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- <text id=90TT0135>
- <title>
- Jan. 15, 1990: Penetrating The World Of Dango
- </title>
- <history>
- TIME--The Weekly Newsmagazine--1990
- Jan. 15, 1990 Antarctica
- </history>
- <article>
- <source>Time Magazine</source>
- <hdr>
- BUSINESS, Page 48
- Penetrating the World of Dango
- </hdr>
- <body>
- <p>How Navy agents cracked a Japanese bid-rigging scheme
- </p>
- <p> In Japan's $500 billion construction industry, bid-rigging
- is an established and rarely punished process that goes by the
- name dango. For the Pentagon, dango is an odious practice that
- inflates expenses by tens of millions of dollars a year on
- military projects in Japan. In an unprecedented case, the
- Justice Department announced last month that 100 Japanese firms
- had agreed to repay $33 million of excess profits on Navy
- construction projects. Reason: the companies were caught in the
- act.
- </p>
- <p> The breakthrough was accomplished by skilled undercover
- work, Government officials told TIME. In the past,
- investigators had been unable to penetrate the closely knit
- fraternities formed by Japanese businesses. But in June 1986
- the Naval Investigative Service adopted a new tactic when it
- began probing the Star Friendship Association, a consortium of
- 160 Japanese construction firms organized for the express
- purpose of raising prices on contracts at the huge U.S. naval
- base in Yokosuka.
- </p>
- <p> To gain firsthand evidence, naval agents managed to recruit
- a key officer of the Star Friendship Association. The man, who
- had had a falling-out with one of the companies in the group,
- agreed to wear a hidden microphone at its meetings. The club
- operated with almost comic formality. A day or two after new
- contracts were announced by the Navy, the group would meet in
- downtown Yokosuka. "They would determine who was interested in
- bidding on specific contracts," says a U.S. official. "Then
- they would break up into smaller groups to decide who would get
- the award."
- </p>
- <p> The lucky firm would tell the others to bid above a certain
- figure. In exchange the other companies would get a share of
- subcontracting work, a direct kickback or first dibs on future
- contracts. If the firms could not agree, they would call in an
- officer of the association to mediate. Unfortunately for them,
- this officer turned out to be the Navy informant.
- </p>
- <p> The tougher U.S. attitude may already be paying off. The Air
- Force and Justice Department are investigating charges by
- Arthur Williams, former chief of the contracts-law division at
- Yokota Air Base, that another dango association has overcharged
- the Air Force and Navy about $76 million on $180 million worth
- of communications contracts during the past ten years. Most of
- the firms practicing dango were window dressing for a
- subsidiary of NEC, the electronics firm, which consistently got
- most of the work.
- </p>
- <p> NEC denies taking part in any dango for the Air Force
- projects. But the apparent cost to the U.S. taxpayer was
- dramatically illustrated after an American firm first began
- competing for such contracts in mid-1988. Since then, NEC has
- won renewed contracts for work at six military bases--but the
- company's bids for the work have fallen 40% to 60%. "This had
- been going on for about 20 years," says Williams. "I don't
- think any big firm has ever defrauded us like that before."
- </p>
- <p>By Jay Peterzell/Washington. With reporting by Kumiko
- Makihara/Tokyo.
- </p>
-
- </body>
- </article>
- </text>
-
-