Peter McGill reports from Tokyo on the controversial financial operations of Japanese politician Toshio Yamaguchi. Two troubled universities - one in the United States that was never built and another in Australia that now has its land and buildings on the market - have links with the impenetrable world of Japanese finance.

Washington International University was the brainchild of senior politician Toshio Yamaguchi, arrested in a blaze of publicity in Tokyo last week for alleged breach of trust in a scandal over illegal loans, an involvement he has consistently denied despite mounting evidence to the contrary.

Yamaguchi collected more than Pounds 1 million for the project from Japanese investors who thought they were supporting cross-cultural "student exchange", but the money never reached the US. Most of it ended up in the accounts of companies managed by Yamaguchi's siblings, two of whom were arrested in November. The empty plot of land intended for the university near Dulles airport in Washington DC quietly passed back into US hands in late 1993.

In Australia, political controversy in the Australian senate has centred on the proposed Aus$109 million (Pounds 52 million) sale to Queensland University of the campus of Bond University, the country's first private higher education institution. It was named after Australian property dealer Alan Bond, whose businesses later crashed in massive debt and who himself is on bail facing fraud charges.

³ÉÈËVRÊÓƵ

Liberal senator John Tierney of New South Wales told the Australian senate the sale was "a threat to national interests", a "risk to public money", a ploy to "change by stealth higher education policy", and an attack on the "diversity of choice in higher education options in Australia".

An inquiry by the senate employment, education and training references committee recommended the sale should not proceed, and that all other public universities should similarly be "disqualified from participating in any re-tendering or other future selling process for the Bond University campus", he said.

³ÉÈËVRÊÓƵ

But Labour senator Kim Carr of Victoria told senators it was "yet another pernicious, failed senate inquiry which is built upon a lie", in that the proposed sale was not of Bond University but only of its "real estate".

He told the senate that the inquiry was motivated by "political interference in negotiations between commercial bidders for the assets of a company that is in receivership".

Liberal Party supporters on the staff of Bond University had formed a consortium with private investors to coordinate a bid for the lands at Bond, he said.

There had also been a conspiracy, Senator Carr claimed, to "destroy other bids by Queensland University, Monash University and Griffith University" that had involved issuing "a writ against the receivers and creditors . . . to try to gain a lease and extract damages accordingly".

Outside the senate most Australians seem to have forgotten that the land and buildings of nationally famous Bond University, given legal status in 1987 by the Queensland parliament, had for many years been the property of a Japanese company, EIE International, and now by default belongs to the Long Term Credit Bank (LTCB) of Japan, to which the effectively-bankrupt EIE International owes the most money.

The connection between Bond University and Washington International University is the billions of pounds of Japanese debt run up by EIE International's owner, Harunori Takahashi.

Takahashi's rise and fall trails that of his Australia partner Alan Bond by about two years. In 1987, the year of the Wall Street crash, Bond stunned the world by paying $57 million for Van Gogh's Irises, but also turned a profit of HK$128 million (Pounds 10 million) on the sale of half of the new Bond Centre twin-tower skyscrapers (now the Lippo Centre) in central Hong Kong to Takahashi's EIE for HK$1.9 billion.

That year, the Queensland government of Sir John Bjelke-Petersen smoothed the way for further Bond-Takahashi relations by passing the Bond University Act. The university was intended as the centrepiece of a failed Aus$200 million property scheme to drive up the value of surrounding forests for residential and commercial use.

³ÉÈËVRÊÓƵ

In 1989, Bond's fortunes had turned and he had moved from acquisitions to sales. Takahashi's generosity helped cauterise the cash haemorrhage, buying the remaining 50 per cent of the Bond Centre for just under HK$2.26 billion, and for a further Aus$55 million, the Australian's half-stake in Bond University, despite the opposition of the national government, which feared a political backlash over allowing Australia's first private university to fall into foreign hands. Bond opened to students in 1989. The further Aus$55 million Takahashi had sunk into it was perhaps relatively insignificant, but he nevertheless spoke of it as a "white elephant".

EIE was then at the height of its growth, with officials claiming group assets worth between $13 billion and $14 billion, and the Financial Times describing Takahashi as "a fast-moving Japanese developer who has built a property empire around the Pacific and is now turning his attention to Europe".

The Nikkei stock index on the Tokyo market peaked at the end of 1989, and Takahashi could not escape the subsequent tumble. As the value of his key property fell below the collateral against which he had borrowed, his main creditor, LTCB, which had lent EIE 380 billion yen (Pounds 2,470 million) became nervous. In July 1993, after consultations with the other main Japanese creditor banks and the ministry of finance, LTCB declared it would refuse EIE any more credit.

Without seeking an official declaration of bankruptcy, LTCB placed much of EIE's collateral into receivership. Much to LTCB's subsequent embarrassment - besides inheriting golf courses, resort marinas, oil paintings, the New York Regent hotel, and a "floating hotel" moored at the mouth of the Saigon River in Vietnam - it found itself landlord of Australia's first private university. LTCB had sent a young staffer, Jiro Yaginuma, from Japan to Australia to try to liquidate EIE's assets there.

After trying unsuccessfully to sell the university site he returned to Tokyo in a state of depression, and on January 17, 1994 was found dead at his parents' home.

The official cause of death was heart failure, but the Sydney Morning Herald reported: "It is no secret among the Japanese-Australian business community that Yaginuma took his own life."

The Washington International University project has similar roots in Takahashi's financial affairs but bears a distinctly Japanese stamp.

³ÉÈËVRÊÓƵ

It emerges from a financial scandal that started last December with the failure of two obscure Tokyo-based credit unions, Tokyo Kyowa, and Anzen; the government's abrupt U-turn in launching an all-out rescue effort; a flurry of reported allegations of impropriety involving their business dealings; a parliamentary inquiry; the election of a Tokyo governor pledging no municipal money for bailing out corrupt financial institutions; numerous arrests; runs on other credit unions and one regional bank; and a full-blown financial crisis.

Takahashi has played a leading role: in 1985 he took over financially troubled Tokyo Kyowa, established after the second world war to fund Taiwanese businessmen in Japan, and after LTCB officially "pulled the plug" on EIE in 1991 he is alleged to have had increasing recourse to deposits at Tokyo Kyowa and Anzen (of which his close friend, Shinsuke Suzuki, was also president) to fund his own cash-starved businesses, and those of his friends.

In March this year cases of extending large loans without collateral from Tokyo Kyowa and Anzen led to the arrests of Takahashi and Suzuki, and of the recipients of their unsecured generosity among the clan of politician Yamaguchi, a former minister of labour.

Washington International University appears as another failed Takahashi joint venture, this time with his long-time political friend Yamaguchi, who had been a guest at Takahashi's 1973 wedding, and who frequently visited the US as chairman of the foreign affairs committee of the lower house of the Diet. The plan called for the construction of a $197 million campus in which 2,000 Asian and US students would live and study each other's language, culture, and business. It was to offer three departments: international relations, international economics, and Asia-Pacific studies. Whatever the academic prognosis, it would doubtless have made excellent PR for both the businessman and the politician.

By December 1990, EIE had already sent $17.6 million to the US for the project. But as LTCB took control of EIE in 1991 the funding suddenly dried up.

Having already purchased 2.2 million square metres of Virginia land for the university from Xerox, Yamaguchi unsuccessfully tried to persuade the Itochu trading company, the president of Tokyo's private Meiji University (Yamaguchi's alma mater), and the chairman of the board of trustees of Kyoritsu Women's University (with whose founder's descendent Yamaguchi had political connections) into making donations. A Tokyo film distributor lent 30 million yen - of which Yamaguchi has since returned only 2 million.

His only major fund-raising success was one which has been closely scrutinised by Tokyo prosecutors - a 169 million yen loan from the Kumamoto Institute of Technology, a private university in southern Japan, after Kentaro Hayashi, president of Tokyo University from 1973 to 1977 and a member of the upper house of parliament from 1983 to 1989, had agreed to Yamaguchi's offer to become chairman of the board of trustees of the Washington International University.

The KIT anticipated that its students could study on an exchange programme in Washington and in June 1992 deposited the money in a Japan account of the Washington International Policy Exchange Foundation, of which Wasuke Miyake, Japan's former ambassador to Singapore, had informally agreed to serve as president.

In November 1994, the KIT sent a letter to Mr Miyake demanding its money back unless the university were established by October 1996. Mr Miyake reportedly telephoned Yamaguchi, who told him "not to worry," and asked him to forward the letter to his office.

Then in March, after Yamaguchi resigned as secretary general of Japan's main opposition party, KIT president Yo****aka Nakayama decided personally to confront the politician in Tokyo. According to Japanese press accounts, Yamaguchi assured KIT it would get its money back if the project "failed".

Meanwhile Bond University still holds two seats on its council for Takahashi and one of his Japanese colleagues, even though Takahashi is now in a Japanese police detention cell, and neither have been "near Bond University in at least three years", according to Jim Simmonds, the university's public relations officer.

Apart from being permanently identified with Australia's most spectacular speculator, Mr Simmonds admits Bond University has also had a hard time living with its initial reputation "for all kinds of excesses, staff who hardly did any work, went on foreign trips, etc". This was first tackled by Philip Lader, the university's vice chancellor from 1991 to 1993, a US management expert who had previously taken care of the property interests of Sir James Goldsmith.

Mr Lader was later invited by President Clinton to become deputy director for management at the White House, in December 1993 was promoted to Clinton's deputy chief-of-staff, and a few months later demoted and exiled from the White House to head the far less exhilarating Small Business Administration in Washington.

Senator Carr told the senate on November 29 that the Bond contract with EIE was predicated on the assumption that the loan - of Aus$95 million in operational funds - would become payable once a profit was declared by Bond University, and after posting a profit of Aus$680,000 for 1993/94, and another profit of Aus$6.7 million in the last year, Bond University "can no longer ignore that call". In late November it had been issued with a writ for the "immediate payment of the Aus$95 million subordinated debt".

Mr Simmonds agreed that Bond was not repaying its debt to the EIE receiver, but said that its profits were all being ploughed back into operation of the university and "legally cannot be touched". Yet Mr Simmonds also acknowledged that the Aus$20.2 million it accumulated to bid for the lands at Bond University derives from the operating funds.

A defensive writ claiming the university's "legal right to the lease" has already been lodged at the Queensland Supreme Court, he adds.

The University of Queensland is seeking three seats on Bond University's council as part of its intended purchase of the property, including the chairman, Mr Simmonds said. The intention is clear, according to Mr Simmonds: "It's a great opportunity to kill off Bond."

³ÉÈËVRÊÓƵ