Lockheed Scandal 40 years on: The downfall of Prime Minister Kakuei Tanaka

Boise, the state capital of Idaho in the US, is a city of some 200,000 located near the junction of the historic Oregon Trail, about 90 minutes by plane from San Francisco. Its natural surroundings project a relaxing atmosphere. Outside of the city spread over grassy hills is the Morris Hill Cemetery.

In June of this year, under sunny skies, I stood quietly before a gravestone, upon which several small wreaths had been placed. The memorial was inscribed with the words FRANK CHURCH, 1924-1984. It is the final resting place of former U.S. Senator Frank Church, a Boise native and regarded as one of the city’s greatest native sons.

Forty years ago, Church was “the man who pulled the trigger” to unleash the Lockheed Scandal, which led to the biggest political upheaval in postwar Japan and the arrest of former Prime Minister Kakuei Tanaka.

On February 4, 1976, when Church was serving as chairman of the U.S. Senate Subcommittee on Multinational Corporations, under the Foreign Relations Committee, it was revealed that U.S. aircraft maker Lockheed Aircraft Corporation had earmarked over 3 billion yen in secret funds to sell planes to Japan.

The payoffs, for the purpose of selling the Lockheed L-1011 TriStar passenger jets to All Nippon Airways, were made in the form of bribes distributed to high-ranking government officials by right-wing fixer Yoshio Kodama. Also involved was Kenji Osano, a businessman known for his political connections, and the Marubeni trading company, which represented Lockheed sales.

The code name “Peanuts” was used on receipts to indicate payoffs. At hearings of the Church committee, Lockheed’s vice chairman A. Carl Kotchian testified that a total of approximately $2 million (nearly 600 million yen at the time) had been distributed to Japanese government officials through Marubeni.

The question of who had accepted the money set off a storm in Japan, which on July 27 culminated with the Tokyo District Public Prosecutors Office arresting Tanaka on suspicion of violating the Foreign Exchange and Foreign Trade Act.

It was the first time in Japan’s history for a prime minister to be arrested for a crime committed during his tenure. It was Washington, and Chairman Frank Church, who acted as the flash point to what became known as the Lockheed Scandal.

Speculation and conspiracy theories still persist in Japan to the effect that the US government used the Lockheed scandal to oust Tanaka. What was the Lockheed Scandal really about, and what actually happened in Washington at that time? More than anyone, those details would have been known by Frank Church.

Born in Boise in 1924, Church was influenced by his father, the owner of a sporting goods store who harbored a strong interest in politics. After graduation from a local high school he matriculated at Stanford University, and during the Second World War served as a U.S. Army intelligence officer assigned to Asia. After the war Church earned a degree in law, and in 1957, at the relatively young age of 32, was elected to the U.S. Senate.

During his time in the Senate, Church began speaking against the war in Vietnam and American policy in Southeast Asia.

During the 1970s he was selected to chair the Select Committee to Study Governmental Operations with Respect to Intelligence Activities, which disclosed Central Intelligence Agency plots to assassinate foreign leaders.

In 1976 Church announced his candidacy for president of the United States on the Democratic ticket but lost the nomination to Jimmy Carter. Following his defeat for reelection to the Senate by a Republican rival, he withdrew from politics but remained in Washington D.C. where he practiced law. From his record he stood out as a staunch liberal Democrat.

As he succumbed to pancreatic cancer in April 1984, he cannot, alas, answer any questions concerning the Lockheed Incident.

In Church’s stead, however, a former subordinate, Jack Blum, agreed to be interviewed. Blum served as associate counsel on the Church committee as well as a leading investigator of the Lockheed case.

Jack Blum

A native of New York, Blum, 75, became a member of the investigation staff of the U.S. Congress after graduating from university and was in his mid-30s at the time he was involved with the Church committee. He went on to become a veteran investigator into white-collar financial crime. Blum recalled the details of the Lockheed Incident over lunch in a restaurant in a Washington D.C. suburb.

According to Blum, the Church committee had investigated several multinational corporations including Gulf Oil and Exxon. Among aircraft manufacturers it had initially focused on alleged bribery activities, not by Lockheed, but Northrop Corporation.

“When we were investigating payoffs by Northrop in foreign countries around June 1975, its president testified that they used Lockheed as a model. We were investigating fighter planes, but it turned out that in Japan it was a commercial plane, the L-1011,” Blum said.

The committee members became intrigued by this unexpected development and promptly asked Lockheed as well as U.S. government bodies to submit information.

Senator Church bequeathed his personal correspondence and documents to Boise State University, which contained documents related to the Lockheed investigation. That information, along with declassified documents from the Gerald Ford administration at the time of the scandal and the statements of Jack Blum create a vivid image of what transpired.

Lockheed’s crisis

On August 15, 1975, about six months before the scandal first came to light, Senator Church sent a letter to William Proxmire, chairman of the Senate committee on Banking, Housing and Urban Affairs, requesting his cooperation regarding loans to Lockheed.

It read: “The foreign activities of the Lockheed Corporation came to our attention in early June during hearings on Northrop Corporation and we began an active investigation. A subpoena was issued and we received a substantial number of documents…Lockheed’s sorry record raises the very serious question of whether the company has withheld material information from your Committee in seeking the loan.”

On the 27th of the same month, Church also sent a letter to the president of the Export-Import Bank, asking him to provide all materials relating to the export of the L-1011 and other aircraft.

Another important context to these developments is that Lockheed was in a serious financial crisis.

Follow the money

At the start of the 1970s, the U.S. government set up an organization called the Emergency Loan Guarantee Board (ELGB). The purpose was to provide guaranteed loan assistance to major corporations whose failure could have a material adverse impact on the economy. Lockheed, which was having difficulty selling its aircraft, applied for assistance.

When its offers of bribes were uncovered, the ELGB, the U.S. Treasury Department, and the Senate Banking Committee were infuriated, especially due to concerns that the company may have used part of the assistance it had received from American taxpayers to bribe foreign government officials. The Senate banking committee chairman William Proxmire conveyed this anger in a letter to Secretary of Treasury William Simon.

“In my view,” he wrote, “the single most effective method for bringing these practices to a halt would be to disclose the names of the foreign officials who received the payments from Lockheed and the names of the so-called marketing consultants or agents who made these payments on behalf of Lockheed.”

The letter continues, “The very fact that these names were disclosed would serve as a powerful deterrent in discouraging future demands for pay-offs on the part of foreign officials doing business with U.S. corporations.”

Naturally, these foreign officials included former Prime Minister Kakuei Tanaka and Yoshio Kodama.

In his reply to Proxmire, Secretary Simon wrote: “Lockheed’s financial condition is significantly weaker and its cash position significantly more vulnerable than the other corporations to which you allude in your letter…the release of the information you have requested could cause the failure of the company with all its attendants injuries and dislocations.”

Upon learning that the U.S. government had become aware of its overseas bribes, Lockheed was shaken to its foundations. In late August 1975, immediately after ELGB’s staff visited Lockheed’s headquarters in California, Lockheed’s vice president and treasurer committed suicide.

War criminal fixer

However, the U.S. government was torn over whether to make public the names of the foreign officials. Meantime, the Church committee was also looking into bribery cases involving US corporations in Europe and the Middle East.

According to Blum, the situation changed rapidly in November 1975. Earlier that month, Blum had visited West Germany and the Netherlands to investigate alleged bribes paid by Lockheed. During that trip, a colleague passed on information that left him astounded.

“During my trip to Germany, I was told that really important payoff was in Japan. Before that, nobody understood what those documents were, because many of them were written in Japanese. The Congressional Research Service translated them into English and our staff were astonished.

“The first discovery was that the middleman was former war criminal, Yoshio Kodama. We did research at the Library of Congress and went to the National Archives to have records of the Tokyo International Military Tribunal and people who investigated him.

“That was really astonishing. An American corporation hired a former war criminal and bribed the Prime Minister of a major country, an important U.S. ally. And Kodama had ties with the yakuza and was involved with so many dirty things across the board. How did this guy get into the Japanese political structure? But until then, nobody, including ruling party politicians, questioned it.”

Yoshio Kodama’s role

In the postwar history of Japan, Yoshio Kodama led a rather bizarre existence. In his youth, Kodama was an aggressive ultranationalist. His name first popped up during the war, when he organized the Kodama Agency in Shanghai at the request of the Japanese Imperial Navy. His supposed function was procurement of materials for the Japanese war effort, but he was essentially looting assets from the Chinese.

Soon after the war’s end, the Supreme Commander for the Allied Powers designated Kodama a Class A war criminal and ordered his arrest. He was incarcerated in Tokyo’s Sugamo Prison, but then released.  After that, he used some of the massive assets he had brought back from China to help fund the founding of the Liberal Party, the predecessor of today’s Liberal Democratic Party.

Afterwards, Kodama became known as a fixer, not only in the realm of politics, but with the power to influence rightist groups, underground criminal syndicates and corporate racketeers.

The source of Kodama’s power was to intimidate opponents using the Yakuza and rightist groups, while keeping himself insulated from the law.

Kodama, however, failed to intimidate the U.S. Senate committee. If it had been the Japanese Diet investigating, perhaps it would have led nowhere. But the Church committee and its investigative staff, who were mostly in their 20s to their early 30s, smoldered with youthful idealism. They were not the least bit intimidated by the threat of Japan’s rightist groups.

Henry Kissinger

Did the Church committee know that Tanaka, the former prime minister, was among the bribe recipients? With a vigorous nod of his head, Blum continued.

“We discovered a number of things in the countries that were investigated, but important point was that there was nothing of the magnitude of Japan. It was a payoff to the highest level of the Japanese government, not a third-world country.”

Meantime, Lockheed didn’t just stand by and watch. It knew that if the investigation continued and it was publicly linked with bribing named foreign government officials, the company could be dealt a mortal blow. So it sought help from a major figure in the Ford Administration — Secretary of State Henry A. Kissinger.

On November 19, 1975, Lockheed’s legal counsel Rogers & Wells sent a letter to Henry Kissinger warning against unfairly maligning friendly foreign leaders and governments that were on the receiving end of the bribes.

The letter read, in part: “… due to the extreme sensitivity of some of the information involved, Lockheed would prefer at least initially to describe orally some of the documents should you or any representative you may designate desire to verify the seriousness of the problem.”

Nine days later, Secretary Kissinger wrote to the U.S. Attorney General, warning against making committee findings public as disclosure of names of foreign officials might have grave consequences for foreign relations.

Divided opinion

As Jack Blum recalled, “I was not in that meeting, but Lockheed’s legal team, Rogers & Wells attorneys, came to see Church, asking him to limit the investigation to the Middle East.”

Up to that point, the investigation had revealed bribery by Northrop to sell its planes in the Middle East, where officials received enormous commissions through transactions with international arms dealers. As a result, to discover Lockheed was also involved in bribery wasn’t that much of a surprise.

How then did the Church committee respond to the requests to protect high-ranking officials in Japan or Europe who had been involved in similar deals?

“Frankly speaking,” Blum continued, “we had a division of opinion at that time. I think Jerry Levinson, the committee’s chief counsel, wanted to go along with Rogers & Wells. But I said we can’t do that, because we had too much evidence, such as receipts with the codename Peanuts. It was too important to overlook. I debated with Levinson and Church backed me up and said, ‘Let’s go.’”

If Jack Blum had lost that debate, one can only wonder how things might have turned out when revelations of the Lockheed scandal came to light the following February without any mention of Tanaka?

Changing history

Without implicating Tanaka, Kodama and Marubeni, the bribery case might have attracted little attention. So in a very real sense, the debate that took place in a room of the U.S. Senate office building in the winter of 1975 can be said to have changed Japan’s history.

Church’s military service record in the archives at Boise State University, may suggest a surprising reason why Church decided to go along with Blum’s argument.

As a young U.S. Army intelligence officer, Church at the end of World War II had been posted in Shanghai, Yoshio Kodama’s old stomping grounds. In letters that Church sent home to his family at the time, he wrote of the tragic conditions of the Chinese, Western colonialism and American companies that operated in Asia.

While it is unlikely Church and Kodama ever met in Shanghai, it may be argued that the roots of the Lockheed scandal began in the late stages of the war in China.

Kodama, who became the fixer representing Lockheed, had acquired huge wealth from his illegitimate wartime activities in China. Frank Church, a liberal politician, was disturbed by what he saw in China just after the war and became critical of multinational corporations.

Their paths crossed in Shanghai, took very different directions after the war, and then crossed again in the Lockheed scandal.

Geisha memoir

The relationship between Lockheed and Kodama extended back to the late 1950s when the then Japan Defense Agency began its program for procurement of jet fighter aircraft. This led to the involvement of influential politicians.

As it unfolded, how did Kakuei Tanaka view the events and what did he foresee happening?

One insight into Tanaka’s mindset at this time comes from a memoir written by Kazuko Tsuji, a geisha and Tanaka’s mistress. In the book entitled “Netsujo” or “Passion” she writes that after the Lockheed incident became public, Tanaka had told her, “There’s no precedent of a prime minister being arrested.”  This clearly indicates he expected the scandal to blow over.

Tsuji wrote that Tanaka also pointed out that a previous Minister of Justice had intervened to avoid the arrest of Eisaku Sato, who while serving as Secretary-General of the Liberal Party was implicated in bribery in the shipbuilding industry. From this, Tanaka was confident there was no chance a prime minister would be arrested and didn’t take it seriously, Tsuji wrote.

The shipbuilding bribery scandal occurred soon after the war, during the government of Prime Minister Shigeru Yoshida. Members of the ruling Liberal party allegedly accepted bribes from shipbuilding and ocean freight transport companies. When the prosecutor began an investigation, Justice Minister Takeru Inukai intervened and the full truth never came to light.

Accepted by establishment

Another comment by Tanaka also suggests he never believed the establishment would allow his arrest. This concerns a memorandum of a conversation he had with US President Richard Nixon’s then-National Security Adviser, Henry A. Kissinger, who on June 12, 1972, was visiting Japan.

According to the declassified U.S. document Tanaka said, “I first started my political activities under Prime Minister Shidehara, who was one of the disciples of the late Prime Minister Yoshida. Since then I have remained a good student of the Yoshida school of political training.”

Shigeru Yoshida and the politicians that allied with him became known as the “Yoshida school,” which developed into the mainstream conservative force that dominated Japan’s politics in the postwar era.

These elite bureaucratic and financial circles, along with powerful family connections, formed the establishment in which Tanaka — born and raised in an impoverished farming family in rural Niigata prefecture — managed to gain entry and ascend to the pinnacle.

Despite his poor background and lack of family connections, Tanaka believed he had been accepted as a member of this mainstream conservative establishment and the protection it brought.

Deserted by establishment

When the same establishment deserted him, he was beset by a mixture of anger, sadness, and humiliation at what he saw as betrayal. This he also conveyed to his mistress soon after being released on bail.

“I knelt on the tatami mat and looked up to his face. Recalling from his expression at that moment the words, ‘There’s no way for him to release that pent-up anger,”’ Tsuji wrote in her memoir.

“I thought surely, for him to experience the humiliation to which no previous prime minister had ever been subjected must have been mortifying. I never felt sorrier for him than at that moment.”

The flashpoint in Washington that ignited the Lockheed scandal not only exposed the machinations of Yoshio Kodama and the crimes by multinational corporations and a prime minister, it also revealed the corruption that was rampant in the mainstream conservative establishment that had ruled Japan since the end of the war.

As such, the Lockheed Incident still ranks as Japan’s biggest scandal of the postwar era.

Eiichiro Tokumoto is an author and investigative journalist based in Tokyo. This story was first published in Japanese in the Weekly Shincho magazine in August 2016.