Kobe Steel Scandal Goes Nuclear: Company Faked Data For Decades, Had A "Fraud Manual"

Tyler Durden's picture

Last week we reported that in the latest instance of criminal Japanese corporate malfeasance, Japan's third-biggest steel producer admitted falsifying data about the quality of steel, aluminum, copper, iron powder and other products it sold to customers across virtually every single industry. The news sent the company's stock tumbling 43% from levels before the scandal broke, to the lowest price since 2012.

The downstream impact was quickly felt, with selling hitting names across the global supply chain...

 

... while the NYT reported that the fallout has the potential to spread to hundreds of companies. As of a week ago, the extent of the problems at Kobe Steel was still unfolding, and prompte the Nikkei newspaper to conclude that "the falsification problem has become an issue that could destroy international faith in Japanese manufacturing."

Well, as of moments ago that tipping point was this much closer, when the same Nikkei reported that some Kobe Steel plants in Japan had been falsifying product quality data for decades, well beyond the roughly 10-year time frame given by the lying steelmaker. According to the Japanese newspaper, "employees involved in the data manipulation used the industry term tokusai to refer to shipping of products that did not meet the standards requested by customers", the Nikkei source said. Though tokusai usually refers to voluntary acceptance of such products, plants sometimes sent substandard goods without customers' consent. The word was apparently in use at some plants for 40 to 50 years.

But wait, it gets better.

Not only did the company, having already been caught, lie to shareholders and rule-abiding employees how long this illegal behavior had been going on, but - in a glaring example of corporate idiocy - had effectively enshrined and codified its fraudulent ways, as the cheating procedures eventually became institutionalized in what was essentially a tacit fraud manual, allowing the practice to continue as managers came and went.

Meanwhile, the Nikkei also reports that everyone could have been in on it, as data manipulation may have occurred with the knowledge of plant foremen and quality control managers. Some shipments even came with forged inspection certificates.

Kobe Steel has tapped senior officials in the aluminum and copper business - where most of the misconduct took place - to serve on its board. How far up the chain of command knowledge of the fraud may have extended in the past remains an open question.

According to the latest update, systemic data falsification took place at no less than four Japanese production sites and appears to have affected virtually every product made by the company: the scandal has spread to the manufacturer's mainstay steel business, with revelations Friday that steel wire was also shipped without inspection or with faked certificates. Meanwhile, the number of affected customers has swelled from around 200 to roughly 500.

One can only imagine the "honesty", measured in alpha, beta and gamma radiation, if Kobe was also behind the Tepco nuclear disaster, where of course as we leaned over the past 6 years, the amount of data fabrication was just as unprecedented. It is almost as if there is something rather rotten with Japan's entrenched, corporate ways...

But not to worry: in an amusing twist, Kobe Steel has promised it will complete safety inspections for already shipped products in two weeks or so. A report on the causes of the fraud and measures to prevent a recurrence will come out in a month or so; we can't wait to read the lies in that one. The steelmaker is conducting a groupwide probe that includes interviews with former senior officials. Because if there is anything Kobe will be successful at, it is diligent, honest self-reporting.

Where the company is certainly lying however, is when it told analysts earlier on Monday that "liquidity is not an issue" according to Bloomberg. Judging by the explosion in Kobe Steel CDS in recent days...

... one more gaffe by the scandal-plagued company, and Kobe Steel will be insolvent. As for all those who are considering providing liquidity to this fraud of a company, good luck with lying to yourselves that you will ever see any of that money back.

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medium giraffe's picture

Glorious Nippon Steel Folded 1000 Times!

knukles's picture

Cockroaches!
Seppuku on ice.
Awesome

overbet's picture

Next up the S&P 500. Where was Andrew Left or Carson Block on this one?

insanelysane's picture

I always wondered why Kobe beef tasted like chicken.

tmosley's picture

If they have been doing this for decades, why is it just coming to light now? Does NOONE in the supply chain do actual QA/QC?

nmewn's picture

The short answer is no.

"The digits on my screen say it was all inspected so it must be true. Everything is in order here." ;-)

Enceladus's picture

Finally we know what they made WTC 7 out of

nmewn's picture

Yeah, they're branching out into holographic aviation products too ;-)

SWRichmond's picture

This is actually terrifying.  Steel grading is extremely important.  I wouldn't want to be at sea, say on an oil platform.  If they falsified test data this is life-threatening on a huge scale.

VWAndy's picture

 How many bolts again? 

nmewn's picture

Not to mention bridges, buildings etc.

Ya nooowah! (gawd I luuuv the Klinton's in so many ways...lol) There's still "a price to pay" for not making stuff here ;-)

stormsailor's picture

my son had an 09 nissan altima 3.6.  he kept it well maintained, never flogged it.  one night he shut it off at his home.  when he tried to crank it the next morning it wouldn't fire up.   cam shaft shattered.    he replaced the engine.  driving down the road 30 mph, tie rod just breaks in the center.

now those are examples on one car of crap metal.  camshaft shattered? wtf

SoDamnMad's picture

They have an ISO 14000 procedure for falsifying data so it must be OK since it is covered.  They just don't put that file in the procedural book or in the computer program that the accreditation body examines.

VWAndy's picture

 I been running into more and more junk hardware for decades. Fucking kill um. Really. People die from that kinda shit. Fucking kill um.

MozartIII's picture

Making amerika steel great again. Trump does it again, for decades or something like that.

tmosley's picture

What kinds of things have you seen?

VWAndy's picture

 Grade 8 bolts that are not. Steel that wont weld right. Screws that break off way to easy. Steel that cracks when you bend it. I beams that sag bigtime.

  That stuff matters. Really it aint a joke. Its not me being pissy. The people making the calls on this are just as bad as them fuckers that made baby formula that killed. Hangin is to good for um!

tmosley's picture

Agreed. This is madness at a level I can hardly comprehend.

But then, I wasn't paid to comprehend it, like the accomplaces that worked with them were.

VWAndy's picture

  I dont know how to fix stupid. But I do know slapping the stupid around makes me feel better.

kbohip's picture

I recently replaced an engine mount on my Nissan.  When I went to torque one of the engine crossmember bolts back on to the recommended spec of 98ft. lbs.,  it stripped.  This was a very fine thread 1.25mm thread pitch 19mm head bolt.  At the time I chalked it up to it just being an old car.  Now I wonder if the bolt wasn't made to spec.  The car has virtually no rust so I don't think the metal was compromised.

VWAndy's picture

 Yea that just dont happen with German cars much. Thats also the wrong thread pitch if ya asked me. 1.50 is a tougher pitch. ymmv

kbohip's picture

It did seem to my admittedly untrained eye that the bolt's threads were too fine to be doing what was asked of them.  98 ft. lbs. seemed too high for small the threads are.  The lugnut studs have a coarser thread and aren't even rated to 98.  Of course I'm no engineer.  To be fair to the car, I've done all sorts of different maintenance work and this is the first time I've had a bolt strip on it.

SoDamnMad's picture

You mean nuclear reactor vessels that fail?

VWAndy's picture

 That stuff gets tested. Its the cheap bolts in the kids swingset thats going to kill.

phaedrus1952's picture

Examples ...

Nuclear plant San Diego way had bad Japanese steel (Mitsubishi?) causing leaks and a premature shut down.

Philadelphia transit has numerous metallurgical failures on their new subway cars.

MANY offshore underwater oil nstallations are encountering leak problems due to faulty bolt strength.

This shit is HUGE due to its pervasiveness and invisibility until stuff fucks up.

And, as you said, LOTS of shit - both big and small - have been fucking up for years.

SaulAzzHoleSky's picture

Hope this stuff was not used for bridge beams, skyscraper columns or cables for suspension bridges!

The cheapest option is not always the cheapest....

VWAndy's picture

 Those bolts on a hand rail can kill.

phaedrus1952's picture

Too late ... already has been.

Check out my comment below about 2011 NY Times article re: SF Bay bridge pre-fabbed in China and grossly faulty.

One of the MANY problems is how far does this go?

How many bolts, screws, cables, etc. are only s fraction of the strength they are supposed to be?

All those amusement park rides breaking?

Would you want your kids on one?

Omen IV's picture

With no integrity the entire system eventually collapses

The ASTM standards are there for serious reasons - structural engineers design by the standards for bridges / roads / buildings / machines of all description

Everyone beginning with the bankers, are lying about everything in the system

The lack of integrity is the cancer which will bring down all

phaedrus1952's picture

Omen

Without going too far afield here in philosophy type stuff, I have come to that exact conclusion, specifically how absolutely CRUCIAL integrity is to a functioning society, magnified by its complexity and expanse.

I am not an optimist in the current situation.

VWAndy's picture

 Integrity is the glue that holds all societies together. If the few that had integrity stopped. Yeppers thats the stall. An if them folks bartered well?  Yea buddy

Gaius Petronius's picture

No way the company survives. The lawsuits in the U.S. alone will do them under.  And then the lawsuits against the companies that used the steel....can you say negligent supervision?  They all may get sued to oblivion too.   

 

Glad I don't drive a Nissan!

fpdguy's picture

Folks want 1st world quality at Chinese pricing.  Absent the Japanese manufacturers, people will buy steel or anything else from the cheapest Chinamen that says the product is fully compliant even though everyone all down the line will know that it's not.  The implicit bet is that things probably won't fail yet on the watch of those responsible for the decision and, if they chose quality instead of price, they won't get the business to begin with.  The idea that these guys did something out of the ordinary and should be made an example out of implies that this is an outlier instead of the norm in nearly every single industry trying to keep the doors open and paychecks flowing to employees in the wake of the great Chinese shift.  If, instead, those Japanese manufacturers just closed their doors 20 years ago and laid everyone off, people would be complaining about that too.  Can't have it both ways.

VWAndy's picture

 Thats not thier call. Wanna make cheap parts ? Fine go and make cheap. When I go out and pay for quality because thats whats needed. It better fucking be.

 The thing is these idiots have no clue where this crap is going to be used. So its not their call. Its a fraud and its not up for debate.

fpdguy's picture

Ok, tell us all why you make a superior product.  Oh, you don't?  You want someone else to impose penalties on the manufacturing decisions that a supplier made without the nuisance of having to compete with them or test them yourself?  The only true regulation is unfettered competition -calls for anything else are nothing more than the shrill shrieks of whiners that would rather wallow than compete.

VWAndy's picture

 I do build high quality stuff. Restoring brake lathes. Take a look at one of my old machines in this video. www.youtube.com/watch?v=lj_59rb9e0w

 Thats one of my restorations.

 

 An yea its a very competitive product. I got um covered on quality and price too. bitch

NoDebt's picture

"If they have been doing this for decades, why is it just coming to light now? Does NOONE in the supply chain do actual QA/QC?"

No.  Too expensive.  You'll never win a bid carrying the dead weight of of a whole QC department on your books.  You take the guy's word for it further up the chain and just assume it is what it's supposed to be, then price your bid accordingly.

The guys who build the bridges and skyscrapers with this crap only need it to stay up for the next 10-20 years.  After that it's the next guy's problem.

 

rlouis's picture

"The guys who build the bridges and skyscrapers with this crap only need it to stay up for the next 10-20 years.  After that it's the next guy's problem."

 

Makes (too much) sense, and adds an additional reason for bringing down the WTC. 

bluskyes's picture

That's what lawyers are for. Kind of like how title insurance replaced real title searches.

VWAndy's picture

 Lawyers might also be good for pulling carbon out of the steel during its manufacture? Its a theory.

nmewn's picture

Personally, I long for the days of leftwing marginal multi-millionaire athletes assuming I give a flying fuck about their pet peeves. If they really kaired they should quit their jobs and start neighborhood midnight basketball leagues.

Which is interesting, the NBA doesn't seem to acquire the same SJW athlete the NFL does, how odd, now why would that be? ;-) 

Yen Cross's picture

 That was funny Knuks. It took me awhile to visualize, but then I laughed for at least 5-10 minutes :-D

  Kinda like South Park reruns.

  P.C. Principal needs to go. I say Chef and the kids re-animate [walking dead style] Mr Garrison or Mackey, zombies.



land_of_the_few's picture

They forged the certificates! Sharp practice!

I woke up's picture

Sounds like they better implement a Kaizen program

Disgusting how US companies are so gullible in buying into the shit the Japanese were doing in the manufacturing world
It's all smoke and mirrors bullshit with fancy names

medium giraffe's picture

Sort of like the 'Japanese economic miracle' that had Wall St CEOs reading books about Samurai warriors only for it to later transpire that they had just been printing shitloads of Yen without devaluing their currency...

johngaltfla's picture

I nominate the former CEO of Kobe to be the next Fed head.

That indiviudal is light years ahead of Janet.

mkkby's picture

What they need is an independent rating agency, like what wall street has for bonds.

Oh, wait...