Japanese banking regulators are considering criminal charges against UFJ, set to become the largest bank in the world, whose officers have admitted systematically deceiving agency investigators.

The Financial Services Agency (FSA), Japan’s banking regulator, is considering criminal charges against UFJ after the Japanese bank admitted last week for the first time it had systematically deceived agency inspectors during an investigation.

“We are considering whether we should bring this matter to the judge,” said the FSA. “We take this very seriously and we intend to take a tough stance on this criminal activity.”

Any criminal charges would further complicate UFJ’s planned $84bn merger with MTFG, which was called into question last week when a court ordered the banks to halt merger negotiations until a dispute over the sale of UFJ’s trust bank business was resolved.

The merger of MTFG and UFJ would create the largest bank in the world with assets of more than Y190,000bn ($1,700bn) and was announced with great fanfare 10 days ago.

The allegations that UFJ misled the FSA emerged June last in the wake of a special FSA inspection, prompting the bank to remove its original management. An independent investigation commissioned by the new management led to the latest full admission.

In response, the bank unveiled plans to prevent further wrongdoing including beefing up its corporate governance regime with the creation of an Internal Audit Planning Office.

The possibility of criminal charges comes after Tokyo’s district court issued a temporary injunction against UFJ’s merger talks with MTFG after Sumitomo Trust & Banking filed a petition claiming UFJ had breached an agreement to sell Sumitomo its trust bank business.

There were few signs of an early end to this dispute last week. Ryosuke Tamakoshi, UFJ chairman, said the bank had filed an objection to the injunction and was prepared to take Sumitomo Trust to the High Court if this objection was rejected. The next step after the High Court could be a lengthy appeal to the Supreme Court.

Tamakoshi appeared to rule out a negotiated settlement with Sumitomo Trust, saying UFJ had no intention of compensating it for the collapse of the merger.
“Negotiations with Sumitomo Trust are not part of our considerations,” he said.

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