Itochu discovers costly in-house trading scam

A former Itochu Corp. employee conducted dubious transactions in which it paid more than ¥50 billion to a Mongolian supplier for heavy machines that were later unknowingly shipped to another Mongolian company, the major trading house said.

Itochu said it also suspects similar transactions took place involving another firm that cost it more than ¥40 billion in payments.

The employee, who was chief of the sales division for construction machinery and for the overseas project department, was fired as of Wednesday, it said.

The company said it started a business in fiscal 1999, in which it purchased heavy machinery from the Mongolian supplier and sold it to a local natural resources company.

In the beginning, the transactions actually took place. But in fiscal 2000, when the natural resources firm got low on cash, the employee started making his dubious deals.

The scheme went on for nearly eight years until it was discovered in late May, the trading house said.

Itochu said it believes that the money paid to the machinery supplier was eventually handed to the natural resources company as operating funds.

The employee carried out the transactions in an effort to expand business with the natural resources firm and did not receive any kickbacks, Itochu quoted the employee as saying.

Some ¥10.3 billion from the transactions remains uncollected, of which ¥5.1 billion is overdue, Itochu said.

The trading house does not plan to revise its earnings projection for the full fiscal year through March 31, it said.