KDDI Subsidiaries Unmasked: 99.7% of Ad Sales Were Fraudulent in Staggering ¥246 Billion Scandal

Major Japanese telecommunications giant KDDI has been rocked by revelations that the vast majority of sales from the advertising agency businesses of several of its subsidiaries were based on fictitious transactions. A report published by KDDI's investigative committee revealed that a staggering 99.7% of the sales from the advertising operations of two subsidiaries, Biglobe and G-Plan, were "fictitious transactions" lacking any real substance.

This fraudulent activity reportedly spanned approximately five years, commencing in August 2018, leading to an overstatement of cumulative sales by approximately 246 billion yen. Furthermore, it was discovered that around 33 billion yen in funds flowed out externally through these fictitious transactions. Notably, G-Plan, one of the subsidiaries, is reported to have initiated these fictitious circular transactions just six months after its establishment in February 2018.

This astonishing news sparked an outpouring of reactions on social media, with users expressing shock and disbelief. Comments included "99.7% of sales were fictitious transactions – they weren't doing any actual work at all!" and "This is like a fantasy world." Some posts even questioned the mental fortitude of those involved, asking, "What kind of willpower did it take to keep this going?" The timing of the announcement at the end of March was so impactful that some users mistook it for an April Fool's joke.

In response to the scandal, KDDI's president announced a partial return of his salary and declared a complete withdrawal from the problematic advertising business. Additionally, six individuals, including Biglobe's president, resigned to take responsibility. However, harsh criticisms regarding corporate governance have flooded social media, with users questioning, "They claim there was no organizational involvement, but could just a few people have maintained fraud of this scale for such a long period?" and "This calls into question their lax management and low corporate ethical awareness." Doubts have also been raised about how these transactions managed to evade accounting audits for so many years.

This issue is expected to temporarily affect KDDI's stock price, with short-term selling pressure anticipated. However, some analysts believe the long-term impact will be limited due to the stability of the company's core telecommunications business. Conversely, concerns have emerged about the broader impact on the entire advertising agency industry, fostering distrust and eliciting harsh comments like "The ad business is full of shady practices." The KDDI subsidiary's fictitious transaction scandal has undeniably underscored the critical importance of corporate ethics and governance.

The context

KDDI is one of Japan's largest telecommunications companies, alongside NTT Docomo and SoftBank, making it a prominent and highly trusted brand in the country. Biglobe is a well-known internet service provider that became a consolidated subsidiary of KDDI in 2017. G-Plan was established as a joint venture with a third party. The scale of the reported fraud – 246 billion yen (approximately 1.6 billion US dollars at current exchange rates) in overstated sales and 33 billion yen (approximately 217 million US dollars) in funds outflow – is immense, even for a company of KDDI's size. The phrase "Yakuza" (ヤクザ) used in some social media comments refers to traditional organized crime groups in Japan, and its use here implies deeply unethical or illicit practices within the advertising industry, highlighting the severe public distrust caused by this scandal.