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Saturday, Nov. 13, 2004

Lawyers go after reformist debt collector

Is arrest of U.S. CPA who fought industry's yakuza taint just a turf war?


Staff writer

An American businessman who tried to improve the way debts are collected in Japan from the oft yakuza-linked intimidation route was arrested last week amid growing pressure by lawyer groups to crack down on unauthorized parties encroaching on their turf.

Steven Gan, president of Advance & Associates Co., had long known he was running a legally risky, if not outright illicit, business. But when he set up his debt-collection firm in 1992, he did so with the conviction that he was helping to change widespread public perceptions of debt collection as a dirty, scary and dangerous affair.

The U.S.-certified public accountant, who was collecting outstanding debts on behalf of more than 600 firms, was arrested Nov. 4 by the Tokyo District Prosecutor's Office. He allegedly collected a combined 15.7 million yen in debts owed to credit card and transport companies without being a licensed lawyer or firm known as a "servicer," for four years up through April.

Debt collection used to be the sole domain of lawyers until the Servicer Law of 1999 allowed in nonlawyers. But the law still required an accredited servicer -- a party that collects principal and interest from borrowers -- to be capitalized at 500 million yen or more, and have a lawyer on its board. And the type of debts servicers can collect is limited to those held by financial institutions. Only lawyers can collect debts held by nonfinancial entities.

As it stands, many lawyers are only interested in high-stakes cases, leaving midsize companies with the option of eating their souring debts or hiring yakuza to reclaim them, Gan claimed in an Aug. 9, 2003, story in The Japan Times.

He also said then that his work was about changing a stereotype in Japan that the "people who do collection are yakuza or related to the yakuza or that the (collection) activity is very violent."

Debt collection can be performed ethically and professionally, Gan said, advocating the establishment of a "full-scale collection industry" in Japan as in the U.S., where not just lawyers but financial professionals engage in collection and form associations to boost their expertise.

To get around any legal hurdles, Gan set up a "union" under the Civil Law with client firms and said he was entrusted with their collection activities. Such a union, which is not a corporate entity but a voluntary association that represents members for purposes of collecting debts, was modeled after one set up by the firm Consumer Credit Clearance in the 1970s.

In the early 1980s, the lawyer associations took issue with the firm and filed a criminal complaint, saying its activity violated the Lawyers Law, which states that only lawyers can collect debts. But after weighing the complaint, prosecutors decided not to press charges.

While the legality of such a union remained murky, Gan later took this as a hopeful sign that prosecutors would not side with the lawyers if he faced similar pressure.

But an official from CCC, which acquired a servicer's license in 1999 and now operates under the name CCC Collection Services, Inc., showed little sympathy for Gan, saying, "I wonder why he has continued to do his business in such a way, since the Servicer Law was introduced?"

Gan, who didn't have the capital to become a servicer, said he continued doing business because the customers were on his side.

In Japan, however, heavy-handed collection tactics against individuals and owners of small businesses abound, and Gan's outspoken and aggressive -- albeit soft-spoken -- way of doing business did not sit well with the three powerful Tokyo lawyer groups, which filed a criminal complaint against him in March.

An Advance & Associates official said prosecutors started to probe the firm in May and they dragged on for months.

Around August, with the prosecutors' taking a hardline stance, Gan decided to call it quits. He referred his clients to other firms, released his employees and stopped operations at the end of October, the official said, noting the firm was to be dissolved in January.

Hiroshi Sumiyoshi, dean of Omiya Law School and a supporter of Consumer Credit Clearance in the early 1980s, noted that Gan's arrest might be linked to the prosecutors' desire to "appease" the attorney groups as the government pursues a range of contentious judicial reforms, including boosting the number of lawyers.

"Many people in the lawyers' associations are opposed to an increase in the number of lawyers," Sumiyoshi said, claiming their fears are twofold: that the quality of lawyers will deteriorate and that there will be stiffer competition for work.

"The authorities do not want to upset a majority in the lawyers' groups," he said. "By cracking down on a nonlawyer doing lawyerlike work, they might be trying to convince the groups that the quality of lawyers will not decline even if more enter the practice."

He added, however, that in the world of law, people can be found at fault if they are not in compliance with the written law, no matter how well-intended their actions are. "Oftentimes, the law is not in line with the needs of real life -- unfortunately," he said.

Hidenao Toyoshima, a former head of the Fukuoka High Public Prosecutor's Office who is representing Gan, refused to comment, except to say the matter is still under investigation. Hideaki Tobe, vice chairman of the Tokyo Lawyers Association, likewise declined comment.



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