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Wednesday, Dec. 4, 2002

VICE DEALERS GO HIGH-TECH

Shadow economy getting pinched


Staff writer

OSAKA -- Japanese might be hiding more money from the tax man, but they're not spending it on illegal sex, a leading expert on the nation's underground economy announced late last week.

News photo
Men hover around after dawn in the tenderloin district of Kabukicho in Tokyo's Shinjuku Ward, where Japan's underground economy thrives.

As the prolonged economic slump continues to take its toll, the underground economy in fiscal 2000 has slumped by about 4 trillion yen since last year to nearly 19.3 trillion yen, according to Takashi Kadokura, an economist at Dai-Ichi Life Research Institute Inc.

But as Japanese spend less on vices, members of the criminal underground are turning to more high-tech means to make a buck, using the Internet and cell phones to aid prostitution and drug sales, Kadokura said.

Kadokura, whose book "White Paper on Japan's Underground Economy" was published earlier this year, presented the results of his latest research at a meeting of the Kansai International Media Forum in Osaka on Friday.

Kadokura defines the underground economy as the pool of unpaid taxes from both individuals and privately owned businesses and corporations, as well as illegal income from the sex industry, criminal gangs, the car-theft industry, drug and firearms smuggling, and the pachinko parlor industry.

"In fiscal 1999, the maximum value of Japan's underground economy was estimated to be about 23.2 trillion yen," Kadokura said. "The latest data, from fiscal 2000, show that the total is now at about 19.3 trillion yen, which is about 3.8 percent of the country's total gross domestic product for that year."

Of the total, up to 14.1 trillion yen, or 73 percent, is estimated to be in the form of unpaid taxes, up from about 13.7 trillion yen in fiscal 1999.

Unpaid taxes from individual and privately owned companies amounted to 11.8 trillion yen.

"The estimated rise in unpaid taxes was likely due to the fact that smaller firms are not paying taxes because of the worsening economy," Kadokura said.

Criminals in 2000 made just over 2 trillion yen in illegal income, he said, noting sales of illegal drugs accounted for between 600 billion yen and 1.4 trillion yen of this amount. Kadokura said the figures show that income from such sources has been increasing steadily over the past decade.

Illegal income from the sex industry -- which Kadokura categorized as "soaplands," brothels, "image clubs," sex delivery services, paid dating and foreign prostitutes -- amounted to somewhere between 1.5 trillion yen and 1.6 trillion yen in fiscal 2000.

These figures represent an increase of up to 500 billion yen since 1995.

"Illegal drug sales have increased because of prepaid cell phones, which are harder to trace and make it easy to do business directly, and because of the rise of the Internet," Kadokura said. "Both mediums have also contributed to the rise in sex-related businesses."

Kadokura's analysis also included studies of individual prefectures and their underground economies. He based his estimates on what the GDP of those prefectures was in fiscal 1999.

"Tokyo's underground economy was worth about 4.2 trillion yen, or 5.1 percent of its GDP for 1999," he said. "Unpaid taxes accounted for 3.8 trillion yen, or 91 percent of the total underground economy."

Osaka Prefecture's underground economy is valued at roughly 1.4 trillion yen, or 3.5 percent of its GDP for 1999. Of this amount, about 1.25 trillion yen, or 90 percent, was in the form of unpaid taxes by small businesses, he said.

But the value of Japan's underground economy in terms of the nation's total GDP for fiscal 2000 is actually quite low when compared with other countries.

According to a 1998 study by economists Frederich Schneider and Dominik Enste that was presented to the International Monetary Fund, America's underground economy was estimated to be nearly 7.5 percent of its GDP. In Europe, the estimated value of the underground economies ranged between 5.4 percent of GDP for France and 23 percent of GDP for Spain. In Asia, Thailand's underground economy was estimated to be worth nearly 70 percent of its GDP.

"The figure for Japan is low because, compared with other countries, the unemployment figure is low and Japanese laws and customs regarding criminal activities are very strict," Kadokura said.

But he said he expects Japan's underground economy to expand as technology continues to make it easier to conduct and participate in illegal businesses.

"More advanced communications technology makes it easier to do business illegally," he said. "China and North Korea are more involved in the drug trade, while more and more foreigners are coming into Japan to work illegally. All of these trends mean an increase in Japan's underground economy."



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