lower-ranked party members also expressed disapproval of Ozawa's actions and concern about the effect on the DPJ. According to the Yomiuri Shimbun, a DPJ vice secretary general said, "Even I was not convinced by Mr. Ozawa's explanation, let alone the public." He was correct: 88 percent of respondents to an Asahi Shimbun poll conducted over the weekend said they found Ozawa's handling of the issues "not convincing." In the same survey, 81 percent of DPJ supporters said the same thing. As a mid-ranking DPJ member admitted to the Yomiuri Shimbun, "We've allowed the scandal involving the Ozawa office to become an issue that could affect the party and the administration." ¶8. (C) Prime Minister and DPJ President Hatoyama has stood by Ozawa, and said on January 16, "The Secretary General has told me that he has no intention of resigning, so I told him that I trust him and would like him to continue to stay on." However, Hatoyama has his own funding scandals to worry about, involving falsified record keeping of donations and improperly classified money he received from his mother last year. In the same Asahi Shimbun poll mentioned above, 79 percent of respondents said they found Hatoyama's handling of his scandals unconvincing. ¶9. (C) That said, Ozawa may be backing down from his defiant stance. On January 17, Ishikawa admitted to intentionally omitting 400 million yen (approximately $4 million) from Ozawa's funds reports. On January 19, Ozawa was asked by prosecutors for the second time to voluntarily submit to questioning over the issue. After ignoring the first request, Ozawa has indicated that he may submit to questioning. ¶10. (C) It remains unclear what impact this latest scandal will have on Ozawa's future, the DPJ's fortunes in the July Upper House election or pressing policy concerns such as the Futenma Replacement Facility, but for the time being, most other news -- including Futenma -- has been buried under wall-to-wall media coverage. Given Ozawa's rumored role in recent Futenma-related developments, the scandal has potential implications for the Hatoyama government's management of the alliance. Ozawa's influence was reportedly decisive in the GOJ's decision in December to defer a judgment on the FRF plan until spring, rather than risk a possible coalition break-up over the SDP's opposition to the plan. How the scandal affects Ozawa's position in the DPJ and coalition-related bargaining may also shape thinking on Futenma. ZUMWALT