December 28, 2017
To: AllCompany
Mitsubishi Materials Corporation
Representative
Akira Takeuchi, President(Securities Code: 5711 on the 1st Section of the Tokyo Stock
Exchange)
Nobuyuki Suzuki, General Manager,
Inquiries to:
Corporate Communications Dept.,
General Affairs Dept.
(TEL: 03-5252-5206)
Special Investigation Committee Interim Report
Relating to Non-Conforming Products at MMC Subsidiaries
Mitsubishi Materials Corporation (“MMC”) sincerely apologizes for the difficulties that
we have caused to all concerned parties, including our customers and shareholders, inconnection with Mitsubishi Shindoh Co., Ltd. (“MSC”)’s and Mitsubishi Cable Industries,
Ltd. (“MCI”)’s delivery of products that deviated from customer or internal specifications
due to misconduct, including the rewriting of data. MCI and MSC are consolidated
subsidiaries of MMC.
We would like to report that MMC’s Board of Directors received an interim report today(attached), from the Special Investigation Committee. The Special Investigation Committee
plans to submit its final report at the end of February 2018.
END
Direct any questions to:
Corporate Communications Dept., General Affairs Department, Mitsubishi Materials
Corporation
TEL: 03-5252-5206
General Affairs & Personnel Dept., Mitsubishi Shindoh Co., Ltd.
TEL: 03-6629-5850
Corporate Administration & Personnel Sec., Administrative Division, Mitsubishi Cable
Industries, Ltd.
TEL: 03-3216-1551

Attachment

December 28, 2017
SpecialInvestigation
Committee
Chairperson Mariko Tokuno
Interim Report
1. Background
Mitsubishi Materials Corporation (“MMC”) discovered that certain products produced and soldby MMC’s subsidiaries in the past, including Mitsubishi Shindoh Co., Ltd. (“MSC”) and Mitsubishi
Cable Industries, Ltd. (“MCI”), were shipped that deviated from customer or internal specifications(“Non-Conforming Products”) due to the rewriting of inspection records data and othermisconduct (“Misconduct”) (“this Matter”). Determining that it is necessary to immediately
confirm safety, MMC, MSC and MCI made a public announcement concerning this Matter on
November 23, 2017.
In order to achieve the purpose set forth in 2.1) below relating to this Matter, a special
investigation committee (“Committee”) was established according to a resolution by MMC’s Boardof Directors on December 1, 2017, with the majority of the Committee consisting of outside
directors and an outside expert. MMC’s Board of Directors granted the Committee the authority,
among other things, to conduct the investigation set forth in 2. below.
The Committee received an investigation report dated December 27, 2017 from the MSC
Investigation Committee (Attachment 1), an interim investigation report dated December 27, 2017from the MCI Investigation Committee (Attachment 2) and a report titled “Restructuring Measuresof the Governance Framework for Quality Control in the MMC Group ” from MMC (Attachment 3).
The Committee is therefore submitting an interim report with its opinions to MMC’s Board of
Directors.
2. Purpose of the Committee, Committee Members and Operational Guidelines
1) Purpose
The purpose of the Committee (“Committee’s Purpose”) is, among other things, toconduct the investigation described below relating to this Matter, appropriately assess the facts,
causes and effects of this Matter and formulate measures for the MMC group as a whole,including preventive measures.
 Issues at MSC
 Issues at MCI
 MMC’s group governance system with respect to quality control, etc.
 Other issues related to this Matter as determined to be necessary by the Committee
2) Committee Members
Chairperson Mariko Tokuno

MMC

Outside Director

MemberMemberHiroshi Watanabe
Kazuaki Takenaka

MemberNaoki Ono

MMC
Japan
Association
MMC

MemberJun Nagano

MMC

Outside Director
Management Executive
Vice
President
Director,
Executive
Vice President
GeneralManager,
Legal
Dept.,
Corporate
StrategyDiv.

3) Operational Guidelines
 MMC’s Board of Directors granted the Committee authority for the purpose set forth in1).
 When determined necessary in light of the Committee’s Purpose, the Committee may
expand the scope of the investigation set forth in 1); and, in addition, the Committee may
engage experts when determined to be necessary.
 In order to efficiently and effectively proceed with the investigation, the Committee willconduct the investigation by positioning the already established MSC Investigation
Committee and MCI Investigation Committee under its supervision.
 In order to achieve the purpose of the Committee, MMC’s Board of Directors will haveall executives, employees and other individuals belonging to the MMC group, including
MMC, MSC and MCI, provide full cooperation to the Committee’s investigation(including experts engaged by the Committee).
 The Committee will submit reports to MMC’s Board of Directors meetings attended by
all of the outside directors. In addition to regular progress reports to MMC’s Board of
Directors, the Committee will submit a final report at the conclusion of the investigation.
3. Status of Activities
1) Status of Committee Activities
December 4 (Monday)
3:30 PM to 5:35 PM
December 8 (Friday)

1:00 PM to 4:30 PM

December 12 (Tuesday)
3:30 PM to 5:44 PM
December
20 3:28 PM to 5:52 PM(Wednesday)
December 25 (Monday)
1:59 PM to 3:32 PM
December 26 (Tuesday)

1st Committee meeting
Presentation on quality governance from
MMC quality-related departments (Internal
Audit Dept., Quality Management Dept.,
CSR Dept. of the General Affairs Dept.)
2nd Committee meeting
3rd Committee meeting
4th Committee meeting

10:13 AM to 11:20 5th Committee meetingAM(Note) Aside from the activities listed above, the following inspections were conducted.
MCI Minoshima Works (December 9: Tokuno (Chairperson), Watanabe, Takenaka andOno (Committee members))
MSC Wakamatsu Plant (December 11: Takenaka (Committee member); December 13:
Watanabe (Committee member))2) Appointment of the Chairperson
During the 1st Committee meeting, Committee Member Tokuno was elected as chairpersonby the Committee from among its members.
4. Status of Investigation of the Issues at MSC
In order to efficiently and reasonably proceed with the investigation relating to MSC, theCommittee conducted the investigation by positioning the MSC Investigation Committee, which
was established by MSC on November 17, 2017, under the Committee’s supervision as ofDecember 1. The MSC Investigation Committee has entrusted outside counsel with its
investigation.
1) Outline of the MSC Investigation Committee Date of establishment
November 17, 2017
 Committee members
Chairperson Isao Iwano
MemberMasaji Sato
MemberKatsuhiko Matsumoto
MemberTakashi Shibuya

Director & Vice President
Corporate Auditor
Corporate Auditor
Attorney (Nishimura & Asahi) Outside counsel
Nishimura & Asahi2) Details of the Investigation (entrusted to outside counsel)
 Investigate the facts relating to the details and the circumstances leading to the discoveryof this Matter at the Wakamatsu Plant
 Analyze the causes and background circumstances from the facts that were discovered asa result of the investigation of the facts described in  above Recommend preventive measures based on the analysis described in  above
3) Investigation Report
The Committee received an investigation report dated December 27 from the MSC
Investigation Committee (“MSC’s Investigation Report”) (Attachment 1).

5. Status of Investigation of the Issues at MCI
In order to efficiently and reasonably proceed with the investigation relating to MCI, theCommittee conducted the investigation by positioning the MCI Investigation Committee, which
was established by MCI on November 13, 2017, under the Committee’s supervision as ofDecember 1. The MCI Investigation Committee has entrusted outside counsel with its
investigation.
1) Outline of the MCI Investigation Committee Date of establishment
November 13, 2017
 Committee members
Chairperson Koji Sakamoto
MemberHirokazu Kuzushita
MemberTakashi Shibuya

Director & Managing Executive Officer
Corporate Auditor
Attorney (Nishimura & Asahi) Outside counsel
Nishimura & Asahi2) Details of the Investigation (entrusted to outside counsel)
 Investigate the quality control system for seal products and other products at Minoshima
Works
 Investigate the status of measures taken by MCI after the quality audit conducted by
MMC on MCI in December 2016
 Analyze the causes and background information from the facts that were discovered as aresult of the investigation of the facts described in  and  above Recommend preventive measures based on the analysis described in  above
3) Interim Investigation Report
The Committee received an interim investigation report dated December 27 from the MCI
Investigation Committee (“MCI’s Interim Report”) that mainly contains the facts relating
to the Misconduct found as of December 22 (Attachment 2).
6. Current Opinions of the Committee
1) With respect to MSC
The following five points have been indicated in MSC’s Investigation Report as causes ofthe Misconduct at MSC, and the Committee is of the same opinion.
 Insufficient awareness of compliance with specifications
 Possibility that increased market share in late-entry businesses was prioritized over

considerations of whether MSC was able to produce the products
 Simple reliance on the Misconduct that had been committed in the past
 Avoidance of losses resulting from non-conformances in product inspections
 Audit procedures being reduced to a formality
All of these points must be assessed as issues where basic elements of production operations
were neglected. As a result, it must be said that the continued shipment of products thatdeviated from customer specifications was a betrayal of the trust that customers and otherstakeholders placed in MSC and MSC’s products.
The Misconduct was committed more or less openly at the Wakamatsu Plant over many
years. With respect to this situation, it must be said that the successive generations ofindividuals in managerial positions who knew about the Misconduct and who were in aposition to correct it, particularly the individuals who held the position of Quality Assurance
Department General Manager at the Wakamatsu Plant during the period when the Misconduct
was occurring, have substantial responsibility. The Committee believes it necessary toconsiderably punish the individuals who occupied these positions in the past and are currently
still involved in management at MSC.
The Committee recommends that MSC take seriously the results of the investigation that arein MSC’s Investigation Report, and immediately implement preventive measures to prevent
similar issues from recurring. In addition, the Committee recommends that MMC, as theparent company, should also have MSC immediately implement the appropriate preventive
measures.
2) With respect to MCI
Since MCI’s Interim Report contains very serious details, the Committee believes that the
MCI Investigation Committee’s final investigation report should incorporate a thoroughinvestigation of the causes and preventive measures based on the results of such investigation.
The Committee will make all of its recommendations after receiving the final investigation
report from the MCI Investigation Committee.
3) With respect to Restructuring Measures of the Governance Framework for Quality Control
in the MMC GroupThe Committee has received a report from MMC that the Board of Directors will makedecisions in a meeting on December 28, 2017, on the quality governance restructuring
measures (“Restructuring Measures”) for the Mitsubishi Materials Group described in
Attachment 3, which were formulated by the task force addressing the Mitsubishi Materials
Group’s quality issues and other matters(Note), based on the reports by both companies’
investigation committees and the Committee’s discussions.
The Committee has determined that the Restructuring Measures are appropriate at this stage
and that the Restructuring Measures should be implemented after working out the specifics assoon as possible.

(Note) Task force addressing the Mitsubishi Materials Group’s quality issues and other matters
A task force established by resolution of the Corporate Strategy Committee on October 30,
2017 for addressing the Misconduct, re-investigation of quality issues and other incidents ofcompliance violations, and the issues discovered as a result of such re-investigation
Task force leader
Executive Vice President Ono
Deputy leaders
Senior Managing Executive Officer Suzuki, Senior Managing
Executive Officer Shibano, Managing Executive Officer Shibata
Members
Corporate Strategy Dept. and Legal Dept. of Corporate Strategy Div.
General Affairs Dept. and Internal Audit Dept. of General
Administration Div.
Quality Management Dept. of Technology Div.
Administrative
Corporate Strategy Dept. of Corporate Strategy Div.
office7. Future Plans
After receiving the final investigation report from the MCI Investigation Committee, theCommittee will submit a final report to MMC’s Board of Directors with all of the Committee’s
final opinions.

END

Attachment 1
December 27, 2017To:

Mitsubishi Materials Corporation
Special Investigation Committee
Mitsubishi Shindoh Co., Ltd.
Isao Iwano
Investigation Committee Chairman(Report) Submission of Investigation Report
We requested Nishimura & Asahi to investigate and review the shipping of
Non-Conforming Products by MSC’s Wakamatsu Plant. We received the investigation reportfrom Nishimura & Asahi today.
We are therefore submitting the attached report as MSC’s investigation report to MSC’s
Board of Directors and MMC’s Special Investigation Committee.

END

To: Investigation Committee of Mitsubishi Shindoh Co., Ltd.
December 27, 2017
Investigation Report(Shipping of Non-Conforming Products by the Wakamatsu Plant)

Nishimura & Asahi
Attorney

Takashi Shibuya

Attorney

Ryutaro Nakayama

Attorney

Takako Misaki

Attorney

Jisuke Tomiya

Attorney

Yuto Takabayashi

Attorney

Jumpei Hotta

Attorney

Natsuki Hosoya

Attorney

Takahiro Miyazaki

This report is a report on the investigation (“Investigation”) that was performed by Nishimura& Asahi, commissioned by the Investigation Committee (“MSC Investigation Committee”)
established by Mitsubishi Shindoh Co., Ltd. (“MSC”).
This report summarizes the results of conducting the investigation, review, etc. believed to be
as appropriate as possible given the time and conditions afforded. However, there is a possibility
that its conclusions, etc., will change if new facts, etc., are discovered going forward. Please also beaware that this report does not guarantee any decisions that may be made by the courts or otherrelevant authorities, etc.

1Section 1 Background leading to the Investigation and purpose of the Investigation ......................... 4
Section 2 Course of the Investigation .............................................................................................. 4
1

Overview of the Investigation and the investigation framework .................................. 4

2

Detailed review and examination of relevant materials ................................................ 5

3

Digital forensic investigation............................................................................................ 5

4

Investigatory interviews ................................................................................................... 55

Reference date for the Investigation ............................................................................... 5

Section 3 Overview of the Wakamatsu Plant........................................................................................... 5
1

The Wakamatsu Plant’s business and selection of products ......................................... 52

The principal departments and segregation of operations, etc. at the
Wakamatsu Plant .............................................................................................................. 63

Operational flow from receipt of order to shipment of rolled copper products .......... 7

4

Product inspection flow for rolled copper products ...................................................... 9

Section 4 Misconduct discovered as a result of the Investigation ........................................................ 12
1

Shipment of Non-Conforming Products and rewriting of inspection records datausing a Point Table .......................................................................................................... 122

Shipment of Non-Conforming Products and rewriting of inspection records dataaccording to decisions by the Section Managers of the Quality Assurance
Department, called “Internal Concessions” ................................................................. 16

3

Other rewriting of data in inspection records .............................................................. 23

Section 5 Circumstances leading to the Misconduct ............................................................................. 25
1

Status of review regarding whether production is possible when receiving orders .. 25

2

Establishment, revision, and abolishment of internal rules, etc. concerning
implementation of inspections ....................................................................................... 28

3

Considerations and requests relating to specification changes ................................... 28

4

Response to audits and status of implementation of internal audits .......................... 30

Section 6 Causes and background circumstances of the Misconduct ................................................. 31
1

Insufficient awareness of compliance with specification forms .................................. 31

2

The possibility that increasing share in late-entry business was prioritized overwhether production was possible................................................................................... 32

3

Easily relying on Misconduct committed in the past ................................................... 32
2

4

Avoiding losses due to Non-Conformances in Product Inspections............................ 33

5

Loss of substance of audit procedures .......................................................................... 34

Section 7 Measures to prevent recurrence ............................................................................................. 34
1

Ensuring thorough awareness throughout the company regarding honoring
agreements with customers ............................................................................................ 34

2

Guaranteeing the system for accepting orders based on process capability, andtimely discussions of revisions to specifications ........................................................... 35

3

Promoting compliance and quality assurance education for the relevant staff ........ 35

4Introduction of an inspection and data entry system that does not allow forinterference due to human manipulation ..................................................................... 36

5

Implementation of substantive audits of greater depth ............................................... 363

Section 1

Background leading to the Investigation and purpose of the Investigation

On October 10, 2017, MSC initiated a voluntary internal review of MSC’s quality assurance
framework. As a result of this review, on October 16, MSC discovered that, for certain products
produced and sold in the past by MSC’s Wakamatsu Plant (“Wakamatsu Plant”), products had
been shipped that deviated from specifications established with customers (“Non-Conforming
Products”) due to misconduct, including the rewriting of inspection records data (“Misconduct”).
Based on a series of reports regarding the Misconduct received until October 18, 2017, thefollowing day, on October 19, MSC’s management reported to Mitsubishi Materials Corporation(“MMC”), MSC’s parent company, that Misconduct had been found. On November 17, 2017, inlight of the seriousness of the situation, MSC established the MSC Investigation Committee withthe goal of investigating the underlying facts concerning the Misconduct, and identifying its causes
and background circumstances. On November 23, MSC made a public announcement concerning
the Misconduct.
The MSC Investigation Committee determined it necessary to perform a thoroughinvestigation regarding the Misconduct from an objective and neutral viewpoint, and requested
Nishimura & Asahi to investigate and review the matters set forth below.
① Investigate the underlying facts relating to the Misconduct at the Wakamatsu Plant1② Investigate the underlying facts relating to the circumstances leading to the discoveryof the Misconduct③ Analyze the causes and background circumstances relating to the underlying facts thatwere discovered as a result of the investigations in ① and ② above.
④ Recommend measures to prevent recurrence based on the analysis in ③ above.
Section 2
1

Course of the Investigation

Overview of the Investigation and the investigation framework
Based on the background in Section 1 above, Nishimura & Asahi performed theinvestigations set forth in ① through ③ below.
① Detailed review and examination of relevant materials② Digital forensic investigation of email data, etc., retained by relevant parties③ Investigatory interviews of relevant parties
The Investigation was led by Attorney Takashi Shibuya and nine others from Nishimura &Asahi, who have no vested interest in MSC. Additionally, a professional forensic vendor was
engaged to assist with the Investigation under the direction and supervision of Nishimura & Asahi.
1

During the course of the Investigation, one case of rewriting inspection records data was also found at MSC’s Sambo Plant withrespect to products produced and sold in the past. However, circumstances indicating that data had been rewritten were not seen on
an organizational level at the Sambo Plant, and this case was recognized to be an isolated incident.

4

2

Detailed review and examination of relevant materials

Nishimura & Asahi collected the materials that currently exist at MSC that potentially relate
to the Misconduct (various procedures relating to quality control, inspection records, and materials
from quality-related meetings, etc.), and performed a detailed examination and verification of theircontent.
3

Digital forensic investigation

To the extent necessary and possible, Nishimura & Asahi secured email data stored on
MSC’s email server2 for a total of ten MSC executives and employees potentially connected to the
Misconduct. Due to the time constraints of the Investigation, Nishimura & Asahi determined toapply keyword searches to extract a reasonably limited scope of data. Thereafter, the forensic
vendor mentioned in Section 1 above carried out a first-level data review of the data limited byusing the aforementioned methods, and Nishimura & Asahi carried out a second-level data review.
4

Investigatory interviews

In order to shed light on the underlying facts relating to the Misconduct, Nishimura & Asahi
conducted investigatory interviews with a total of 46 executives and employees of MSC considered
to be connected to quality control, etc., of products affected by the Misconduct. Furthermore,
multiple investigatory interviews were conducted for some of the interview subjects.
5

Reference date for the Investigation

The reference date for the report on this Investigation is December 22, 2017 (“ReferenceDate”). Accordingly, Section 3 and thereafter summarize the results of the Investigation that were
found from November 17, 2017, when Nishimura & Asahi started the Investigation, until theReference Date.
Section 3
1

Overview of the Wakamatsu Plant

The Wakamatsu Plant’s business and selection of products

The Wakamatsu Plant started operations in 1937 as a factory engaging in rolling of
nonferrous metals, and is currently positioned as one of the plants associated with the Rolled
Product Division of MSC, which oversees “matters relating to raw materials, production,technology, and products of copper and copper-alloy sheets, plates, and strips.”32

Some email data of executives and employees of MSC are stored on MMC’s servers.

3

In addition to the Wakamatsu Plant, the Sambo Plant is also a plant that is associated with the Rolled Product Division.

5

As a manufacturer of copper lead frames for semiconductors and terminal connectors forautomobiles, the Wakamatsu Plant produces three types of products: “rolled copper products,”4“metallized film products” 5 and “contour strips” 6 (collectively, “Rolled Copper and Other
Products”).
Among these products, as described in detail below, the Misconduct found was with respect
to inspection records relating to “rolled copper products.”
2

The principal departments and segregation of operations, etc. at the Wakamatsu Plant(1)

Production Department

The Production Department oversees matters relating to production and management ofrolled copper products (copper and copper-alloy sheets, plates and strips) and processed products.
The production processes managed within the Production Department are divided among
five sections: the Casting & Hot-rolling Section, Rolling Section, Surface Treatment &Annealing Section, Slitting Section, and the Fabricated Products Section.
(2)

Quality Assurance Department

The Quality Assurance Department oversees matters relating to quality assurance andquality control. It handles matters relating to inspections and analysis of final products (“ProductInspections”) for quality assurance of products, etc., and matters relating to complaints regarding
products, investigation and processing of returned products, etc.
The Quality Assurance Department is divided into the Quality Assurance Section and the
Quality Control Section. Of these, the Quality Assurance Section conducts Product Inspections, etc.
The Quality Assurance Section is divided into the Metals Inspection Team, which conducts ProductInspections, and the Analysis Team, which mainly performs composition analysis of products thatare still being processed. The Quality Control Section conducts activities such as handlingcomplaints from customers and managing specifications. The Quality Control Section is divided
into the Metals Team (which handles complaints regarding rolled copper products, conducts
operations relating to metal design such as managing specifications (the staff responsible for these4“Rolled copper products” collectively refers to products in which copper and copper alloys are processed into shapes, such asplates, strips, tubes, bars and wires. Because copper has relatively high electrical conductivity compared to other metals, rolled
copper products are used in semiconductor parts, terminal connectors for automobiles, and other components.

5“Metallized film products” refers to thin film that is several µm to several nm thick. By depositing a thin film on a base material, it
is possible to impart electrical, optical, and mechanical characteristics on a material that does not originally have suchcharacteristics. MSC produces electrical film for condensers, etc., and high-performance packaging film.

6“Contour strips” refers to irregular strips consisting of a thick portion and a thin portion, and they are used in lead frames forsemiconductors (power transistors), terminals, connectors, and other components. At MSC, flat strips of rolled copper products
undergo the production processes managed by the Rolling Section, Surface Treatment & Annealing Section, Slitting Section of the
Production Department, and contour strips are produced when the Fabricated Products Section of the Production Department
processes the flat strips further.

6

operations is referred to as the “Design Staff”), and conducts Product Inspections of contour strips),
and the Metallized Film Product Team, which conducts activities such as handling complaints
regarding metallized film products.
The segregation of operations in the Quality Assurance Department is set forth in the chart
below.
<Chart: Segregation of Operations in the Quality Assurance Department>
Quality Assurance Dept.

Quality Control Section

Quality Assurance Section

Metals Inspection T.

(3)

Analysis T.

Metals T.

Metallized Product T.

Production Engineering Department

The Production Engineering Department oversees matters relating to production technology,
equipment maintenance, and project initiation planning.
(4)

Production Control Department

The Production Control Department oversees matters relating to planning and coordination
for production, sales, and inventory, formulating production plans, process management, delivery
schedule management, outsourcing management, balancing between mass-production and ordervolume (adjusting supply and demand), and receipt of raw materials. The Production Control
Department is divided into the Products Planning Section, which conducts activities such as
production planning, and the Production Control Section, which conducts activities such as
managing delivery schedules.
3

Operational flow from receipt of order to shipment of rolled copper products(1)

Flow up to receipt of orders for rolled copper products

At MSC, a sales representative in the Sales Department of the Sales Headquarters engages
in negotiations with customers. After receiving notification from a customer that the customer isplacing an order for rolled copper products produced by the Wakamatsu Plant, or is considering
placing such an order, the sales representative asks the Quality Control Section of the Quality
Assurance Department at the Wakamatsu Plant to consider whether or not production is possible
according to the specifications requested by the customer.
The Design Staff at the Quality Control Section conducts a review in the first instance of
whether production is possible, while referring to data containing information relating to existing7

specifications stored on the company’s internal systems (“Specification Data”). When necessary,
the Design Staff asks the Production Engineering Department, the Production Department, theProduction Control Department and other departments at the Wakamatsu Plant to also perform areview. Finally, based on approval from the General Manager of the Quality Assurance Department
at the Wakamatsu Plant, a response is sent to the sales representative regarding whether production
is possible. (See Section 5 Item 1 below for details.)
If a determination is made that production is possible at the Wakamatsu Plant, the sales
representative negotiates with the customer, and if an agreement is reached regarding productspecifications (including standard specifications), a specification form is exchanged.
When the order for the product is received, the Products Planning Section of the Production
Control Department at the Wakamatsu Plant formulates a production plan based on an establisheddelivery schedule, volume, and other conditions.
(2)

Flow from the start of production up to product shipment

When the Production Control Section of the Production Control Department at the
Wakamatsu Plant receives the raw materials based on the production plan, the production processes
begin. The production processes are conducted by each section of the Production Department basedon the production plan formulated by the Products Planning Section.
According to the general process flow, after the raw materials are melted and casted, theplate thickness is reduced by alternately repeating the processes of hot-rolling, annealing7 and coldrolling,8 and the plate is slit to the width designated by the customer.
The main operations managed by each section of the Production Department during the
production process for rolled copper products are set forth below.9
Unit

Managed Process

Casting & Hot-rolling Section

Melting of raw materials, hot-rolling and surface cutting

Rolling Section

Cold rolling, tension leveler

Surface Treatment & Annealing Plating, annealing, pickling, polishing, welding, degreasing
SectionSlitting Section

Cutting and slitting

Internal company standards are established corresponding to the details of the process ineach production process, and the operators in each section of the Production Department conduct
inspections (“Process Inspections”) to check whether the product meets internal company
standards. In Process Inspections, with respect to products that are determined to be unlikely toconform to the specifications once it becomes a finished product, scrapping or other treatment is
7

Process during which the material is heated in a batch furnace and softened.

8

Process during which the material softened by annealing is thinned using a rolling mill roll, etc.

9

The Fabricated Products Section conducts processing after the slitter process for contour strips.

8performed at an intermediate stage of the production process, without waiting for ProductInspection.
After the production process is complete, the product goes through the Product Inspections
set forth in Item 4 below, and is then packaged, packed, and shipped.
4

Product inspection flow for rolled copper products(1)

Overview of product inspection and personnel organization

There are two main types of Product Inspections: “appearance and dimension inspections”(“Appearance Inspections”) that relate to the appearance, thickness, etc., of the product, and“inspections for mechanical and physical properties” (“Material Inspections”) that relate to thecharacteristics10 of the product. Furthermore, within the Material Inspections, there are “ordinary
inspections” and “special inspections.”11 Which of the inspections within the Material Inspections
are conducted depends on the specifications of the product.
Those who engage in product inspection of rolled copper products at the Wakamatsu Plant
are all inspectors belonging to the Quality Assurance Department, Quality Assurance Section,
Metals Inspection Team (“Metals Inspection Team”). At MSC, according to the internal company
rules, those who are not appointed as inspectors after completing a certain process cannot engage in
Product Inspections.12 With respect to the special inspections, performing the tests takes a longtime, and chemicals that are stored only in specific locations in the Wakamatsu Plant must be used.
For those reasons, only certain inspectors13 engage in special inspections.
There were a total of twelve inspectors in the Metals Inspection Team as of the time that theInvestigation was conducted. The twelve inspectors are divided into four sub-teams with threeinspectors per sub-team. The inspectors perform Product Inspections in three alternating shifts:
morning, afternoon and evening (with one sub-team resting). When necessary, the unit leaders orother higher ranking members are engaged in Product Inspections.
(2)

Flow of Product Inspections

A

Sampling and processing

Product Inspections are performed by sampling from products for which the production
process has been completed.
10Specific examples are tensile strength, hardness, electrical conductivity, yield strength, etc.

11

There are at most nine types of special inspections.

12

In the Investigation, no facts were discovered indicating that those who had not been appointed as inspectors were performing
inspections.

13

As of the time that the Investigation was conducted, a majority of the special inspections were performed by the unit leaders of theMetals Inspection Team. Only certain inspections were performed by one inspector exclusively performing those inspections, who
was not a unit leader.

9The samples for Production Inspections are prepared according to the procedure set forth below.
First, in the final stage of the production process, samples are taken for each master coil14 for use in
Appearance Inspections and Material Inspections. The samples used in Material Inspections aretransferred to the inspection room where Material Inspections are performed (“Material Inspection
Room”). Subsequently, the samples used in Material Inspections are processed into shapes
appropriate for each inspection of the Material Inspections, and thereafter used in the Material
Inspections.
B

Issuance of Appearance and Dimension Inspection Charts and Material Test
Reports

As with Item A above, when sampling and processing have been completed, “Appearance
and Dimension Inspection Charts,” which contain inspection items, specifications, and otherinformation from Appearance Inspections, and “Material Test Reports,” which contain inspection
items, specifications, and other information from Material Inspections, are issued.
“Appearance And Dimension Inspection Charts” are issued and distributed to the inspectorsof the Metals Inspection Team after the operators of the Production Department take samples.
“Material Test Reports” are issued after the inspectors who are stationed in the Material Inspection
Room enter the necessary information into the system dedicated to Product Inspections at MSC(“Inspection System”).15
C

Product Inspection implementation and Inspection System entry

The inspectors perform Product Inspections for the inspection items listed in the“Appearance and Dimension Inspection Charts” and “Material Test Reports.” When the inspectors
complete the Product Inspections, they hand-write the results in the “Appearance and Dimension
Inspection Charts” and “Material Test Reports.”
If the results of Product Inspections conform to the specifications for all of the inspection
items, the inspectors enter the results into the Inspection System. Specifically, with respect to results
among the inspection items that can be quantified, the inspectors enter the values of the inspection
results in the “Actual Values” field. By doing this, the values are automatically reflected in the“Report Values” field. On the other hand, with respect to results that cannot be quantified, theinspectors only enter whether the result passed or failed in the system.
Thereafter, the Inspection System is used to generate a blue inspection completion sheet16
which shows that the product passed inspections, and the sheet is attached to the master coil. The
product then proceeds to the packaging process.

14

For example, if three master coils are produced from one lot, each master coil is called “1 Master,” “2 Master,” “3 Master,” etc.

15

The Material Test Reports contain the test items that are required according to the specifications for each product.

16

When the product lot number is entered in the Inspection System, the sheet is generated with the necessary information printed on
it.

10

D

Issuance of test reports (mill sheets)

If the results of the Production Inspections are passing, the administrative staff of the
Quality Assurance Section issues a test report (mill sheet). The test report (mill sheet) contains thevalues that were entered into the “Report Values” field in the Inspection System.
(3)

Proper operational flow when Non-Conforming Products are identified

A

Preparation and submission of Corrective Action Forms for Non-Conforming
Products

If the results of Product Inspections do not conform to specifications with respect to any of
the inspection items, the inspector uses the Inspection System to generate a red inspection
completion sheet, which means that the product has failed the inspection, and attaches the sheet tothe master coil. As a result, the product is set aside and does not proceed to the packaging process.
In addition, the inspector enters only the inspection results that conformed to specifications into theInspection System.
The inspector then enters the details of the non-conformance in a “corrective
action/measures form for Non-Conforming Products (for Product Inspections)” (“Corrective
Action Form for Non-Conforming Products”) and submits the form to the supervisor of theMetals Inspection Team (or a unit leader if the supervisor is absent).17 18
The supervisor (or unit leader) of the Metals Inspection Team checks the contents of theCorrective Action Form for Non-Conforming Products that he/she receives, stamps the approval
field with his/her signature seal, and writes “Proxy” to indicate a proxy decision.19
B

Measures conducted for Non-Conforming Products

The Section Managers of the Quality Assurance Department determine the details of themeasures with regard to Non-Conforming Products that are written in the Corrective Action Forms
for Non-Conforming Products.
17

At this time, if the non-conformance is discovered in Appearance Inspections, the inspector attaches a copy of the “Appearance
and Dimension Inspection Chart” to the Corrective Action Form for Non-Conforming Products, and if the non-conformance isdiscovered in Material Inspections, the inspector attaches a copy of the “Material Test Report.”

18

Even if the product fails the initial Product Inspections, some inspectors within the Metals Inspection Team re-conduct theinspections at their own discretion without immediately preparing a Corrective Action Form for Non-Conforming Products; and, if
the product still did not conform to the specifications, they prepared and submitted a Corrective Action Form for Non-Conforming
Products. Furthermore, when Corrective Action Forms for Non-Conforming Products were submitted to the supervisor (or unit
leader) of the Metals Inspection Team, there were times when the supervisor (or unit leader) of the Metals Inspection Team, at his
determination, instructed the inspector to first conduct additional inspection.

19

At MSC, according to the internal company rules titled “Entry Form for Management of Metals/Non-Conformances” (or“Non-Conformance Management Rules” depending on the time period) (“Non-Conformance Management Rules”), which
establish the flow for when non-conformances occur, those with decision-making authority are the Section Managers of the
Quality Assurance Department.
“Section Managers of the Quality Assurance Department” refers to Managers of the Quality Assurance Section and Managers of
the Quality Control Section. All of those Section Managers are recognized as having decision-making authority.

11First, “additional inspections” or “further additional inspections” are performed. If the
product conforms to the specifications as a result, the product is determined to have passed
inspections; the product moves to the same process as set forth in Items (2)C and D above, andshipment procedures are conducted.
On the other hand, if the product does not conform to the specifications even after“additional inspections” or “further additional inspections” are performed, the Section Managers of
the Quality Assurance Department determine whether to scrap the product due to failing inspections,to proceed with shipment procedures after obtaining approval from the customer to ship the productas-is (“Customer Concessions”), or to submit a Corrective Action Form for Non-Conforming
Products to the staff responsible for management at the Production Department while listing theoccurrence of a non-conformance as the reason. Measures are conducted with regard to
Non-Conforming Products according to decisions made by the Section Managers of the Quality
Assurance Department.
Section 4
1

Misconduct discovered as a result of the Investigation

Shipment of Non-Conforming Products and rewriting of inspection records data using a Point
Table

(1)

Circumstances of the conduct

As described in Section 3 Item 4(3) above, if, in the Product Inspections process, a productwas found to not conform with specifications, the inspector was to prepare a Corrective Action
Form for Non-Conforming Products, and the Section Managers of the Quality Assurance
Department, to whom the Corrective Action Form for Non-Conforming Products was submitted
was to determine the processing to be conducted.
However, in the Metals Inspection Team, when products were found to not conform tospecifications, inspection records data was routinely rewritten before preparing Corrective Action
Forms for Non-Conforming Products after referring to a document entitled “Customer-SpecificInspection Point Table” (“Point Table”).
With respect to products for certain customers, the Point Table established the practice ofspecial processing, stating that, for each specification, “when a deviation from specifications occurs
in the Product Inspections, pass-fail determinations are to be made using the following special
processing.” The Point Table established a procedure for each specification (after listing thecustomers using the specification if the same specification details were being used for multiple
customers), such as “handling Non-Conforming Products according to the standard” when tensile
strength does not conform to the specifications, while “round the report values to be within thespecifications, and concession by the Metals Inspection Team of the Quality Assurance Department(Corrective Action Form for Non-Conforming Products/Measures not required)” when products
deviated only from hardness specifications.
12

The Point Table was part of a document called the “Code Table,” which specifically
categorized and compiled various notes, precautions, and other remarks for the process fromproduct production to shipment. In addition to the Point Table, the “Code Table” also sets forth
notes that relate to non-inspection processes, such as the use of pallets of heat treatment material inpackaging. Code numbers and titles are attached to each of these notes and other remarks. The code
numbers and titles are also recorded in the Specification Data, which resulted in linkages between
the Specification Data and the Point Table. Therefore, with respect to specifications with a note for“rounding processing” on the Point Table (i.e., cases where rewriting the inspection records data sothat the data conformed to the specifications was permitted), the fact that there were rules in the
Point Table was registered in the Specification Data, and “There is an inspection point; strictly
follow” was printed in the “Test Notes” field of “Material Test Reports.”
The inspectors did not use the Point Table in the initial Material Inspections, which wereconducted normally. If, as a result of the tests, the specifications conformed to all of the inspection
items, they moved on to procedures such as entering the inspection results into the Inspection
System without using the Point Table.
However, if, as a result of the initial Material Inspections, the specifications did not conformto an inspection item, the inspectors checked if “There is an inspection point; strictly follow” wasprinted on the Material Test Report, referred to the Point Table if such a mark was present,20 andfollowed the processes specified in the Point Table.
Specifically, if the Point Table specified “rounding processing” for items that did notconform with specifications, the inspectors entered the rewritten values along with the results of theinitial Material Inspections in the “Material Test Reports” without performing additional inspections.
In such cases, what specific values to enter to be within the specifications was left up to thediscretion of the inspectors, but some inspectors have stated that they “used values that just barely
met the specifications,” etc., and made statements to the effect that they used values that were justslightly above the specification minimum (or just slightly below the specification maximum).
In this way, the inspectors wrote both the values that were actually obtained as a result of theMaterial Inspections and the values that were rewritten to conform to the specifications in the“Material Test Reports,” and then entered the rewritten values into the Inspection System.
Specifically, there was a page in the Inspection System for revising the “Report Values” thatreflected the “actual measurement values” of the Mechanical Test results. On that page, the values
that were rewritten to conform to the specifications were revised and entered as the “Report Values,”
and “Concession” was selected in the “Pass/Fail Determination” field.21
20

A number of copies of the Point Table were available at the Material Inspection Room, and the inspectors could refer to it at any
time.

21

There are five options to select in the Pass/Fail Determination field: “Pass,” “Waivers,” “Defer,” “Fail” and “Defective.” Thesystem was set up so that the inspectors were able make the selection themselves. The Inspection System for entries when the
product passed inspections as described in Section 3 Item 4(2)C was set up so that the pass/fail determination was madeautomatically.

13

(2)

Background of the creation of the Point Table and when the Misconduct began

A

Background of the creation of the Point Table

According to the revision records of the Point Table, the Point Table already existed as of
May 20, 1999. At the latest, the July 27, 2001 revision was found to contain notes to rewrite
inspection records data when the results did not conform to the specifications.
The Point Table was documented by the Design Staff of the Quality Control Section basedon a handwritten original created by then employees of the Quality Control Section, and was
registered as part of the Code Table as described in Item (1) above.
After the Point Table began to be created, specifications that use the Point Table(“Applicable Specifications”) were added as they came in, and the number of ApplicableSpecifications (pages) increased. When adding Applicable Specifications to the Point Table, as
when the Point Table was first created, the Design Staff of the Quality Control Section documented
the handwritten originals created by the then employees of the Quality Control Section, and revision
records were also created. In this way, the Design Staff simply created documentation from thehandwritten originals created by other employees of the Quality Control Section. Additionally, theemployees who were involved in considering the specific contents of the Point Table have alreadyleft MSC. The background of how the Point Table was created is therefore unknown.
Additionally, the Point Table was revised by overwriting a single master file. For that reason,
unlike other internal company rules, older versions were not saved. However, according to therevision records, it has been confirmed that no Applicable Specifications (pages) have been addedsince the last revision on September 7, 2006.
With respect to Point Table’s Applicable Specifications, inspection records data that did notconform to the specifications were repeatedly rewritten, and when Applicable Specifications(pages) were added to the Point Table, it is possible that non-conformances were expected to occur
to some extent for those specifications.
In addition, at least 80% of the Applicable Specifications were for products called Brass
Products, and the others were metal alloy and other products. All of the products, unlike products
developed independently by MSC, were general products that could also be produced bycompetitors.
B

Additions of In-Scope Customers

Even after Applicable Specifications (pages) were no longer being added to the Point Table,
revisions citing specifications that were similar to the Applicable Specifications that added to thescope (“In-Scope Customers”) where the same Point Table would be applied continued up to June29, 2017.
Relevant Customers were mainly added at the determination of the Design Staff of the
Quality Control Section. In other words, as described in Section 5 Item 1(1) below, after receiving a“Request to Review the Possibility of Production: Response Form” from a sales representative, the14Design Staff checked whether there was a history of producing products of the same dimensions,etc. as the newly ordered product. At that time, the Design Staff also checked whether the customerthat ordered the product of the same dimensions, etc. was an In-Scope Customer on the Point Table.
If, as a result, the customer that ordered the product of the same dimensions, etc. was an In-Scope
Customer, the Design Staff checked the relationship between that customer and the customer
placing the new order. Then, if that customer and the customer placing the new order were
customers with a mutually close relationship such as group companies, and if the required
specifications, product applications, etc. were similar, the Design Staff proposed/requested that theManager of the Quality Control Section add the customer placing the new order as an In-Scope
Customer of the Point Table which included the customer that had previously ordered the product of
the same dimensions, etc. Following this history of events, In-Scope Customers were ultimately
added according to decisions by the Manager of the Quality Control Section
After the June 29, 2017 revision, there were 50 cases22 registered as In-Scope Customers of
the Point Table. However, there were cases where instructions were not deleted from the Point
Table even when they became unnecessary, such as specifications for customers with no current
transactions, or when negotiations with the customer had already resulted in the specifications
matching the rules of the Point Table. From October 18, 2016 to October 17, 2017, there were fewer
than ten customers for whom inspection records data were rewritten due to the Point Table actually
being used.
(3)

Awareness of individuals concerned

When the Investigation was conducted, the inspectors of the Metals Inspection Team were
aware that the Point Table existed. On the other hand, as described in Item (1) above, since thePoint Table was part of the Code Table, in practice employees were rewriting inspection records
data using the Point Table from the time they joined the company, so they thought of the Point Table
as being “a given.” As a result, many employees made statements to the effect that awareness that
this was misconduct was insufficient, with some even stating with regard to rewriting inspection
records data using the Point Table that “our understanding was that there to was no issue, since wethought that this had been agreed upon with the customer.”On the other hand, of the generations of experienced Department Manager/Section Manager
class-employees of the Quality Assurance Department, there were more than a few who denied thatthey themselves were aware of the existence of the Point Table. However, given that the Point Table
was registered as a part of the Code Table at the Wakamatsu Plant, multiple copies were available in
the Material Inspection Room, and its existence was not particularly concealed, so at the very least,
it is likely that the generations of Section Managers of the Quality Assurance Department who
22

The word “Customer” is used in the Point Table, and there are 50 registered customers. However, there are cases where the same
company is registered as multiple customers at each plant. The 50 cases mentioned above include a number of cases where only
the delivery route or specification was different, and the products were ultimately delivered to the same customer or the products
took into account the specifications of the same customer.

15

administering product inspections could have noticed that inspection records data were being
rewritten using the Point Table. Furthermore, among that generations of Section Managers of the
Quality Assurance Department, there was one who admitted that he was aware of the existence of
the Point Table, and stated “Sometimes I debated whether I should raise all products that did notconform with the specifications as Non-Conforming Products, without using the Point Table; Ithought that if I didn’t do so, the Production Department and Engineering Production Department
wouldn’t become aware of the issue, and there would be no improvement,” and “The supervisor
was also reluctant to use the Point Table,” etc. In light of these facts, it can be acknowledged that
there were more than a few employees in the Quality Assurance Department who viewed rewriting
inspection records data using the Point Table to be a problem.
However, as described in Item (2)A above, the Point Table was revised by the Quality
Control Section, and according to the distribution records of the revised versions that were created
when revising the Code Table, the revised versions were only distributed to the Quality Assurance
Section. Accordingly, we were unable to confirm whether there was awareness of the Point Table inunits outside the Quality Assurance Department.
Furthermore, the existence of the Point Table was discovered because after an internal
review was commenced on October 10, 2017, the Deputy General Manager of the Quality
Assurance Department voluntarily reported it to the General Manager of the Quality Assurance
Department at the Wakamatsu Plant between October 11 and 13, 2017. This was then reported to
the MSC Head Office when the General Manager of the Quality Assurance Department of the
Wakamatsu Plant reported to the Director and General Manager of the Technology Development
Department of the Head Office on October 16; a series of reports was then given to the managementof the Head Office until October 18. Accordingly, it can be acknowledged that the management of
the MSC Head Office became aware of the existence of the Point Table on or after October 16,
2017.
2

Shipment of Non-Conforming Products and rewriting of inspection records data according todecisions by the Section Managers of the Quality Assurance Department, called “Internal
Concessions”(1)

Circumstances of the conduct

Aside from the rewriting of inspection records data using the Point Table, based on the flow
described in Section 3 Item 4(3) above, when the processing to be conducted for Non-Conforming
Products were decided, processing was performed to rewrite inspection records data to conformwith specifications without obtaining customer approval (“Internal Concessions”).
A

Discussions Following Morning Meetings

In the Metals Inspection Team, as described in Section 3 Item 4(3) above, in cases where the16results of product inspections did not conform to the specifications for any of the inspection items,23
the inspector would create a Corrective Action Form for Non-Conforming Products, and submit itto the supervisor (or unit leader) of the Metals Inspection Team.
If the supervisor (or unit leader) of the Metals Inspection Team approved the Corrective
Action Form for Non-Conforming Products, the details of the non-conformance would be reported
at the Morning Meeting conducted on the following day.
The Morning Meetings are meetings that are conducted in order to share information
between each unit regarding the status of progress, etc. of each product being produced at the
Wakamatsu Plant.24 Morning Meetings are generally conducted every morning, with participationby the Plant Manager, etc. (the Plant Manager, the Deputy Plant Manager, and the Assistant to the
Plant Manager) and management (officers at or above the section leader) from the Production
Control Department, Production Department, Production Engineering Department, and Quality
Assurance Department. 25 However, other employees were also allowed to freely attend themeetings,26 and the Plant Manager, etc. and General Manager-level employees from the relevant
units would not necessarily attend every morning.
At Morning Meetings, the supervisor (or unit leader) of the Metals Inspection Team would
report on the details of Corrective Action Forms for Non-Conforming Products, but specific details
on measures to be taken were not yet determined at that time.
After the Morning Meeting would conclude, some of the attendees, including the supervisor(or unit leader) of the Metals Inspection Team, would move to the Material Inspection Room, where
discussions would be held regarding the measures to be taken for Non-Conforming Products, while
reviewing the actual samples found to be non-conforming (discussions taking place in Material
Inspection Room after the Morning Meetings are hereinafter called “Discussions Following
Morning Meetings”).27
The attendees of the Discussions Following Morning Meetings varied based on the detailsof each non-conformance, etc., and were not necessarily fixed. However, up until April 2016, theGeneral Manager of the Quality Assurance Department, Manager of the Quality Assurance

23

A Corrective Action Form for Non-Conforming Products is created in cases where the specifications are not set forth on the Point
Table to begin with, or, if the specifications are set forth on the Point Table, in cases where a product does not conform with thespecifications in regard to items for which “rounding processing” was not noted on the Point Table.

24

The purpose of the Morning Meetings is to understand, on a daily basis, the status of production at the Wakamatsu Plant.
Originally, Morning Meetings, etc. were conducted by each individual unit, and although it is unclear when Morning Meetings
began to be conducted for the Wakamatsu Plant as a whole, there were multiple parties who stated that such meetings began to be
conducted by executives of the time about ten years ago, if not earlier.

25

In units where a section leader has not been appointed, the supervisor is the equivalent employee.

26Specifically, the Assistant Managers from the Analysis Team of the Quality Assurance Section and Metals Team of the Quality
Control Section, the Senior Managers from the Production Department and Production Engineering Department, and the General
Manager of the Safety & Environment Promotion Office would attend.

27

There are many people in the Wakamatsu Plant who also refer to Discussions Following Morning Meetings as “Morning
Meetings,” but in this report, Morning Meetings and discussions thereafter are distinguished for the sake of convenience.

17Section ,28 and supervisor (or unit leader) of the Metals Inspection Team, etc. would attend from the
Quality Assurance Department. However, after that same month, the Manager of the Quality
Control Section,29 and supervisor (or unit leader) of the Metals Inspection Team, etc. would attend.
Employees at the Section Manager-level would also attend from the Production Department,
Production Control Department, and Production Engineering Department.
Upon moving to the Material Inspection Room, the supervisor (or unit leader) of the Metals
Inspection Team provide an explanation to the attendees regarding the items that did not conform to
the specifications and the applications of the products in question, and would then show them past
test data relating to specifications that were identical to the specifications that were not conformed
to, as well as charts compiling distributions of such data. The attendees then discussed how toprocess the Non-Conforming Products based on those materials.30
The General/Section Manager-level employees of the Quality Assurance Department who
had attended the Discussions Following Morning Meetings would ultimately make determinations
regarding the content of the measures to take via discussions such as those described above, withthe approval of the other attendees. The specific types of measures included disposal as scrap,31
additional inspection, additional processing,32 reprocessing,33 concessions, etc., and the supervisor(or unit leader) of the Metals Inspection Team would enter a check mark on one of these items,
which were listed in the “Inspection Determination” field of the Corrective Action Form for
Non-Conforming Products, according to the content of the measures that had been determined.

28

There were times when this employee acted concurrently as the Deputy General Manager of the Quality Assurance Department.

29

At the time of the Investigation, the Manager of the Quality Control Section was acting concurrently as the Deputy General
Manager of the Quality Assurance Department.

30

The past data was extracted from the Inspection System. At such times, the data extracted from the Inspection System was actual
measurement values.

31

This refers to scrapping.

32

This means that when a product did not conform with the specifications, it would be reused in other products after performing
additional processes, such as size changes, etc.

33

This means that when a product did not conform with the specifications, it would be made to conform to the specifications of theoriginally planned product by performing additional processes to remove the non-conformities that had been discovered.

18

The main categories of concessions are as follows.34“Inspection Determination”

Processing details“Waive upon customer approval”

Obtained customer approval after issuing application for
a concession, and waive (Customer Concessions).

“Waive upon approval by Inspection”

Cases other than the above.

Furthermore, a “Pass” field had not been provided in the “Inspection Determination” fieldof the Corrective Action Form for Non-Conforming Products to begin with. As a result, if, forexample, a determination were made in Discussions Following Morning Meetings to perform
additional inspection, and it was then confirmed as a result of the additional inspection that the
product conformed with the specifications, then even though the product inspection resulted in a
“Pass,” check marks were entered into the “Waive upon approval by Inspection” field due to thelack of this field.35
In addition, product inspections were performed not only for items with quantifiable results,
but also for items whose results cannot be quantified, such as surface imperfections, etc. Many
Corrective Action Forms for Non-Conforming Products were created for such non-conformities that
had been discovered with items that had non-quantifiable results. It can be concluded, based on the
Corrective Action Forms for Non-Conforming Products, that in many cases the content of measures
to be taken for such non-conformities discovered for items with non-quantifiable results would beconsidered in Discussions Following Morning Meetings by comparing samples against samples
demonstrating the acceptable limits, etc. In such cases, when decisions were made in Discussions
Following Morning Meetings that there were no issues with shipping the products, they would thensimply proceed to shipment procedures, without any rewriting of inspection records data. In suchcases, although it is possible to interpret this as meaning that a judgment of “Pass” had been made34

The “Inspection Determination” field contained the items “Waived upon customer approval” and “Waived upon approval by
Inspection,” as well as an item called “Waived upon approval by Sales.” However, in the results of interviews with the parties
concerned, with regard to under what circumstances processing would be conducted under this item, the results were that they did
not know (except for one interviewee who stated that they had heard that this item was used when Sales representatives would
approve shipments based on negotiations with the customer, in consideration of delivery deadlines, etc., for lots that ended up
yielding smaller volumes than normal shipment volumes); on the other hand, Sales representatives stated that Sales representatives
would never give instructions to ship Non-Conforming Products without obtaining customer approval. There were someCorrective Action Forms for Non-Conforming Products that had this item checked off, but in each case the determination details
for non-quantifiable items had been communicated to the Sales representatives based on the results of Discussions Following
Morning Meetings. In addition to these investigation results, as stated in Items (3) and (4) below, considering the fact that the
Non-Conformance Management Rules specify that the Section Managers of the Quality Assurance Department are the parties who
hold decision-making authority with respect to Internal Concessions, it is difficult to conclude that waivers based on approval by
Sales representatives without customer approval (i.e., a different type of Internal Concessions from the “Internal Concessions
based on the Discussions Following Morning Meetings” as described above) as suggested by the name of this item were conductedin practice.

35

In cases where instructions were given in Discussions Following Morning Meetings to perform additional inspection, the original
Corrective Action Form for Non-Conforming Products would be retained temporarily by the supervisor (or unit leader) of theMetals Inspection Team; and when processing details were later determined as a result of the additional inspection, it would besent to the employees responsible for Management in the Production Department.

19

by the final Product Inspection, the item “Pass” itself had not been established on the Corrective
Action Form for Non-Conforming Products to begin with, so in such cases, similarly to cases
involving the rewriting of inspection records data, check marks were entered in the “Waived upon
approval by Inspection” field.
In such a way, when determinations were made in Discussions Following Morning Meetings
regarding the content of measures to be taken for Non-Conforming Products, the supervisor (or unit
leader) of the Metals Inspection Team would hand-write the date of the determination regarding themeasures, as well as content of measures themselves, onto a Corrective Action Form for
Non-Conforming Products. For example, in the case of Customer Concessions, they would write“Customer Concessions approved on XX/XX;” in the case of scrapping, they would write “Rejected
at Morning Meeting on XX/XX and scrapped;” furthermore, in the case of Internal Concessions,they would write “Internal Concessions at Morning Meeting on XX/XX,” etc.36 The supervisor (orunit leader) of the Metals Inspection Team would then send the original Corrective Action Form for
Non-Conforming Products to the employees responsible for Management in the Production
Department, and copies would be circulated to the inspectors in charge of Product Inspections forthe applicable Non-Conforming Products.
B
Processing flow for Internal Concessions
The supervisor (or unit leader) of the Metals Inspection Team would circulate copies of theCorrective Action Form for Non-Conforming Products describing the relevant processing details to
the inspectors, and the inspectors would then rewrite the figures in the “Material Test Reports”
according to such processing details. At such times, the supervisor (or unit leader) of the Metals
Inspection Team would sometimes give instructions to the inspectors orally regarding the specificpost-rewriting numbers, but there were also times when no particular instructions were given
beyond circulating the copies of the Corrective Action Form for Non-Conforming Products, and insuch cases the inspectors would enter figures that conformed with the specifications into theMaterial Test Report at their own discretion.
The inspectors would subsequently enter the rewritten figures into the Inspection System;
the method for doing so was the same as for cases where inspection records data was rewritten
using the Point Table, as described in Item 1(1) above.
(2)

Criteria for deciding whether or not to make Internal Concessions

Decisions regarding whether or not to make Internal Concessions were made afterconversations during Discussions Following Morning Meetings, and although uniform
decision-making criteria had not necessarily been established, consideration of whether or not
Internal Concessions should be made were generally based on the degree of non-conformity,37 and36“Internal Concessions” on the Corrective Action Form for Non-Conforming Products has multiple meanings as described in Item
“A” above, but this instance refers only to rewriting inspection records data to appear within the specification values.

37

Internal Concessions were never made in cases of significant non-conformity.

20

from the standpoints of whether the non-conformity was within the range of products that had been
shipped in the past, (and in light of the final application of the Non-Conforming Product) whether
the items considered important in terms of the product’s application conformed to specifications,and whether the specifications that were not in conformance were considered important by thecustomer.
Furthermore, in cases where Internal Concessions were not approved in Discussions
Following Morning Meetings and the determination was made to scrap, they would have to startover from the very beginning of the production process, which would lead to significant obstacleswith regard to delivery deadlines. As a result, some employees have made statements to the effectthat the Production Control Section (which manages delivery deadlines) and each sections of the
Production Department (which would start production over in practice) would speak in favor ofInternal Concessions even in cases where it could not necessarily be said that the extent of the
non-conformity was minor.
(3)

Decision-makers with respect to Internal Concessions

According to the Non-Conformance Management Rules, the Section Managers of the
Quality Assurance Department were the employees who held decision-making authority regarding
processing details for Non-Conforming Products. Some employees with experience serving as
Section Managers of the Quality Assurance Department have also made statements to the effect thatthey had made determinations regarding Internal Concessions at their own responsibility. However,in terms of the actual operations, Internal Concessions were always discussed in Discussions
Following Morning Meetings, the processing details were determined by Section Managers of the
Quality Assurance Department based on the results of the discussions, and it can be acknowledgedthat the real decision-makers for Internal Concessions were all of the attendees of the Discussions
Following Morning Meetings.38(4)

When Internal Concessions were initiated

It is not necessarily clear when Internal Concessions began to be made at the Wakamatsu
Plant, and although some of the inspectors in the Metals Inspection Team have made statements tothe effect that they think this was already being done in the 1990’s, they went no further than stating
that, before they realized it, Internal Concessions were being made. In addition, the inspectors who
were performing Product Inspections at MSC prior to the 1990’s have already retired, so no
employees have testified regarding the circumstances of commencing Internal Concessions, and theperiod of when this began is unclear.
With regard to this point, the Non-Conformance Management Rules have been revised
38

On some Corrective Action Forms for Non-Conforming Products, “Internal Concessions” appears alongside the name of theGeneral Manager of the Quality Assurance Department; this indicates that it was determined in the Discussions Following
Morning Meetings to leave the decision to the sole discretion of the General Manager of the Quality Assurance Department, there
is no change to the fact that the determination to conduct Internal Concessions was made with the approval of the participants inthe discussions following Morning Meetings.

21

repeatedly since they were established in 1997, but the “Non-Conformance Management Rules (8thEdition)” as revised on May 22, 2001 already contained a provision to waive “when approval has
been obtained from the customer or Inspection Section Manager,” and the Corrective Action Formfor Non-Conforming Products from that time also contains the item “Waived upon approval by the
Inspection Section” in the Inspection Determination [field]. The Non-Conformance Management
Rules that were subsequently revised also contained a provision to waive “when approval has beenobtained from the customer or the Section Manager of the Quality Control Group.” Moreover, theNon-Conformance Management Rules from before revisions on November 13, 2017 (as revised on
August 12, 2014) contained a provision to waive “when approval has been obtained from thecustomer or a Section Managers of the Quality Assurance Department.” 39 Based on these
Non-Conformance Management Rules, it is likely that Internal Concessions were being made since
May 2001 or earlier.
Furthermore, although no clear records remain regarding when Discussions Following
Morning Meetings were initiated, some employees have made statements to the effect that Internal
Concessions were considered in the Material Inspection Room from before Morning Meetings
began to be held, and that the Department and Section Managers of the Quality Assurance
Department would hold discussions and make determinations regarding Internal Concessions. In
addition, some employees have made statements to the effect that the General Manager and Section
Managers of the Quality Assurance Department used to be the main attendees of the Discussions
Following Morning Meetings, that the General Manager of the Production Department would
participate occasionally, and that the relevant Section Managers of the Production Department,
Production Control Department, and Production Engineering Department began to attend themeetings in August 2013, pursuant to instructions from the then Plant Manager, the Wakamatsu
Plant.
(5)

Awareness of individuals concernedWith regard to Internal Concessions, although there were some inspectors in the Metals
Inspection Team who were aware, with respect to Product Inspections results, that determinations
were being made to rewrite inspection records data through discussions, and that this wasinappropriate, most have made statements to the effect that they were only doing so upon receiving
instructions from the supervisor (or unit leader) of the Metals Inspection Team, and that they were
either not aware that this constituted misconduct, or that they thought they had no choice so long as
it was the direction of their superiors.
On the other hand, at the very least, it can be recognized that the generations of Managers
and Section Managers of the Quality Assurance Department and other units, who were attending
39

According to a statement by a former General Manager of the Quality Assurance Department, with regard to the provision
regarding the “Section Managers of the Quality Assurance Department,” Managers of the Quality Assurance Section had been
excluded from this language in earlier versions of the provision, so it is possible that the purpose of this revision was to include
such Managers of the Quality Assurance Section.

22

Discussions Following Morning Meetings and were themselves in a position to give instructions tomake Internal Concessions to the supervisor (or unit leader) of the Metal Inspection Team, were
aware that inspection records data that did not conform to specifications as a result of ProductInspections were rewritten to conform with specifications.
Indeed, some Department and Section Managers who had been attending Discussions
Following Morning Meetings have made statements such as “Surface imperfections, etc. were being
discussed at Discussions Following Morning Meetings,” “I didn’t know that determinations werebeing made to make Internal Concessions at Discussions Following Morning Meetings,” and“There were cases where decisions were made to make waivers, but I thought they were Customer
Concessions,” etc. However, Corrective Action Forms for Non-Conforming Products for which
Internal Concessions were made contain language stating “Morning Meeting on XX/XX; Internal
Concessions” and show Mechanical Test result figures that actually did not conform to thespecifications, and based on the fact that these Corrective Action Forms for Non-Conforming
Products were later circulated to the Section Manager of the Production Department and theManager of the Production Engineering Section of the Production Engineering Department, it canbe acknowledged that, at the very least, the Section Managers in the Production Department and theProduction Engineering Department who received those forms were aware of the facts of Internal
Concessions.
Furthermore, the existence of Internal Concessions was discovered because after an internal
review was commenced on October 10, 2017, the Deputy General Manager of the Quality
Assurance Department voluntarily gave reported it to the General Manager of the Quality
Assurance Department at the Wakamatsu Plant between October 11 and 13, 2017. It was thenreported by the General Manager of the Quality Assurance Department to the Director and General
Manager of the Technology Development Department at the Head Office on October 16, 2017.
3

Other rewriting of data in inspection records(1)

Circumstances of the conduct

In addition to Sections 1 and 2 above, when test reports (mill sheets) were issued for certain
products, inspection records data pertaining to chemical components of products (“Component
Values”) were rewritten to conform to specifications.
A product’s Component Values are inspected as part of the Process Inspection for the“melting” process noted in Section 3 Item 3(2) above. Inspection of Component Values is different
from other Process Inspections in that measurements cannot be performed outside the melted stage,
so it is not conducted at the Product Inspection stage, and the results of inspections conducted as
Process Inspections during the “melting” process are entered in the Inspection System as data
underlying test reports (mill sheets).
To begin with, in the “melting” process, if the inspection results for the Component Values
do not meet internal standards, the work of adding raw materials related to the insufficientcomponents is to be repeated until the Component Values satisfied internal standards; only after
23

meeting internal standards is the process to move on to the following “casting” process.
On this point, the internal standards on Component Values are established for each product,
not for each specification established with the customer; the same internal standards are used for thesame product, even if the specifications are different. The relevant standards are established by the
Casting & Hot-rolling Section; with regard to the setting of specifications with each customer, thespecifications are set based on relevant internal standards.
However, with some customers, due to circumstances such as those described in Item (2)below, specifications that are more stringent than the internal standards were established for theComponent Values, so exceptional cases occurred where the Component Values did not meetcustomer specifications even though they met the internal standards.
In those cases, at the stage of issuing test reports (mill sheets) as described in Section 3 Item
4(2)D above, the person performing the relevant issuance work, under the direction of a supervisor
within the Quality Assurance Department, issued the test report (mill sheets) after rewriting theComponent Values entered in the Inspection System to meet the specifications established with thecustomer.40(2)Background and scope of rewriting Component Values

As stated in Item (1) above, the specifications with each customer were originally to beestablished based on the internal standards of the Component Values, and they were also supposed
to conform to the specifications with customers as long as they met the relevant internal standards.
However, with some customers, due to requests for specifications with the same Component Values
as other companies’ products that the customers had used previously, or due to changes in thespecifications of the Component Values during correspondence with the customers after shipment,
the specifications of the Component Values with those customers reached a state where values thatwere more stringent than the internal standards of MSC were established. Nevertheless, because theinternal standards were not revised as these events occurred, it can be acknowledged that there werecases where products intended for these customers did not conform to the customer specifications
even though they met the internal standards. It can be acknowledged that rewriting of theComponent Values took place for the products for the subset of customers that set the specifications
more stringently than the internal standards in this way.41
It is not necessarily clear when the rewriting of the Component Values began at Wakamatsu
Plant, but the relevant party believe that it had already been taking place around 10 years ago.

40

According to the results of interviews of related personnel, people giving directions were in Department Manager/Section
Manager class of the Quality Assurance Department. However, for the rewriting of the same component with the same customer,
they would not ask for supervisor instructions in each instance, and only verbal reports were made on occasion.

41

The inspection records from January of 2016 to December 20, 2017 also do not show rewriting of the Component Values forreasons other than the above circumstances.

24Section 5
1

Circumstances leading to the Misconduct

Status of review regarding whether production is possible when receiving orders(1)

Review of process capability by the Quality Control Section of the Quality
Assurance Department

At MSC, the Sales Department of the MSC Head Office Sales Headquarters is collectively
responsible for sales functions, including for products produced at Wakamatsu Plant. As describedin Section 3 Item 3(1) above, upon receiving a new order from a customer for a product to be
produced at the Wakamatsu Plant, a sales representative draws up a “Request to Review the
Possibility of Production: Response Form” (where the result of whether or not production ispossible is undetermined), which states the specifications of the product, and sends it to the Design
Staff via e-mail.
Upon receipt of the “Request to Review the Possibility of Production: Response Form”(where the result of whether or not production is possible is undetermined), the Design Staff
reviews the process capability42 of the Wakamatsu Plant with respect to the specifications of those
products. The Design Staff first confirms whether the customer’s required specifications are within
the internal standard specifications (“MS Specifications,” according to how they are called within
the company). MS Specifications define the standard patterns of mechanical characteristics
corresponding to materials and temper symbols (symbols defining hardness, tensile strength, etc.)that are considered standard internally, and mechanical characteristics are defined with a certain
range for every specific material and temper symbol. Also, the Design Staff confirms whether
products with similar material, shape, temper symbols, thickness, width, etc. (hereafter collectively
referred to as “Dimensions, etc.”) to the newly ordered products had been produced in the past. In
cases where the customer’s required specifications are within the MS Specifications, and productswith the same Dimensions, etc. as the newly ordered products had been produced in the past(including those for other companies), the Design Staff determines that “production is possible,”and sends a “Request to Review the Possibility of Production: Response Form,” to the Sales
Department, with a determined result of whether production is possible.
On the other hand, in cases of products where the customer’s required specifications do not
fall within MS Specifications, or of products with Dimensions, etc. that have no prior production
record even if the required specifications fall within MS Specifications, the Design Staff drafts andcirculates a “Request to Review the Possibility of Production” to request review by the departmentsin charge of reviewing whether production is possible, namely the Production Engineering
Department, Logistics / Supplies Group of the Materials Management Department, Production

42

Process capability refers to the ability to produce products at established specification limits (within the tolerance range); low
process capability means that it is easy to produce Non-Conforming Products that are outside the specifications (product yield ispoor).

25

Control Department, Production Department, and Quality Assurance Department. For generalproducts such as brass products, the customer side already has a record of use from other companies’
products, etc., and in many cases, already has the product specifications based on such records. In
addition, when used for terminal connectors for automobiles, etc., there are many cases where
stringent specifications are established based on their applications, and they often do not fall within
MS Specifications.
When drafting a “Request to Review the Possibility of Production,” after having reviewed
the mechanical characteristics (recorded values) of products produced and sold in the past withsimilar or the same Dimensions, etc., the Design Staff also drafts materials, etc. (“Past Record
Materials”) that explain the relationship between the past records and the specifications of the
newly ordered products, and circulates them together.
In the process of drafting Past Record Materials and the “Request to Review the Possibilityof Production,” if the customer’s requested specifications clearly deviate from the Wakamatsu
Plant’s process capability, the Design Staff sometimes communicates this to the Sales Department
at this stage, and requests negotiations with the customer. If there are changes to the customer’s
requested specifications as a result of the negotiations with the customer by the sales representative,
the Design Staff drafts a new “Request to Review the Possibility of Production” based on thechanged required specifications.
(2)

Consideration of whether production is possible by reviewing

The “Request to Review the Possibility of Production” is first circulated to the Production
Engineering Section of the Production Engineering Department, and the results of considerationthat take into account various factors such as production process, production conditions, production
costs, etc. are entered on the form. Other reviewing departments each consider whether production
is possible premised on the review results of the Production Engineering Section. Although it is rare
for other reviewing departments to object to the review results of the Production Engineering
Section, the Production Department sometimes states opinions based on the possibility of mass
production and actual production operations. In addition, with regard to newly ordered products,
although the Quality Assurance Department is in a position to determine whether to undergo aquality review process called “Initial Product Management” after production starts, when the
Production Engineering Department and Production Department have determined that production ispossible, it is extremely rare for objections to be made against that determination itself.
In this way, each reviewing department considers whether production is possible, enters thereview results, and the “Request to Review the Possibility of Production” is returned to the Design
Staff. Upon receiving this, based on the reviewing departments’ consideration results on the“Request to Review the Possibility of Production,” the Design Staff receives approval from theGeneral Manager of the Quality Assurance Department, and enters the result of whether production
is possible into the Determination field of the “Request to Review the Possibility of Production:
26

Response Form.” At such times, there have been cases where the reviewing departments determinedthat production was possible, despite there being specifications for which, in the eyes of the Design
Staff, production is difficult from the compared to past production results. In such cases, the Design
Staff mainly made direct inquiries to responsible personnel and Section Managers of the Production
Engineering Department to confirm whether production was really possible even with suchspecifications, but in cases where the response was that production was possible even according tosuch confirmation, the determination result of whether production was possible were entered on the“Request to Review the Possibility of Production: Response Form” based on that response. The
Design Staff would then send the “Request to Review the Possibility of Production” and the“Request to Review the Possibility of Production: Response Form” containing the results ofconsideration by each reviewing department to the Sales Department. The Sales Department, basedon the content of the aforementioned response forms, would then continue negotiations with thecustomer.
(3)

Factors considered when determining whether to accept orders

During the considerations described in Item (2) above, even when MSC sometimes accepts
orders of newly ordered products in consideration of various other factors, even when its processcapability is low with respect to the specifications of the such products. For example, if processcapability is low for a certain newly ordered product, and it is anticipated that even consulting thecustomer will not result in loosening the specifications, the reviewing departments take production
costs, order pricing, etc. into consideration in the process of determining whether production ispossible, and consider whether it would be profitable to produce the such products, even if some
Non-Conforming Products are produced. On that basis, if it is determined to be profitable, thereviewing departments would sometimes determine that “production is possible.”
In recent years, in cases where process capability was low, it seems that a certain amountwould first be mass produced without clearly stating a “not possible” production possibility
response and without determining each of the specifications in advance based on the specification
form, and then requests were made to officially establish the specifications based on theperformance, etc. of those mass-produced products. However, in the 1990s, MSC looked to expand
its product sales of terminal connectors for automobiles,43 but since production of these products
began at a later date compared to competitors, some employees have made statements to the effectthat they believe that MSC had a tendency to accept orders even if the specifications were stringent.

43

The Wakamatsu Plant began production of products used in terminal connectors for automobiles starting around 1989, but thiswas a late entry compared to competitors. Products used in terminal connectors for automobiles were products with high value
added and profitability compared to products called “electronics materials” that had historically been produced at the Wakamatsu
Plant. For that reason, after that year, the Wakamatsu Plant adopted a policy aiming to increase the number of orders received for
products used in terminal connectors for automobiles.

27

2

Establishment, revision, and abolishment of internal rules, etc. concerning
implementation of inspections(1)

Establishment and revision of Non-Conformance Management Rules

As described in Section 3 Item 4(3) above, procedures for when Non-Conforming Products
are produced at the Wakamatsu Plant are set forth in the Non-Conformance Management Rules.
These rules were established in 1997, but the first edition of the rules do not currently exist at the
Wakamatsu Plant, and the content of the first edition of the rules and background of theirestablishment are unknown.
The supervisor of standards at the Quality Control Section oversees revisions to the
Non-Conformance Management Rules; that person considers the details of the revisions, and theGeneral Manager of the Quality Assurance Department makes the final decision. 44 The
Non-Conformance Management Rules, as detailed in Item 4 below, were also presented during
audits by customers and certifying institutions. Revisions to the Non-Conformance Management
Rules have almost always been performed when some form of guidance has been received via suchaudits, and they were performed according to such guidance; in other words, unless guidance wasreceived from the customers and/or certifying institutions, no changes in particular were made to
the content of the rules.
(2)

Creation and revision of the Point Table

As mentioned in Section 4 Item 1(2) above, the Point Table already existed as of May 20,
1999 according to the record of revisions, and by July 27, 2001 at the latest, it stated that “rounding
processing” was permitted if measurement values did not conform to the standards. After that,
although the number of specifications has not increased since September 7, 2006, revisions toinclude In-Scope Customers in the Point List took place until June 29, 2017.
Additions of In-Scope Customers took place based primarily according to decisions by the
Design Staff, but ultimately, the In-Scope Customers were added upon receiving the approval of theManager of the Quality Assurance Section.
3

Considerations and requests relating to specification changes(1)

Considerations concerning process changes

In the course of receiving orders for and mass-producing a certain product, if the required
specifications of the product are stringent and the percentage of Non-Conforming Products being
produced is high, the Production Engineering Section and Production Department of the
44

However, in recent years, since it has not been long since the Manager of the Quality Assurance Department assumed his position,
the revisions took place according to decisions by the Manager of the Quality Control Section, who was also acting concurrently
as the Deputy General Manager of the Quality Assurance Department.

28

Wakamatsu Plant play a central role in considering measures for improvement, and changes to theprocess and production requirements are considered as necessary.
In such cases, a “Process Change Application” is first submitted from on-site45 to the
Quality Control Section. The application is reviewed by the Production Department, Production
Control Department, Production Engineering Department, and Quality Assurance Department, andapproval is ultimately given by the General Manager of the Quality Assurance Department.
Whether or not customer approval for the process change is needed is determined based on
the details of the process change; if there are changes to the processes listed in the process chart(QC Process Chart) submitted to the customer, then both internal approval and customer approval
are required. For example, customer approval is required when changing production equipment or
the order of processes, but since detailed production requirements are not listed in the QC Process
Chart, customer approval is not required when making slight changes to the production conditions.
(2)

Requests to change specifications after orders are accepted

As described in Item 1(1) above, at the stage of reviewing whether production is possible, if
it is deemed that the process capability is low with respect to the customer’s required specifications
such that they cannot be met, a sales representative from the Sales Department engages in further
negotiations with the customer to change the specifications.
Also, if, during mass production after having accepted an order, the percentage
Non-Conforming Products being produced is high, and it cannot be resolved even with on-site
improvements such as process changes, etc. such as those described in Item (1) above, there arecases where the sales representative or the Quality Control Section makes a request to the customer
to change the specifications in the form of a “Specification Form Revision.”
The sales representative requests the specification changes to the customer, and if thecustomer agrees to the specification changes as a result of negotiations where the need to make suchchanges was conveyed, then the specifications are revised.
Of course, when a request is made to change the specifications, it is up to the customer todecide whether to agree to it, and responses vary depending on the customer and the details of therelevant specifications. For example, for specifications of electrical conductivity, etc., there werecases where specifications were changed via negotiations with the customer, but there were also
cases where the customer did not agree to specification changes no matter how many times requests
were made. Also, in around 2000, MSC made simultaneous requests to customers for changes tospecifications in conjunction with changes to JIS standards.46 However, most customers did not
accept these specification changes, citing reason such as increases in the number of man-hours
required for negotiations with the customers’ counterparties, and increases in the number of
man-hours required to change processing ratios at the customers’ processing plants.
45

The organizational unit for submitting a “Process Change Application” is not limited, and any organizational unit can apply.

46

Refers to changes that made Product Inspections of both “tensile strength” and “hardness” unnecessary, and“hardness,” permitted that it be a reference value.

29

with respect to(3)The relationship between specification changes and the addition of ApplicableSpecifications to the Point Table

As discussed in Section 4 Item 1(2) above, Applicable Specifications in the Point Table havenot been added since the last revision on September 7, 2006, and because employees who arethought to have made the decisions to add Applicable Specifications have already retired, it is notclear what kind of judgments the Applicable Specifications were added under.
However, as noted in Section 4 Item 1(2) above, the products involving ApplicableSpecifications were all general products that could also be produced by competitors, and as
mentioned in Item (2) above. MSC made simultaneous requests to customers for changes tospecifications in conjunction with changes to JIS standards, but most of these were not approved. In
1999, there were only two Applicable Specifications (pages), but that six Applicable Specifications(pages) were added in 2001 after the simultaneous request for specification changes to customers as
described above, four Applicable Specifications (pages) in 2002 and three Applicable Specifications(pages) in 2003 were then added in sequence, and after that, only one Applicable Specification(page) was added in 2005 and 2006 respectively. Based on the foregoing, it is possible that MSC
decided to handle the refusal of customers to accept the specification change requests by adding
Applicable Specifications to the Point Table and rewriting inspection records data to be within thespecifications.
4

Response to audits and status of implementation of internal audits(1)

Status of response to audits

In addition to the internal audits described in Item (2) below, Product Inspection by the
Quality Assurance Section is subject to audits by MMC, outside certifying institutions andcustomers, but there is no evidence that the rewriting of inspection records data was identified
during the course of any such audit.
Of these audits, the status of implementation of internal audit is as described in Item (2)below.
(2)

Status of implementation of internal audits, etc.

Three types of internal audits exist as follows.


Audits by the Internal Auditing Office of the Head Office

Audits by corporate auditors30ISO-related audits by the MS Promotion Office (“MS Promotion Office”)47 of the
Wakamatsu Plant

The Quality Assurance Section responds directly to these internal audits. However, in audits
by the Internal Auditing Office of the Head Office and audits by corporate auditors, there were
never any requests to present samples of completed Corrective Action Forms for Non-Conforming
Products or “Material Test Reports,” nor was there ever a request to present the Point Table, so they
were never presented.
For ISO-related audits by the MS Promotion Office, samples of completed Corrective
Action Forms for Non-Conforming Products and “Material Test Reports” were also subject to theaudits. However, extraction of specific samples was entrusted to the Quality Assurance Section, andauditors from the MS Promotion Department never reviewed whether any rewriting of inspection
records data or Internal Concessions occurred during the audits. Additionally, theNon-Conformance Management Rules were subject to audits, but no particular findings were evermade about the fact that waivers were permitted according to decisions made by the Section
Managers of the Quality Assurance Department alone.
Section 6

Causes and background circumstances of the Misconduct

As mentioned in Section 4 Item 1(2) above, given that the Point Table can be recognized asexisting by May 20, 1999, then it should also be understood that the Misconduct had started by thesame period at the latest. In this sense, in the context of the Misconduct having been committed
across many years, and considering the background, etc. described in Section 5, the following
circumstances can been acknowledged.
1

Insufficient awareness of compliance with specification forms

As mentioned in Section 4 Item 1 above, the Point Table set forth, for example, newstandards that differed from customer specification forms prioritizing compliance with somespecifications such as tensile strength, etc., allowed rewriting of the inspection records data when
only hardness did not conform to the specifications, while on the other hand, when requiring that a
Corrective Action Form for Non-Conforming Products would be created when only tensile strength
did not conform to specifications, etc. Also, in Discussions Following Morning Meetings
described in Section 4 Item 2 above, after confirming the inspection items that did not conform tospecifications and the applications of the relevant Non-Conforming Products, etc., determinations
were made regarding which items and applications rewriting of values were to be permitted for.
At first glance, such determinations may be viewed as giving consideration to avoiding
hindering the performance of the relevant products based on deep knowledge and experience
regarding those products, but in fact, they stopped feeling any resistance to changing specifications
47

Specifically, audits are performed in accordance with “IS09001” requirements obtained by Mitsubishi Shindoh on acompany-wide basis.

31

based on the specification forms originally agreed upon with customers, based solely on one’s own
judgment; it is thus recognized that awareness of compliance with the customer specification forms
itself was insufficient.
This can only be assessed as meaning that the Wakamatsu Plant itself, based on its rich skill
and experience as a manufacturer of Rolled Copper and Other Products, considered its own
judgments to be correct rather than its agreements with customers, and legitimized this. One of the
MSC managements have reflected on this point, stating that there was “arrogance” among MSC.
2

The possibility that increasing share in late-entry business was prioritized overwhether production was possible

As discussed in Section 5 Item 1(1) above, MSC had previously established internal
specifications that could be met called MS Specifications, taking into consideration processcapability, etc. As noted in Section 5 Item 1(1) above, when orders for new products were received,
it would first be confirmed whether or not those products fell within MS Specifications. However,even if they fell outside these specifications, whether production was possible at the Wakamatsu
Plant was considered separately, and procedures were established to make it possible to accept
orders with specifications that could be produced. For example, if production was difficult due tolow process capability, this was communicated to the sales representative who would make arequest for change in specifications to the customer.
However, around the 1990s, MSC began production of products used in terminal connectors
for automobiles at a later date than its competitors, and in aiming to increase the number of orders
received, it is possible that MSC tried to forcibly meet specifications requested by individual
customers that exceeded MS Specifications. To begin with, in the case of products used in terminal
connectors for automobiles, etc., there are many cases where stringent specifications are stipulated
based on the applications of those products. It is possible that the fact that MSC accepted orders
even when it was unreasonable to do so, despite there being more than a few cases where thespecifications did not fall within the MS Specifications, generated a large number of products that
did not conform to the specifications, and that this led to the Misconduct.
It cannot be denied that such unreasonable acceptances of orders when initiating newtransactions, even in the subsequent stage of mass production, may have led to ApplicableSpecifications being added to the Point Table one after another, when customers did not accept
requests to change the specifications.
3

Easily relying on Misconduct committed in the past

As mentioned in Section 5 Item 3(3) above, after MSC made requests to customers tochange specifications in conjunction with changes to JIS standards (which were rejected), it ishighly likely that many Applicable Specifications (pages) were added to the Point Table, which had
already been created. In addition, even after they stopped adding Applicable Specifications (pages),
In-Scope Customers were easily added without further review of the appropriateness of doing so,
citing reasons such as that the specifications were the same32

Such determinations, under the reasons that “this had been done for a long time” and “wehaven’t received any complaints in particular so far,” easily permitted the continuation of the
Misconduct, and are recognized to have led to an expansion in the Misconduct. In this way, the factthat the Misconduct had continued citing reasons that there were actual examples in the past andthat no problems had occurred, seems consistent with the fact that with regard to the establishment,
revision, or abolition of internal rules, proactive review did not take place unless MSC received
external guidance, as described in Section 5 Item 2 above.
As a result, it is possible that MSC had also lost opportunities for improving their own
process capability that are necessary for reducing Non-Conforming Products. In other words, forsome Product Inspection items for predetermined specifications, the Point Table permitted rewriting
inspection records data so that they would conform to the specifications without creating Corrective
Action Forms for Non-Conforming Products. When a Corrective Action Form for Non-Conforming
Products is created, separate from determinations regarding Internal Concessions, the details of the
non-conformance are disseminated to a large number of relevant employees at Morning Meetings,
and the Corrective Action Form for Non-Conforming Products is circulated to each relevant sectionof the Production Department, who then consider improvement measures to prevent reoccurrence.
However, when inspection records data were rewritten to conform to specifications using the Point
Table, each individual occurrence of non-conformity that should trigger improvements were notconveyed to the relevant sections of the Production Department, so it can be acknowledged that
improvement measures to prevent reoccurrence were not considered.
4

Avoiding losses due to Non-Conformances in Product Inspections

As mentioned in Section 4 Item 2(2) above, it is possible that Internal Concessions wereselected more often at Discussions Following Morning Meetings due to a sense of resistance toscrapping.
To begin with, Product Inspection should be performed at the stage when a product has been
completed; if the product fails the inspection at that time, this may lead to the production processes
that have been carefully carried out before then, while performing Process Inspections, being fornaught.
Moreover, for rolled copper products, which were subject to the Misconduct, the scale ofeach individual product is large compared to contour strips, etc., so if they fail any given ProductInspection, all of the master coils need to be scrapped, and there is a large loss. For that reason, it ishighly likely that there was a sense of resistance to making decisions to scrap that would create suchlosses. In fact, some employees have made statements to the effect that there were times when
Section Managers of the Production Department, who were in charge of the production processes,
expressed a desire for Internal Concessions to be made at Discussions Following Morning Meetings.
Also, among the employees who were in charge of Product Inspections of contour strips, there aresome who have stated that, in the case of contour strips, the scale of the product was small, and thesense of resistance to scrapping was also weak.
33

5

Loss of substance of audit procedures

As mentioned in Section 5 Item 4 above, Product Inspections by the Quality Assurance
Section were subject to multiple audits. Nevertheless, no evidence of has been discoveredsuggesting that the rewriting of inspection records data was ever identified.
In this regard, as mentioned in Section 4 Item 2(4) above, it is clearly stated in the
Non-Conformance Management Rules that products can be shipped while they are in a
non-conforming state “if approval has been obtained from the customer or the Section Managers of
the Quality Assurance Department.” Since the Point Table was registered in the Specification Data
as a part of the Code Table, and multiple copies were available in the Material Inspection Room, its
existence was not particularly concealed. In addition, with regard to determinations for Internal
Concessions in Discussions Following Morning Meetings, there were entries on Corrective Action
Forms for Non-Conforming Products stating “XX/XX Morning Meeting; Internal Concessions,”
etc., so the fact that such determinations were made was also not particularly concealed.
It can be acknowledged that if internal audits had carefully examined the contents of rules,
including the Code Table, or had reviewed individual Corrective Action Forms for Non-Conforming
Products, it is highly likely that the Misconduct could have been discovered; it is thought that theaudit procedures conducted heretofore have been reduced to formalities, and have not served as a
substantial checking function. Furthermore, although no facts have been confirmed that demonstrate
any clear attempts at concealment in responding to the audits, the fact that preparations to respondto the audits (such as extracting samples of completed Corrective Action Forms for
Non-Conforming Products and “Material Test Reports,” etc.) were delegated to the units being
audited is thought to be one of the factors that delayed the discovery of the Misconduct.
Section 7
1

Measures to prevent recurrence

Ensuring thorough awareness throughout the company regarding honoring
agreements with customers

Behind the occurrence of the Misconduct lies the fact that “shipping products while
maintaining the performance considered necessary for rolled copper products” was prioritized, andthat the most fundamental concept for a company, namely “honoring agreements with customers”,
was neglected.
All transactions are based on trust in the counterparty to keep their promises and being
trusted as a counterparty, and the idea that a company “must keep promises (specifications) agreed
upon with customers” is obviously a key issue not just for the Wakamatsu Plant, but for MSC as awhole.
In order to make each of the measures to prevent recurrence described below effective, allemployees of MSC must first of all thoroughly ensure again that they have basic awareness of theneed to “honor agreements with customers.”

34

2

Guaranteeing the system for accepting orders based on process capability, and timely
discussions of revisions to specifications

For MSC, if orders to produce products with certain specifications is accepted, it is essential
to guarantee a system that is able to continuously produce such products. A system of unreasonably
accepting orders that exceed the company’s own process capability can result in increased losses
that exceed sales such as significant decreases in yield, etc. In order to be able to reliably produce
and deliver the products desired by customers, it is necessary to accurately ascertain one’s own
process capability, and to make sure that there is a corresponding system for receiving.
Furthermore, even when an order has already been accepted, in cases where it is discoveredthat the system for receiving orders cannot be guaranteed based on one’s process capability due tovarious factors such as changes in the external environment, etc., or in cases where the possibility ofsuch is discovered, the situation should be calmly and swiftly understood, and one should nothesitate to conduct discussions with customers regarding any necessary revisions to specifications.
In order for the Wakamatsu Plant to be able to propose revisions that are persuasive in bothtechnical and business terms without making excuses regarding differences in negotiating powerwith the customer, etc., the framework for having the Head Office provide support for such matters
as necessary should be strengthened.
3

Promoting compliance and quality assurance education for the relevant staff

As described in Section 4 Item 1(3), many on-site inspectors thought of the Point Table as
being “a given,” and it can be acknowledged that their awareness that Internal Concessions
constituted misconduct was insufficient. It certainly cannot be denied that due to misconduct
becoming routine in this way, the sense of resistance against following such practices wasdiminished. However, it is also a fact that, because they deviated from specification values, for
figures actually measured using certain inspection methods, the report values were rewritten so thatthey would conform to specifications, and that products that should have been treated as
non-conforming were thus able to be shipped. If there was insufficient awareness while committing
such actions that they were inappropriate, then that fact alone should be considered evidence thatcompliance and quality assurance education was insufficient at MSC.
MSC requires employees involved in Product Inspections to possess a certain level of skill
and ability that are necessary for inspections, and has conducted stringent annual appointment
procedures, such as internal testing to determine whether inspectors should be appointed or retained.
However, as an even bigger issue than skill or ability, it must be stated that compliance awarenesswas insufficient regarding a fundamental aspect of quality assurance, namely of the need toguarantee that products conform to established specifications, in that inspectors had no misgivings
regarding the Misconduct because they considered it to be “a given,” or “instruction by thesupervisor (or unit leader) of the Metals Inspection Team.”
Going forward, effective and appropriate compliance and quality assurance education must
be implemented, including revisions to the content of the appointment procedures themselves, and35

inspectors involved in Product Inspections must be made to cultivate strong self-awareness andpride in their work as a final backstop, so to speak, prior to shipment.
4

Introduction of an inspection and data entry system that does not allow forinterference due to human manipulation

As described in Section 3 Item 4(2), the method for conducting Product Inspections at the
Wakamatsu Plant involved a first step of hand-writing inspection results on Material Test Reports,
and a second step of entering the figures from the Material Test Report into the Inspection System
as actual measurement values; in cases such as the Misconduct, report values were additionallyentered, and this framework made it easy for manual rewriting of values at every stage.
To the extent that the appropriateness of testing methods is secured, situations where
inspection records data needs to be revised should never occur, and moreover, since the Misconduct
occurred under such conditions, an inspection and data entry system should be introduced that does
not allow for interference due to human manipulation, such as by automatically registering thevalues obtained as a result of Product Inspections directly.
5

Implementation of substantive audits of greater depth

As described in Section 5 Item 4, internal audits conducted heretofore by MSC did not go so
far as to review actual Material Test Reports or Corrective Action Forms for Non-Conforming
Products, or if they were reviewed, the selection of samples was left up to the units being audited.
As described in Section 4 Item 1(1), in the case of the Misconduct, Material Test Reports contained
language stating “There is an inspection point; strictly follow,” and both Material Test Reports andCorrective Action Forms for Non-Conforming Products contained language stating “Internal
Concession”, and given that even the figures that did not conform with specifications were enteredon these forms, it cannot be denied that if these documents had been reviewed based ondeterminations by the audit side, then they may have been able to discover earlier aspects of the
Misconduct, namely the existence of the Point Table and Internal Concession processing.
For future audits, the current audit procedures should be inspected, and necessary revisions
should be made so that audits are conducted in greater depth such as by reviewing “raw” documentsthat were actually filled out by inspectors, evaluating via so-called surprise document reviews by
the audit side, and verifying whether any suspicious activities are taking place. In addition, in orderto make such auditing possible, it is also necessary to secure the placement of the audit staff.

END

36

Attachment 2
December 27, 2017To:

Mitsubishi Materials Corporation
Special Investigation Committee
Mitsubishi Cable Industries, Ltd.
Koji Sakamoto
Investigation Committee Chairperson(Report) Submission of Interim Investigation Report
We requested that Nishimura & Asahi investigate and review the actual state of theframework for quality control of seal products and other products at Mitsubishi Cable
Industries, Ltd. (MCI)’s Minoshima Works, among other things. We received an interim
investigation report from Nishimura & Asahi dated today.
We are therefore submitting the attached report as MCI’s interim report to MCI’s Boardof Directors and MMC’s Special Investigation Committee.

END

To:

Investigation Committee of Mitsubishi Cable Industries, Ltd.
December 27, 2017
Interim Investigation Report(Concerning the actual state of the framework for quality control
of seal products and other products at Minoshima Works)

Nishimura & Asahi
Attorney

Takashi Shibuya

Attorney

Ryutaro Nakayama

Attorney

Hidetoshi Matsumura

Attorney

Jun Katsube

Attorney

Tomoyuki Numata

Attorney

Yusuke Suzuki

AttorneyToshiki Kitazumi

Attorney

Eisuke Kunimoto

Attorney

Asaki Nishida

Attorney

Tomoyuki KawanishiThis is an interim report on the investigation (“Investigation”) Nishimura & Asahi iscurrently conducting that was commissioned by the Investigation Committee (“MCI Investigation
Committee”) established by Mitsubishi Cable Industries, Ltd. (“MCI”).
This interim report summarizes the results of the investigation, analysis, etc. that wereconducted as much as possible and believed to be appropriate within the given time and conditions,and there is a possibility that the conclusions or other aspects will change at the time of the final
report if new facts or other details are discovered in the investigation going forward. Please also beaware that this interim report does not guarantee any judgement of the courts or decisions of otherrelevant regulators, etc.

1Section 1 Circumstances leading to the Investigation and the Purpose of the Investigation ·····4Section 2 Progress on the Investigation ······································································51Overview of the Investigation and the investigation framework ····················52Detailed Review of relevant materials ····················································53The status of conducting digital forensic investigation ································64The status of conducting interviews ·······················································65The Reference Date for the Investigation ················································6Section 3 Overview of Minoshima Works ···································································61

Details on the business and products handled by Minoshima Works ··············62The organizational structure and division of operations at Minoshima Works ··73Operational flow from receipt of order to shipment of seal products ··············8(1)Receipt of order and design ························································8A

Receipt of order and design for new product ···································8

B

Receipt of order and design for similar product ·······························9(2)Production process ···································································9A

Determination of the production schedule ······································9B

Production ·············································································9(3)4Inspection process and shipment ················································ 10
ATypes of inspection and the flow until shipment ····························· 10

BExplanation about details of inspection········································ 10

Proper operational flow when Non-Conforming Products are produced ······· 12(1)

Measures taken when Non-Conforming Products are produced ········· 12(2)Procedures for re-review ·························································· 12

Section 4 Misconduct relating to Quality Control at Minoshima Works Discovered as a resultof the Investigation ················································································ 14
1

Falsification relating to inspections, etc. ················································ 14(1)

Rewriting test data using the Lists ·············································· 14A

Description of Misconduct ························································ 14

BHistory of the Lists and when the Misconduct started ····················· 15C

Awareness of management ······················································· 16(2)Other misconduct relating to rewriting test data ···························· 18A

Setting permitted values in the designs ········································ 18

BSetting permitted values based on engineering orders issued by theEngineering Development Department ········································ 18
2

C

Shipment of Non-Conforming Products that went through Internal ReReview ············································································ 20

D

Shipment of Non-Conforming Products as a result of discussions among
relevant departments without going through the formal internal
procedures ······································································· 21(3)

Rewriting of average value data submitted to customers ·················· 22(4)Certain inspection items were not tested ······································ 23

2

A

Description of Misconduct / time of commencement························ 23

B

Awareness of management ······················································· 24

Inspections conducted using methods inconsistent with proper methods ······· 24(1)

Insufficient number of samples for dimension inspections ················ 24(2)Inspections conducted by inspectors who have not received internal
certifications ········································································· 25

Section 5 The status of response since December 2016 ················································· 25
1

The quality audit of MCI by MMC on December 7 and 8, 2016 ·················· 25

2Reporting the Re-Review Issue to management on January 25, 2017 ··········· 25

3Establishment of a task force on February 1 ·········································· 26

4General Manager of Minoshima Works’ instructions on February 8 ············ 26

5Report on the existence of the Lists from the Inspection Site Head on February
9 and the subsequent response after February 9 ····································· 26

6Reporting the existence of the Lists to the Former President and others········ 27

7Reporting to the Former President in early March and the subsequent response27

8

Establishment of the Quality Improvement Project and the subsequent Quality
Improvement Project activities ··························································· 28

9Reporting to the Former President on the activities of the Quality Improvement
Project, the interim report by the Quality Improvement Project on October 16
and background on how shipments were stopped

1029

Reasons why no decisions were made to stop shipments and notify customers
after February 201730

3

Section 1

Circumstances leading to the Investigation and the Purpose of theInvestigation

A quality audit performed in December 2016 by its parent company, Mitsubishi Materials
Corporation (“MMC”), led MCI to discover in February 2017 the fact that certain products that had
been manufactured and sold in the past that deviated from Specifications (defined below)(hereinafter, deviations from Specifications are referred to as “Specification Non-Conformances,”and products with Specification Non-Conformances are referred to as “Non-Conforming
Products”) had been shipped due to misconduct (“Misconduct”) within the Inspection Section(“Inspection Section”) of the Quality Assurance Department (“Quality Assurance Department”)
at MCI’s Minoshima Works (“Minoshima Works”). This Misconduct included rewriting of
measurements for dimensions and material properties of seal products to fall within the range ofcustomer specifications (“Customer Specifications”) or internal specifications (hereinafter“Internal Specifications” and together with Customer Specifications, collectively“Specifications”). The Misconduct was reported to MCI’s management by the Quality Assurance
Department in March 2017. In May 2017, MCI launched the quality improvement project (“Quality
Improvement Project”) as an internal project team and began, among other things, confirming theunderlying facts, identifying Non-Conforming Products and considering ways to ensure safety.
In light of the seriousness of this situation, MCI launched the MCI Investigation Committee
on November 13, 2017 with the goal of investigating the facts concerning the Misconduct and otherissues and identifying the root causes and background. On November 23, MCI made a publicannouncement concerning the Misconduct.
The MCI Investigation Committee determined that it would be necessary to perform athorough investigation from an objective and neutral perspective, so it requested that Nishimura &Asahi conduct an investigation and review with the following objectives:① Investigate the actual state of the framework for quality control of seal products and otherproducts at Minoshima Works;② Investigate the status of MCI’s response after MMC performed the quality audit of MCI in
December 2016;③ Analyze the root causes and background circumstances based on the results of the factfinding review of ① and ② above; and④ Propose measures to prevent recurrences based on the analysis of ③ above.
This interim report mainly contains results of the investigation and review as of thereference date in Sections 2.5 below regarding the status of the framework for quality control ofseal products and other products at Minoshima Works, the status of misconduct and other issues,
including the Misconduct, with respect to quality control at Minoshima Works, and the facts
concerning the status of MCI’s response after MMC performed the quality audit of MCI in
December 2016.
4

With regard to the misconduct relating to quality control and the investigation and analysisof the causes and issues of the abovementioned response status, as well as the proposal of measures
to prevent recurrences considering such investigation and analysis, we plan to make a final reportupon further investigation, analysis and review.

Section 2
1

Progress on the Investigation

Overview of the Investigation and the investigation framework
Based on the circumstances in Section 1 above, Nishimura & Asahi performed theinvestigations described in ① through ③ below.
① A detailed review of relevant materials;② A digital forensic investigation of email data, etc. possessed by relevant parties; and③ Interviews of relevant parties.
The Investigation was led by attorney Takashi Shibuya and nine others attorneys of
Nishimura Asahi, who have no interests in MCI. Additionally, an expert forensic vendor was
engaged to assist with the Investigation under the direction and supervision of Nishimura & Asahi.
Nishimura & Asahi commissioned such forensic vendor, to the extent necessary andpossible, to collect shared files saved on MCI’s file servers as well as email data on MCI’s email
servers and individual PCs and mobile phones issued to the relevant parties by MCI. The forensic
vendor was also commissioned to narrow down the data and conduct a first-level data review underNishimura & Asahi’s direction.
Additionally, in the process of investigating the misconduct relating to seal products, it was
discovered that there was a possibility that misconduct similar to what was observed in seal
products also existed with respect to fine rectangular magnet wire 1 (“MEXCEL”) also
manufactured at Minoshima Works. As a result, in addition to performing the review of relevantmaterials in 2 below and conducting the interviews with relevant parties in 4 below with respect to
MEXCEL, the review of relevant materials in 2 below and interviews with relevant parties in 4
below were also performed with respect to electromagnetic wave absorbers that are likewise
manufactured at Minoshima Works.
2

Detailed Review of relevant materials

Nishimura & Asahi collected the materials that currently exist at MCI relating to the actual
state of the framework for quality control of seal products and other products at Minoshima Works(policies and procedures relating to quality control, inspection records, and materials from quality1

Products that are magnet wires coated with an ultra-thin insulating film, used primarily in induction coils for electronic equipment.
At MCI, the product name is “MEXCEL.”

5

related committees, etc.) and performed a detailed review and verification of their content.
3

The status of conducting digital forensic investigation

As stated in 1 above, Nishimura & Asahi preserved, to the extent necessary and possible, thedata from the shared files saved on MCI’s file servers and preserved email data from individual PCs
and mobile phones issued to the relevant parties by MCI and from MCI’s email servers and otheremail data from a total of 40 MCI directors and employees who are or have previously been
involved in the seal product business at Minoshima Works.
Due to the time constraints on the Investigation, it was necessary to apply reasonable limits
to the data that was preserved, so Nishimura & Asahi decided to extract data using keyword
searches setting the target period as December 1, 2016 to November 30, 2017. With respect to thedata for which extraction was completed by the Reference Date stated in 5 below, the forensic
vendor mentioned in Section 1 above conducted the first-level data review, and Nishimura & Asahi
conducted the second-level data review, and this interim report is based on these materials.
4

The status of conducting interviews

In order to make clear the actual state of the framework for quality control of seal products
and other products at Minoshima Works and the status of response after December 2016 and otherissues, Nishimura & Asahi conducted interviews with a total of 52 current and former directors andemployees of MCI up until the Reference Date stated in 5 below. We note that some interviewees
were interviewed multiple times.
5

The Reference Date for the Investigation
The Investigation began on November 13, 2017. The reference date for this interim report is

December 22, 2017 (“Reference Date”), and the description below summarizes the facts, results ofverification, etc. that have become known as of this Reference Date.

Section 3
1

Overview of Minoshima Works

Details on the business and products handled by Minoshima Works

Minoshima Works started operations in 1943 as a factory manufacturing wires for aircrafts.
Since beginning to manufacture O-rings for aircrafts for the then Defense Agency of Japan(*Translator’s note: currently reorganized as the Ministry of Defense) in 1958, it has been
manufacturing seal products for a variety of fields, including aerospace, automotive parts,
hydraulics, pneumatics, and semiconductors, as a production site for seal products. Currently, in
addition to seal products, it also manufacturers products such as MEXCEL and electromagnetic
wave absorbers.
6

Seals refer collectively to parts and materials that prevent fluids or gases from leaking
outside of machines or equipment, or contamination of their interior by rainwater, dust and otherforeign matters, and they play an important role in maintaining the performance of machinery.
Rubber, metal and resin are used as the raw materials for seals, and there are also seal products
manufactured with a combination of these materials. O-rings are the seals currently being used in
the greatest number, and they have various raw materials and sizes depending on their applications.
2

The organizational structure and division of operations at Minoshima Works

Within MCI’s organizational structure, Minoshima Works is under the High Performance
Products (Seal Products) Division, and it manufactures seal products, electromagnetic wave
absorbers, etc. 2 The Administration Department, Engineering Development Department(“Engineering Development Department”), Production Department (“Production Department”)
and Quality Assurance Department are under Minoshima Works, and the main operations carriedout by the Engineering Development Department , Production Department and Quality Assurance
Department, which take part in the development, manufacturing and inspection of seal products, aresummarized below.
The main operations of the Engineering Development Department are productionengineering, equipment management and environment management of the products under the
responsibility of Minoshima Works, and it is divided into Section I,3 Section II,4 and Section III.5
The main operations of the Production Department are matters relating to productionengineering and manufacturing of products under the responsibility of Minoshima Works, and it isdivided into Production Section I, 6 Production Section II, 7 Production Section III 8 and theProduction Engineering Section (“Production Engineering Section”).92

MEXCEL is manufactured at Minoshima Works, but within MCI’s organizational structure, its development and production are
under the responsibility of the MEXCEL Business Department (“MEXCEL Business Department”) of the High Performance
Products (Seal Products) Division, and it is not a business that is under Minoshima Works. However, the inspection operations for
MEXCEL have been outsourced to the Inspection Section.

3

Section I of the Engineering Development Department is in charge of development relating to material compounds for rubber
products and technology for substances subject to security export controls, etc.

4Section II of the Engineering Development Department is in charge of matters relating to development, design and functional
evaluation testing for rubber products and development of electromagnetic wave absorbers.

5

Section III of the Engineering Development Department is in charge of matters relating to development and design of resin andmetal products and development and design of composite products for automobiles.

6

Production Section I of the Production Department is in charge of matters relating to manufacturing and the design andmanagement of molds for products having rubber as their main material at Minoshima Works.

7

Production Section II of the Production Department is in charge of matters relating to manufacturing a portion of the products
having rubber as their main material at Minoshima Works.

8

Production Section III of the Production Department is in charge of matters relating to manufacturing products for which the mainmaterials are resin and metal at Minoshima Works.

9

The Production Engineering Section is in charge of matters relating to production engineering, equipment management andenvironment management for the products under the responsibility of Minoshima Works.

7

The main operations of the Quality Assurance Department are matters relating to quality
assurance and the technical review of substances, etc. subject to security export controls of the
products under the responsibility of the High Performance Products (Seal Products) Division as
well as inspecting the products under the responsibility of Minoshima Works. Under the Quality
Assurance Department is the Inspection Section, which is the organizational unit in charge ofinspecting the products under the responsibility of Minoshima Works, and the Quality Assurance
Section (“Quality Assurance Section”), which is the organizational unit in charge of quality
assurance of the products under the responsibility of Minoshima Works. The Inspection Section isdivided into Inspection Site I (Inspection Site I”)10 and Inspection Site II (“Inspection Site II”).11
3

Operational flow from receipt of order to shipment of seal products(1)

Receipt of order and design

A

Receipt of order and design for new product
When MCI’s Sales Section (“Sales Section”) receives an inquiry from a customer, they senda request to the Production Department to prepare a written quotation. If it is a new product that theProduction Department has never produced before and they cannot determine whether they can
produce it even upon comparing it to similar products that they have produced in the past, they senda request for review to the Engineering Development Department. If the Engineering Development
Department determines that the product can be produced, and the customer formally requests that a
written quotation document be prepared, the Sales Section negotiates with the customer based on
the quotation prepared by the Engineering Development Department, and a determination to accept
the order is made.
After a formal determination is made to accept an order, the customer sends an engineeringorder to MCI. The Engineering Development Department then holds discussions with the customer
regarding the tolerances and the properties of the materials stated in the engineering order, and thespecifications are revised. The specifications agreed upon with the customer are recorded, including
through addendums to the engineering order, meeting minutes, etc.
Upon completing the revisions to the specifications, the Engineering Development
Department designs a mold for the new product and creates a design for internal use, after which a
prototype for the new product is created, and the feasibility of mass production is assessed.
From the perspective of product development, the Engineering Development Department
categorized products into three categories (A, B, and C). Category A included products that can be
determined not to require development due to similar products having been produced in the past,
which can be designed solely by the person responsible for design in the Engineering Development
10 Inspection Site I is primarily in charge of matters relating to inspection of raw materials, inspection of properties of finishedproducts and partially complete products and inspection of finished products having rubber as their main material and MEXCEL.
11 Inspection Site II is primarily in charge of matters relating to inspection of outsourced products and the inspection of finishedproduct having resin and metal as their main materials, semiconductor-related products having rubber as their main material andelectromagnetic wave absorbers.

8

Department and/or an Assistant Manager (corresponding to a Section Manager at MCI). Category B
included products requiring advance coordination with the customer or relevant departments, suchas pre-contract review of prototypes, etc. Category C included products involving development
matters such as a new material, new design, new production method or new equipment inconnection with a new inquiry, design change or process change, products designated as “criticalparts” in the customer specifications and previously produced products for which the monetaryamount of the order is large (monthly sales of five million yen or more) even if the product is
categorized as A or B. For products in Category C, Design Review (“DR”) is performed for key
areas starting from the prototype stage. Furthermore, in order to assess whether mass production ispossible, designs are examined by the relevant departments, such as the Quality Assurance
Department and the Production Engineering Section. Careful coordination is needed among thedepartments, such that mass production is initiated only after having finally passed through overall
DR, etc.
B

Receipt of order and design for similar productUpon reviewing the inquiry obtained by the Sales Section, if the ordered product or a similar
product has been produced in the past, the Production Department creates a written quotation
without issuing a request to the Engineering Development Department. After a formal
determination is made to accept the order, mass production is initiated using the mold for thepreviously produced product or similar product without creating a prototype.
(2)

Production processA

Determination of the production schedule
Based on the order information entered by the Sales Section, the Production Administration

Section of the Administration Department at Minoshima Works (“Production Administration
Section”), upon considering the delivery deadlines for each product, determines which products to
produce by when, formulates a production schedule, and prepares a production planning chart. After
that, upon considering the raw material inventory status, etc., the necessary raw materials arepurchased and sent to the Production Department for the compounding process.
B

Production
The following explains the flow of the production process for rubber seal products.
First, in the compounding process, raw rubber and chemicals are weighed, and then in the
mixing process, the weighed raw rubber and chemicals are put into a mixing machine and mixed. In
the pre-forming process, the rubber mass that went through the mixing process (“compound”) isthen processed into shapes that make them easier to put into molds such as rings, chips, etc. In thepress process, the pre-formed unvulcanized rubber12 is then put into molds, and the raw rubber and
12 Vulcanization is the operation of mixing sulfur into raw rubber and heating it up, to produce rubber with elasticity that corresponds

to its use.

9

chemicals are made to react by applying heat and pressure, and they are formed into products thathave properties such as rubber elasticity, etc. After that, parts other than the product, i.e., burrs are
removed in the finishing process, resulting in the finished product. Also, depending on the product,
sometimes vulcanization is not completed solely through the press process, so a second
vulcanization process is performed after the finishing process for such products, which completes
the vulcanization.
(3)

Inspection process and shipment

The following explains the inspection process and the flow until shipment for rubber seal
products.
A

Types of inspection and the flow until shipment
For products produced at Minoshima Works, interim inspections are performed for products

for which the entire production process has not been completed (“Partially Completed Products”),
and finished product inspections are performed for finished products for which the entire production
process has been completed.
Inspection orders,13 which are prepared for each product, specify which inspections are tobe performed for each product, and which items are to be measured in the inspections.
As mentioned in 4 below, products determined to have failing inspection results (hereinafter
called “Failing Products”, products determined to have passing inspection results are called“Passing Products”) are either discarded, inspections are performed again after they are repaired,or an application for re-review is submitted.
Products that pass finished product inspections are placed into inventory, and then shippedby the Production Administration Section in accordance with the relevant delivery deadlines.
B

Explanation about details of inspection

The inspections relating to the Misconduct include (A) (i) batch inspections and (ii) quality
control testing that are part of the interim inspections for Partially Completed Products, as well as(B) (i) lot inspections, (ii) quality control testing and (iii) dimension inspections that are part of thefinished product inspections for finished products. Batch inspections, lot inspections and quality
control testing are all inspections relating to the property (“Property Inspections”) of PartiallyCompleted Products (compounds) and finished products. Set forth below are the details of suchinspections.

13 The staff of the Inspection Section creates inspection orders based on designs, etc. created by the Engineering Development

Department.

10

(a)

Batch inspections
Batch inspections are performed on all compounds.
The objective of batch inspections is to check for any mistakes in the raw material
compound and to confirm whether the mixing process was performed appropriately by testing theproperties of the material (compound) after the raw materials are compounded and mixed. The
batch inspections are performed using test pieces extracted from compounds after the raw materials
are compounded and mixed (the compound created after a single mixing process is called a“Batch”). The inspection is conducted mainly for items such as specific gravity, hardness, tensile
strength, elongation, modulus, etc. of the compound.
(b)

Lot inspections
Lot inspections are performed only for products for which they are required by agreementwith the customer or public standards.
Like batch inspections, lot inspections are performed in order to confirm properties, but they
are generally performed on finished products.14 Lot inspections are performed on each lot by
extracting a sample from the finished products or test pieces (generally, one lot includes all of thefinished products produced over the course of one day using the same press machine and the samemold, but, depending on the product, there are cases where lots are determined differently in thedesign). The inspection items are those required by agreement with the customer or publicstandards, and the inspection items are mainly the specific gravity, hardness, tensile strength,
elongation, compression set, etc.
(c)

Quality control testing
Quality control testing is performed only for products for which it is required by agreementwith the customer or public standards.
Batch inspections and lot inspections are performed after each mixing process or eachproduction lot, but quality control testing is a test to measure properties at established regularintervals, such as once every few months to once every three years, in order to guarantee theproperties of products during a fixed period of time. Quality control testing is performed using
finished products or test pieces extracted from compounds. The inspection items are those requiredby agreement with the customer or public standards, and require confirmation of a broader range ofitems than batch inspections or lot inspections.
(d)Dimension inspections
Dimension inspections are performed to confirm that product shape, structure and dimension(size) meet the required standards.
Dimension inspections are not performed on each manufactured product. Rather, they are
performed by extracting a number of samples from each lot, the number of samples determined
14 There are exceptional cases where lot inspections are performed using test pieces extracted from compounds.

11pursuant to the agreement with the customer or public standards. In dimension inspections,
measurement instruments are used to measure the location and details that are specified in theinspection order, such as the outer diameter, thickness, height, etc.
4

Proper operational flow when Non-Conforming Products are produced(1)

Measures taken when Non-Conforming Products are produced

MCI has established product inspection rules as one of its internal rules based on thecompany-wide quality control regulations that specify the basic performance items when acompany-wide quality control is performed. Based on the provisions of the relevant internal rules,
Minoshima Works has established operational processing standards that specify procedures for
product inspections and operational processing standards that specify procedures for handling NonConforming Products.
According to these operational processing standards, if a Failing Product occurred relating toproperties during an interim inspection, then the inspector performs a re-inspection. If the productalso fails the re-inspection, then this is reported to the Manager of the Inspection Sec., and then the
Production Section is notified.
Furthermore, if a Failing Product occurred in the finished product inspection, then (1) if the
product failed the visual inspection or dimension inspection, then the Failing Product is either (i)disposed by the inspector or returned to the Production Section if it can be repaired, etc. (in cases
where all units are inspected), or (ii) the entire lot is treated as failing and returned to the Production
Section (in cases where only samples are inspected) by the inspector, or (2) if the product failed aninspection relating to properties, then the inspector performs a re-inspection. If the product also fails
the re-inspection, then this is reported to the Manager of the Inspection Sec. and then the Production
Section is notified, and such lot is required to be disposed.
Furthermore, as stated in (2) below, if a Failing Product occurred during an interim
inspection or finished product inspection, then the Manager of the Production Section or theManager of the Production Administration Sec. Manager can submit an application for re-review
according to established procedures. However, if a product fails an interim inspection, an
application for re-review can only be submitted if the Production Section Manager or the
Production Management Section Manager believes that the issue will not have a significant effecton the quality of the finished product.
(2)

Procedures for re-review

When a Failing Product occurred as a result of an inspection, procedures for re-review havebeen established to confirm corrective measures for such defects and make determinations
regarding such defects.
According to the operational processing standards at Minoshima Works that establish thespecific procedures for re-review, the Production Section Manager or the Production Management
12Section Manager can commence the procedures for re-review in order to obtain a decision on thecorrective measures by submitting an application “if technical or quality consideration is required
regarding the details of the non-conformance” for finished products, and “if there will not be asignificant effect on the quality of the final product but the product is not in conformance with thespecifications (specified in the design)” for Partially Completed Products.
In principle, Failing Products that are subject to a preliminary review are all Failing Productsthat are determined to be Failing Products by the Inspection Sec. and have applications for rereview submitted by the Production Section or the Production Management Section, etc.15
Then, the preliminary reviewers16 conduct a review according to the decision standards set
forth below and make a decision to (1) “use as-is,”17 (2) “use after performing repairs (re-process),”(3) “dispose,” (4) “submit a re-review application to the customer,” or (5) “discuss at the ReReview Committee (high-level committee).”18 In advance of any decisions made, the Engineering
Development Dept. performs a review of “whether or not there is design authority” and “whether or
not there is deviation from customer quality standards.” If there is deviation from customer quality
standards, a “use as-is” decision is not permitted.19a.

b.

If the customer’s required quality standards are satisfied but MCI’s quality standards are
not met, or if there are no customer requirements but MCI’s quality standards are not met:(a) Are there any issues in terms of production or functionality?
(b) Was the repair method established beforehand, and does the quality after repair
satisfy the customer’s required standards?
If the customer’s required quality standards are not satisfied, and measures other thandisposal is to be taken:(a) The preliminary reviewers submit a re-review application to the customer without
going through the Re-Review Committee.

15 However, measures such as re-processing, etc. of products are not subject to re-review, and among products for the Ministry of

Defense, neither (1) products determined to be not appropriate for use due to design changes nor (2) standard products(standardized products) are subject to re-review. Of these, the rule excluding (2) from being subject to re-review was added as a
new revision to the operational processing standards on July 3, 2017. No such rule existed prior to this.
16 According to the current operational processing standards, the preliminary reviewers are the General Manager of the Engineering

Development Department, the Assistant Manager of the Engineering Development Department (or a person s/he designates), theManager of the Quality Assurance Section and the General Manager of the Quality Assurance Department. Decisions relating to
the preliminary review require the approval of the General Manager of the Engineering Development Department and the General
Manager of the Quality Assurance Department. However, before the operational processing standards were revised on July 3,
2017, the preliminary reviewers were two people, the Assistant Manager of the Engineering Development Department (or a persons/he designates) and the Manager of the Quality Assurance Section. Decisions relating to the preliminary review only required
approval from the Assistant Manager of the Engineering Development Department and the Manager of the Quality Assurance
Section.
17 Treated as equivalent to a Passing Product.
18 The Re-Review Committee is composed of a member representing the Quality Assurance Department (the General Manager or

his/her representative), a member representing the Engineering Development Department (the General Manager or his/her
representative), and a (if the product involves a contract with the Ministry of Defense).
19 This rule was added when the operational guidelines were revised on July 3, 2017. No such rule existed prior to this.

13

(b) Submission to the Re-Review Committee (ultimately, customer approval is required).
If the preliminary reviewers determine that review by the Re-Review Committee isnecessary, then additional reviews are performed by the Re-Review Committee and the customer
re-reviews are also performed if requested by MCI to the customers. The Re-Review Committee
makes one of the following decisions on how to handle the Failing Product: (1) “use as-is;” (2) “useafter performing repairs (re-process);” (3) “dispose;” or (4) “submit a re-review application to thecustomer.”If the product was produced based on a customer design, or if the non-conformance does notsatisfy the requirements of the relevant contract, then an application for re-review must be
submitted to the customer.
As such, according to the operational processing standards of Minoshima Works, customer
approval must be obtained in order to ship Failing Products that do not satisfy customer
requirements, and products for which concessions have been made solely through internal re-review
procedures (“Internal Re-Review”) may not be shipped.

Section 4

Misconduct relating to Quality Control at Minoshima Works Discovered as aresult of the Investigation

1

Falsification relating to inspections, etc.

(1)

Rewriting test data using the Lists

A

Description of Misconduct

Lists called “Silver Lists”20 (“Lists”) exist at Minoshima Works. The Lists stated permitted
values that allowed products with Specification Non-Conformances after batch inspections, lot
inspections, quality control testing or dimension inspections described in Section 3.3(3) above to betreated as Passing Products.
At Minoshima Works, even if Specification Non-Conformances were identified in batch
inspections, lot inspections or dimension inspections described in Section 3.3(3) above, if that
product was on the Lists and the actual measured value was within the range of values permitted on
the Lists, the inspector of the Inspection Sec. rewrote the inspection results to fall within the rangeof the Specifications, and Non-Conforming Products were treated as Passing Products. In addition,even if Specification Non-Conformances were identified as a result of quality control testing
described in Section 3.3(3) above, if that product was on the Lists, the inspector of the Inspection
Sec. rewrote the test data to fall within the range of the Specifications and treated the test data as
passing all of the quality control test items relating to such product.

20 The origins for the term “Silver Lists” is unknown.

14

The Lists were kept in Excel files in a shared folder that could be viewed by the employeesof the Inspection Sec..
As discussed in Sections 5.6 below, when the existence of the Lists was discovered in
February 2017, the General Manager of the Quality Assurance Dept. instructed that the number of
products and material compounds where test data were rewritten for dimension and Property
Inspections be summarized. With respect to dimension inspections, there were a total of 570
products on the Lists and produced during the past two years, and with respect to Property
Inspections, for material compounds on the Lists, there were 132 material compounds relating tobatch inspections, 17 material compounds relating to lot inspections and 95 material compounds
relating to quality control testing.
According to interviews, the rewriting of test data was being conducted extensively using
the Lists at Inspection Site I and Site II for seal products that use rubber as the main material andcomposite seal products of rubber, resin and metal in various industrial fields.
When a Specification Non-Conformance was identified during inspections, the onsite
inspector (often a part-time employee) reported to the Site Head, the Inspection Site Head oranother manager. The Site Head or the Inspection Site Head checked the Lists and then, if the actual
measured value fell within the range of the permitted values on the Lists, the Site Head or the
Inspection Site Head instructed the onsite inspector to record values in the test report that were justbarely within the upper or lower limits of the Specifications.
When values not conforming to the Specifications resulted from dimension inspections, theonsite inspector took handwritten notes of those values, but when instructions were given to theinspector to rewrite the test data, those handwritten notes were discarded, and a value that fellwithin the range of the Specifications were recorded on the test report. For that reason, in suchcases, records of the actual measurements were not retained.
On the other hand, test reports for materials (compounds) and Property Inspections (batch
inspections) were retained with actual measurements before they were rewritten.
B

History of the Lists and when the Misconduct started

According to interviews, it is unclear when it started, but at Minoshima Works, even when aSpecification Non-Conformance was identified during inspections, conduct such as the Internal ReReview described in (2)C below or the discussions among relevant departments described in (2)Dbelow was taken, and Non-Conforming Products began to be treated as Passing Products. In
connection with this, the inspectors of the Inspection Sec. prepared handwritten memos withinformation (product, Specifications, permitted values, etc.) relating to the decision to treat the
products as Passing Products, and filed handwritten test reports that stated the actual measured
values for products that were deemed to be passing despite there being Specification Non-

15

Conformances.21 If a Specification Non-Conformance was subsequently identified in the same
product, the inspector referred to such handwritten notes and test reports, and if the nonconformance was within the range of values determined to be passing in the past, the product was
treated as a Passing Product without going through the Internal Re-Review described in (2)C below
or the discussions among relevant departments described in (2)D below.
There is a column titled “review date” for each product on the Lists relating to dimension
inspections. The review date column contains the date when each product was newly registered on
the Lists or the date when the permitted range of values on the Lists was updated. When reviewing
the dates recorded in the column for “review date,” it was confirmed that there was an increase incases from around 1996 where products were newly registered on the Lists or where the permitted
range of values on the Lists was updated.22
According to interviews, from around 1999 to around 2005, with respect to information on
permitted values, etc. that was recorded on paper, for dimension inspections, this information was
saved electronically using the software Lotus Approach and saved in a shared folder that could beviewed by the employees of the Inspection Sec.
Subsequently, in conjunction with not being able to use Lotus Approach at Minoshima
Works, around 2009, information relating to batch inspections, lot inspections and quality control
testing that had not been saved electronically at that time were also entered into Microsoft Excel
spreadsheets, and the Lists were created in Excel files, which is the current form of the Lists.
C

Awareness of management
In an interview, the Assistant General Manager of the High Performance Products (Seal

Products) Division (“Assistant General Manager of the Seal Products Division ”), who had
worked as the General Manager of Minoshima Works, said he was not aware that the Lists existed
around 2000 when he was the Assistant Manager of the Engineering Development Dept., Section II
at Minoshima Works. However, there were material compounds with Specification NonConformances identified during batch inspections relating to properties, and he was aware that thisissue had been “put on hold” (e.g., left unresolved). He said that, although he was not aware of thescope of the effect, he was aware that Non-Conforming Products were being shipped to customers
due to the existence of such material compounds with problems.23
In order to review the Minoshima Works’ quality control system, a Quality Control
Committee was convened at Minoshima Works, with the General Manager of Minoshima Works
participating. The minutes of the Quality Control Committee meeting from March 2006 state,
21 According to interviews, at that time, the files that contained the test reports were called “Silver Lists.”
22

The implications and reliability could not be confirmed, but there was one entry from “1961” in the review date column (the next
oldest entry was from “1974”).

23 Further, with respect to the Non-Conforming Products that were “put on hold,” the Seal Products Division Assistant General

Manager said in the interview that he thought no improvements could be made, since neither the material compound or thecustomer specifications could be changed, in light of the customers’ wishes, etc.

16

“review to see whether some sort of a reason can be provided so that approval can be obtained toamend the customer specifications for the 13A9-70 ku [original text] batch out (Silver List
material),” and “※the Inspection Sec. will prepare a list of Silver List materials and theEngineering Development Dept., Section I will consider corrective measures.” Moreover, theminutes of the Quality Control Committee meeting held in May 2006 state, “review whether the
specifications can be corrected, etc. for the 13A9-70 batch out (Silver List).” The Assistant General
Manager of the Seal Products Division , who was the General Manager of Minoshima Works at thetime, also participated in the Quality Control Committee meetings held in March and May 2006.24
Furthermore, the former Representative Director & President (“Former President”), who
was a Director and the General Manager of the Seal Products Division in 2013, said in his interview
that he was not clearly aware of the Lists around 2013, but he had heard about the existence ofmaterial compounds with problems from the Assistant General Manager of the Seal Products
Division who was the General Manager of Minoshima Works at the time. In addition, as a result of
the existence of material compounds with problems, the Former President said he was aware thattest data was probably being rewritten when it was necessary to submit test data to customers, andthat he thought a list probably existed that compiled the material compounds for which changes
were not permitted as a result of negotiations with customers.
On the other hand, the Assistant General Manager of the Seal Products Division said in his
interview that he heard from the Former President that, when the Former President interviewed
employees at Minoshima Works around 2013 in order to review the abovementioned quality
complaints, the Former President heard from employees that there was a list compiling material
compounds with problems.
In addition, several employees stated in their interviews about the fact that a customer raised
a complaint related to quality around 2013, and when the complaint was being addressed, theexistence of the Lists was reported to the Assistant General Manager of the Seal Products Divisionby employees of the Inspection Section, and the Assistant General Manager of the Seal Products
Division instructed that the Lists continue to be used.
Collectively from the results of the abovementioned interviews, etc., it can be recognizedthat the Assistant General Manager of the Seal Products Division was at least aware that there was alist compiling material compounds with problems at Minoshima Works from around 2013 at thelatest, and we believe there is a high possibility that he was aware that test data was being rewritten
for the material compounds on those lists. In addition, it can be thought that the Former President
was at least aware, around the same time, that a list compiling material compounds with problems
may have existed, and that it was possible test data was being rewritten when it was necessary tosubmit test data to the customers, since there were material compounds with problems.

24 In the interview, the Seal Products Division Assistant General Manager said that he does not remember whether the interactions

that were recorded on the Quality Control Committee meeting minutes occurred.

17

(2)

Other misconduct relating to rewriting test data

As to the process for placing products on the Lists, as described further below, permitted
values were set from the design stage based on designs prepared by the Engineering Development
Department (A. below) or permitted values were set after mass-production started based onengineering orders issued by the Engineering Development Department (B. below). It is recognizedthat there were instances where the Inspection Section added products and permitted values on the
Lists based on the results above. Further, it is recognized that there were also instances where theInspection Section added products and permitted values on the Lists based on decisions by theEngineering Development Department and the Quality Assurance Department through an Internal
Re-Review (C. below) or based on discussion among the relevant departments that NonConforming Products could be shipped without going through the Internal Re-Review (D. below).
A

Setting permitted values in the designs

At Minoshima Works, with respect to certain products, for certain specifications the design
included statements such as “concessions to be made for permitted dimensional differences(provided as a range) Confidential.” Permitted values were set for certain specifications that were
not particularly agreed with customers in the designs. If inspection results were within that range, it
seems those results were permitted internally. With respect to products for which “concessions(confidential)” was stated in the designs, the permitted values were clearly indicated in the designs,
and the products were passed and shipped if they met those permitted values.25
As noted in footnote 2 above, the MEXCEL Business Department, which is responsible forthe development and production of MEXCEL, outsourced the inspection of MEXCEL to theInspection Section at Minoshima Works. For these MEXCEL inspections as well, instructions were
given to set permitted values through common designs, etc.,26 to be used for all MEXCEL.27 Basedon what is stated in these common designs, etc., the Inspection Section deemed products to bepassing if the results of dimension inspections, visual inspections and other inspections were within
the range of the permitted values, which was wider than the Customer Specifications. When
disclosing test data to customers, the test data was rewritten and the values were reported as fallingwithin the range of Customer Specifications.
B

Setting permitted values based on engineering orders issued by the Engineering
Development Department

25 Except for cases of common designs relating to MEXCEL that are mentioned later, with respect to the four designs that have been

currently identified as examples of designs with permitted values, the related products were all on the Lists.
26 In

common designs, the Engineering Development Section of the MEXCEL Business Department gave instructions on theinspection procedures, specific methods, etc. for MEXCEL to the Inspection Section.

27 MEXCEL is not on the Lists.

18

At Minoshima Works, there were cases where instructions were given to set permitted
values through engineering orders that the Engineering Development Department issued to notify
other departments of engineering related items. Specifically, an engineering order dated July 17,
2012 states that hardness measurement results from batch inspections relating to certain materials
are to be deemed as passing if the results fall within the range of permitted values, which was set
wider than Customer Specifications. In addition, instructions were given to report values thatcomply with Customer Specifications when disclosing test data to customers.
According to interviews, for the products covered by this engineering order, the customer
requested that MCI supply products that were strictly equivalent to third-party products that thecustomer was previously using (“Existing Products”). At the same time, instructions were given tocomply with the specifications for the Existing Products. However, the Existing Products had thetendency for inspection measurements to concentrate at the lower end of the requirements under the
specifications, so if the products were produced to be strictly equivalent to the Existing Products,
they often fell below specifications due to the deviations that inevitably occurred as a result of theproperties of the material. On the other hand, if products strictly equivalent to the Existing Products
were shipped, it was thought that there would be no problems for the customer when actually using
the products, even if they did not satisfy Customer Specifications.
In this context, as mentioned in C. below, with respect to these products, an application wasmade for re-review for Failing Products that were deemed not to be a problem for actual use eventhough they did not meet Customer Specifications, and the decision was made that “use as-is ispermissible.” Furthermore, with respect to these products, in light of the circumstances describedabove, since it was thought that there would be many cases of Failing Products even though there
would not be problems with actual use, the Engineering Development Department decided to set
permitted values in the engineering order, and the engineering order mentioned above was issued.28
As stated in (3) below, with respect to these products, the customer requested submission of
average values for the measurements relating to certain inspection items for each lot. For thisreason, in order to avoid including test data that fell outside the Customer Specifications whencalculating the average values, instructions were given in the abovementioned engineering order toreport the rewritten values which fall within Customer Specifications when disclosing test data to
the customer.
There were also cases where permitted values were set for MEXCEL pursuant to engineeringorders issued by the Engineering Development Section of the MEXCEL Business Department. As
stated in A. above, permitted values were specified in the common designs, etc. for MEXCEL fromaround 2012, but in February 2017, it was discovered that Non-Conforming Products for seal
products were shipped due to the Misconduct by the Inspection Sec. As a result, the MEXCEL
Business Department decided to stop passing products if the results were within the range of thepermitted values pursuant to common designs, and this decision was communicated to the

28 The products relating to this engineering order are on the Lists.

19

Inspection Section. However, due to concerns on the impact to business because of the many
Failing Products being produced due to removing the permitted values and a significant decrease in
the yield rate, the Technology Development Section of the MEXCEL Business Department issued
an engineering order on February 24 and May 19, 2017 after discussions with the Quality
Assurance Department, and reinstated the permitted values and resumed rewriting test data.
Previously, when disclosing MEXCEL test data to customers, the Inspection Section was manually
rewriting test data for values which fell outside Customer Specifications so that the numbers were
within the range of Customer Specification. However, around June 2017, there was test data thatwas not rewritten and test data that fell outside Customer Specifications was submitted tocustomers. For that reason, since June 2017, when entering test data for MEXCEL that passed
inspections, the Inspection Section decided to use Excel’s formula function to automatically rewrite
results that fell outside Customer Specifications to the highest or lowest permitted value in the
Customer Specifications, in order to avoid test data not being rewritten.
C

Shipment of Non-Conforming Products that went through Internal Re-Review

Although the actual procedures for re-review are as described in Section 3.4(2) above, incertain cases, Non-Conforming Products were shipped after going through an Internal Re-Review
with the involvement of each of the Production Department, the Engineering Development
Department and the Quality Assurance Department without going through the re-review procedure
with customers as summarized below.
As described in Section 3.4(1) above, if a product, etc. fails any inspection, a failure
notification is sent to the Production Section from the Inspection Section. Upon receiving thisnotification, the Site Head, who is in charge of the production process for the relevant productwithin the Production Department, conducts a review, including the causes of such Failing
Product’s occurrence, and considers measures for such products, etc.
With respect to the causes of failing inspections, where, for example, even though it failed
the dimension inspection, the deviation from Customer Specifications was minimal, or even if there
were no deficiencies in the manufacturing process, it would be extremely difficult to satisfy the
Customer Specifications to begin with, from the perspective of the person in charge at theProduction Dept., there were cases where it could be thought that although it did not conform toCustomer Specifications, it did not have a significant effect on quality, or there was an issue with
the Customer Specifications from the outset.
In these cases, the Site Head of the Production Department submitted an application for an
Internal Re-Review, which was approved by the Section Manager of the Production Department.
With respect to Failing Products for which applications for Internal Re-Review were
submitted, there were cases where the person in charge of developing the design for such Failing
Product in the Engineering Development Department decided that it could be used as-is after going
through only an Internal Re-Review and without going through a customer’s re-review, despite
20

actual deviations from Customer Specification for certain inspection items. There were instanceswhere an Assistant Manager in the same department approved such decisions. In other words,
according to the proper procedures, if there is a deviation from Customer Specifications, it isnecessary to go through the customer’s re-review and obtain consent from the customer in order tomake a shipment. However, in reality, there were cases where the person in charge within theEngineering Development Department (typically the person who was in charge of design anddevelopment of the Failing Product), made a determination through an Internal Re-Review that the
product could be used “as is” based on the determination that there was no practical problems
considering the use by the customer of such product based on his/her own experience and technicalunderstanding, even if there were deviations from the Customer Specifications for specificinspection items.29
As described above, when the Engineering Development Department determined that the
product can be used as-is even though customer consent was not obtained, there were times when
the Quality Assurance Group also did not raise an objection30. As a result, Non-Conforming
Products were shipped without obtaining customers’ consent.
D

Shipment of Non-Conforming Products as a result of discussions among relevant
departments without going through the formal internal procedures

In addition to cases where Non-Conforming Products were shipped after going through an
Internal Re-Review without going through a customer’s re-review as stated in C. above, there werealso cases (summarized below) of Non-Conforming Products being shipped after discussions
among the Production Department, the Engineering Development Department and the Quality
Assurance Department without going through a formal Internal Re-Review.
There have been cases, for example, where the General Manager of the Production
Department conducted a review of the causes of a failure after receiving a failure notification fromthe Inspection Section, and although the product failed the dimension inspection, the product was
produced using the same production method with the same mold as products that had passed
previously, and the Production Department did not understand the reason why the product suddenly
failed.
29 However, according to interviews with personnel within the Engineering Development Department, there were those who statedthat all Failing Products which were determined to be usable in its current form only through the Internal Re-Review had arelatively minor deviation from Customer Specifications. It was also stated that if there was a clear deviation from the Customer
Specifications, or there would be a practical effect considering the use of the product by the customer, a decision was never madethat it can be used as-is because there were no functional problems with the product.
30 According to interviews with personnel within the Quality Assurance Department, there were those who stated that, with respect tothe Engineering Development Department’s decisions relating to the Internal Re-Reviews, there were those in the Quality
Assurance Department who expressed their opinion that a product should be deemed a Failing Product when it was determinedthat a shipment can be made despite a large deviation from Customer Specifications, and there had also been cases where theQuality Assurance Department changed the final result, even though the Engineering Development Department initiallydetermined that the product could be used as-is without the customer’s consent, and an application for re-review was submitted tothe customer.

21In such circumstance, there were instances where the Site Head of the Production
Department asked the person in charge in the Inspection Section why a product did not pass, andmade a request such as, “please perform the inspection again and treat as passing,” without going
through an Internal Re-Review. Additionally, there were times when, upon consulting the person in
charge at the Engineering Development Department and obtaining an opinion that from a technicalperspective, there are no issues based on the design, the Site Head of the Production Department
would consult with the Inspection Section, communicate the above determination made by theEngineering Development Department, and request, “please treat as passing.”
When such consultations came from the Production Department, there were instances where
the personnel within the Engineering Development Department agreed to such consultations,conducted a re-inspection of the product that failed, the Engineering Development Department
reported the measurements from their inspection results if the values were within the Customer
Specifications, provided advice, such as points to consider and inspection methods in order toobtain accurate test data during an inspection. Furthermore, there were cases where certain
members of the Engineering Development Department provided a response that there were no
problems with the product’s safety or quality in instances where there were no practical issues withthe use of the product, the deviation from Customer Specifications fell within the range of similar
products or the deviation from Customer Specifications was small31.
Further, with respect to Failing Products, when the Site Head of the Inspection Section was
consulted by the Site Head of the Production Department, there were cases where he would consult“if it’s at this level, let’s pass it” and made decisions to treat as passing rather than disposing them.
Also, when the person in charge of development at the Engineering Development Department
provided an opinion that “there are no problems functionally,” such Failing Products were shipped
as Passing Products.
(3)

Rewriting of average value data submitted to customers

There are cases where MCI is requested by certain customers to calculate and provide theaverage value of measurements for specific inspection items for each lot of certain products.
According to interviews, for products for which average value data is submitted, a control
value for the average value data was set, which was separate from the specifications that were
decided with the relevant customer. Even if outside such control value, there were certain productsthat were difficult to prepare countermeasures for because it is difficult to control the dimension ofrubber products during the production stage.
According to a member of the Quality Assurance Section who was in charge of preparing
31 According

to interviews with personnel in the Engineering Development Department, there were many members of theEngineering Development Department who stated that as a result of responding to the persons in charge at the Inspection Sectionor the Production Department, they were not clearly aware of how the Failing Products were going to be handled. Therefore, there
was almost no person who stated that they were aware that Non-Conforming Products were being shipped without customers’
consent based on their responses regarding the Failing Products.

22

the average value data since 2011, since around 2011, there were many instances where the averagevalue would deviate from the control value if it was calculated based on the values from the test
data that was submitted by the Inspection Section. In addition to not being able to prepare
countermeasures, the person in charge would need to deal with customers if outside the control
value. In order to avoid such circumstances, the person in charge rewrote the relevant test data when
he entered the average value data so that it would fall within the control value when the averagevalue would fall outside the range of the control value if the values written in the test data were
calculated as is.
The specific process for rewriting was, when there was a large variance or a series of values
at the upper or lower limits in the test data, the values was rewritten to values that would limit thevariance or values that were slightly closer to the medium value than the upper or lower limit, andthe average value data would be calculated.
There would be instances where the test data confirmed by the person in charge of enteringsuch average value data would include actual test measurements, and there would also be instanceswhere the test data had been rewritten by the person in charge of the inspection, as stated in (1)above. In particular, as described in (2)B above, in the engineering order dated July 17, 2012, there
were instructions to treat as passing even if the measurement for hardness from a batch inspection
for a specific material was found to be lower than the lower limit of the Customer Specifications,and to report values that were within Customer Specifications when disclosing test data to thecustomer. Therefore, the test data for the relevant material that was confirmed by the person in
charge of entering such average value data was already rewritten to comply with Customer
Specifications based on the engineering order.
(4)

Certain inspection items were not tested

A

Description of Misconduct / time of commencement

As stated in Section 3.3(3)B above, batch inspections, lot inspections and quality control
testing are conducted at Minoshima Works as Property Inspections for Partially Completed
Products (compounds) and finished products. Of these, with respect to lot inspections and quality
control testing, which are conducted for some products, even though some or all of the inspection
items were not actually tested, in test reports submitted to customers, it was reported as though suchinspection items were actually tested. The inspector in charge of lot inspections and quality control
testing hand-copied the actual test data onto a different piece of paper separate from the test reportsubmitted to customers. The results of past inspections were kept as internal record by entering
symbols such as “∧” for items that were not actually tested in order to make it possible todistinguish the fact that they were not tested.
According to interviews, the reasons why lot inspections and quality control testing were not
performed for certain products include: (1) the equipment or chemicals necessary for conducting thetesting were disposed, so the testing could not be performed; (2) testing for such items have been
23

omitted from a long time ago, and the person in charge onsite was not aware of the testing methods;(3) the person in charge of inspections omitted the testing because the testing takes time; and (4) not
testing such inspection items was passed-on from their predecessor.
At Minoshima Works, it seems that for certain products, some inspection items of lot
inspections and quality control testing have not been tested since at least from the 1990s.
B

Awareness of management

At Minoshima Works, around 2013, with respect to particular products for a certain
customer, it was discovered that despite the fact that all quality control testing items had not beentested for a long period of time, the test report for such products stated that all items had beentested. This led to a complaint from the customer. At that time, a review on whether similar
problems were occurring for other products as well was conducted, and the person in charge ofinspections gave a report to the Inspection Site Head on products where some or all inspection items
were not tested. The Inspection Site Head reported this to the Manager of the Inspection Section. At
that time, based on instructions from the Manager of the Inspection Section, the number of
personnel responsible for lot inspections and quality control testing was increased, but otherwise, noother measures were implemented to resolve this matter.
Additionally, according to interviews, it is recognized that the Assistant General Manager of
the Seal Products Division , who was the General Manager of Minoshima Works at the time, andthe Former President, who was the General Manager of the Seal Products Division at the time, were
aware that some or all of the items of quality control testing had not been tested for some products
for such customer since they received a report on the complaint by such customer and instructedimprovements at that time. However, it cannot be recognized that they were aware that, with respect
to other products, some or all of the items for lot inspections and quality control testing were notbeing tested.
2

Inspections conducted using methods inconsistent with proper methods(1)

Insufficient number of samples for dimension inspections

As stated in Section 3.3(3)B above, inspection items that should be tested by the person in
charge of inspections in the Inspection Section, along with the number of samples that should be
used for sample inspections, are specified either in Customer Specifications agreed with thecustomer or in public standards.
However, according to interviews, there were cases in Inspection Site I and Inspection Site
II where inspectors conducted inspections with a smaller sample size than the sample size that was
specified in Customer Specifications agreed with the customer or in public standards at least sincearound 1991.
For example, for dimension inspections, despite the customer specifying that the number of24samples be thirteen per one lot, dimension inspections were actually conducted on only fivesamples.
(2)

Inspections conducted by inspectors who have not received internal certifications

According to interviews, pursuant to internal rules and agreements with customers,
inspections should only be conducted by certified inspectors that received internal certifications.
Despite this, there were cases in Inspection Site I and Inspection Site II where inspections wereconducted by inspectors that have not received internal certifications.
Even if an inspector had not yet received an internal certification, if the Site Leader
determined that he had sufficient abilities, the stamp of the Site Leader or other certified inspectors
was lent to such inspector, and he was made to conduct the inspection on his own and affixed a seal
as a certified inspector.

Section 5

The status of response since December 2016

Taking the interview results and relevant materials together, the following facts can berecognized regarding the status of MCI’s response since December 2016.
1

The quality audit of MCI by MMC on December 7 and 8, 2016
In the process of responding to the quality audit by MMC that was conducted on December

7 and 8, 2016 at Minoshima Works, it was discovered that for a certain product for a customer,
despite being a Non-Conforming Product that deviated from the Specifications for dimensions
stated in the drawing (identified from the dimension inspection), the product had been determined
to be usable as-is through the re-review procedures without obtaining approval from the customer,
and, in relation to this, test data had been rewritten to fall within Specifications (“Re-Review
Issue”). Initially, the response to MMC regarding this quality audit was handled by the General
Manager of Minoshima Works and the people who worked under him, with the Quality Assurance
Department taking a central role. MCI’s Internal Auditing Department was the contact point withrespect to MMC.
2

Reporting the Re-Review Issue to management on January 25, 2017

The results of the quality audit by MMC, including the Re-Review Issue, were officiallyreported by MCI’s Internal Audit Department to management at the Executive Committee meeting
held on January 30, 2017. However, prior to the Executive Committee meeting, the Executive
Committee meeting materials were reported to management, including the Former President, at thepresident meeting on January 25. According to the Former President, he became aware of the matter
when he saw the meeting materials.
25

3

Establishment of a task force on February 1

On February 1, 2017, the Former President established a task force regarding the Re-Review
Issue in order to review the causes of test data being rewritten at Minoshima Works. The Former
President was the head of the task force, but the person who actually took the lead was the Director,
Managing Executive Officer and General Manager of the High Performance Products (Seal
Products) Division (“General Manager of the Seal Products Division ”).
4General Manager of Minoshima Works’ instructions on February 8

Until February 8, the person in charge of inspections would take notes by hand of the actual
measurements from dimension inspections, and discard such handwritten notes when the revised
numbers were included in the official test report or the test data was entered into the system. On
February 8, as a response to the Re-Review Issue, the General Manager of Minoshima Works at thetime issued instructions that handwritten notes should be kept for products relating to such customer
in order to avoid a situation where the actual measurement values would not remain in the records
at all.
It was also decided to consider introducing a system that automatically extracts test data andenters the actual measurements into test reports.
5

Report on the existence of the Lists from the Inspection Site Head on February 9 andthe subsequent response after February 9

On February 9, the General Manager of the Quality Assurance Department received a reportfrom the Inspection Site Head that “actually, rewriting of testing data has been done not only for the
relevant customer’s products, but also for other customers’ products, and a list32 exists for such
purpose.” The General Manager of the Quality Assurance Department had not seen an actual copyof the Lists at that point but instructed the Inspection Site Head to summarize the number of
products and material compounds where test data had been rewritten with regard to dimension
inspections and Property Inspections in order to get a full picture. The General Manager of the
Quality Assurance Department heard from the Inspection Site Head that the Lists were kept acrossmultiple folders in the Inspection Section, and therefore also instructed the Inspection Site Head to
combine the lists saved in each folder.
The General Manager of the Quality Assurance Department reported the details of the reportfrom the Inspection Site Head to the General Manager of Minoshima Works at the time. In order tounderstand the frequency of test data rewriting using the Lists, the General Manager of Minoshima
Works at the time then instructed that it be reported each time a Specification Non-Conformance
was identified from dimension inspections for the products on the Lists, and for the Inspection
32 Refers to the Lists.

26

Section to create a list of the reported products. 31 products were reported as Specification NonConformances relating to dimensions by the time the Quality Improvement Project was establishedon May 10, 2017.
It was also decided that with respect to the products on the Lists, if Specification NonConformances were identified as a result of inspections, the General Manager of the Quality
Assurance Department was to determine how to handle such products in consultation with the
General Manager of Minoshima Works at that time. When Specification Non-Conformances wereidentified, the General Manager of the Quality Assurance Department had the Inspection Site Headexplain the details of the Specification Non-Conformances to him. However, as long as it waswithin the permitted values of the Lists, the operation of shipping after rewriting test data ended up
being continued as before.
6

Reporting the existence of the Lists to the Former President and others

On February 22, 2017, the General Manager of the Quality Assurance Department received
the Lists from the Inspection Site Head in an Excel file. The Lists that the General Manager of the
Quality Assurance Department received from the Inspection Site Head were lists that the Inspection
Site Head had combined for each type of inspection from the lists that the persons in charge ofinspections would actually review at each inspection site. Also, at this time, the General Manager ofthe Quality Assurance Department also received a report from the Inspection Site Head that, withrespect to dimension inspections, there were a total of 570 products on the Lists and produced
during the past two years, and with respect to Property Inspections, for material compounds on the
Lists, there were 132 material compounds relating to batch inspections, 17 material compounds
relating to lot inspections and 95 material compounds relating to quality control testing.
The General Manager of the Quality Assurance Department reported the Lists to the Quality
Control Committee at a meeting held on February 23.
Also, a little before or after such Quality Control Committee, the General Manager of the
Quality Assurance Department reported the existence of the Lists to the Former President and theGeneral Manager of the Seal Products Division .
7

Reporting to the Former President in early March and the subsequent response

In early March 2017, the General Manager of Minoshima Works at the time and the General
Manager of the Quality Assurance Department submitted the Lists to the General Manager of theSeal Products Division and provided an overview of the Lists. After that, the General Manager of
the Seal Products Division reported the details of the above report to the Former President. At thattime, Minoshima Works was busy responding to the Re-Review Issue including confirming theeffect on other products for the relevant customer, confirming past records for re-reviews relating to
the products of the relevant customer and considering remedial measures for such Non-Conforming
Products, etc. Therefore, the General Manager of the Seal Products Division proposed to the Former
27

President that first, address the Re-Review Issue, and after this settles down, then conduct a review
regarding the Lists. The Former President approved this proposal, and the response to the ReReview Issue was addressed until around the end of April 2017.
8

Establishment of the Quality Improvement Project and the subsequent Quality
Improvement Project activities

On May 10 after the holidays in May 2017, the Quality Improvement Project wasestablished under the direction of the Former President. According to the Former President, heestablished the Quality Improvement Project with the goal of reaching a “soft landing” resolution
by reporting the circumstances and remedial measures to each customer in an orderly, consecutive
manner and asking for their understanding after identifying the cause for the Misconduct andconsidering remedial measures as well as analyzing the complete picture of the Misconduct, such as
when the rewriting of test data at Minoshima Works began, whether there was institutional
involvement, how the Lists were managed operationally, and the extent of the deviations fromSpecifications. The Former President decided to select the members of the Quality Improvement
Project based on those who had little relationship with Minoshima Works based on theirbackgrounds, etc. and appointed the General Manager of the Seal Products Division as the leader ofthe project. Also, since it will require technical knowledge to address the Misconduct, the General
Manager of the Seal Products Division added employees from the Engineering Development
Department as a member of the Quality Improvement Project.
At the first Quality Improvement Project meeting on May 16, the activities of the Quality
Improvement Project were decided. Examining ways to resolve the Specification NonConformances relating to dimensions of the 31 products on the Lists for which Specification NonConformances were identified on or after February 9, 2017 was set as the current goal. According to
the General Manager of the Seal Products Division who was the leader of the Quality Improvement
Project, he thought that by using these 31 products as examples and finding ways to resolve theseSpecification Non-Conformances, it would also be possible to plan for how to address Specification
Non-Conformances for other products on the Lists.
After the first meeting, at the Quality Improvement Project meetings that were held once
every two weeks, with respect to the 31 products, matters such as how the designs for such products
were decided, when Specification Non-Conformances for such products started and remedial
measures were discussed.
Subsequently, at the Quality Improvement Project meetings, the detail of the Lists relating to
Property Inspections were also reviewed. Work was also conducted to narrow down material
compounds with Specification Non-Conformances by deleting material compounds that are nolonger being used and compounds for which there were duplicate entries, etc.
As described above, the Quality Improvement Project, led by the General Manager of theSeal Products Division, considered remedial measures for Specifications Non-Conformances for28each product on the Lists.
9

Reporting to the Former President on the activities of the Quality Improvement
Project, the interim report by the Quality Improvement Project on October 16 andbackground on how shipments were stopped

On June 20, 2017, the General Manager of the Seal Products Division provided to theFormer President an overview of the 31 products for which Specification Non-Conformances for
dimensions were identified on or after February 9, 2017 and the difficulty of addressing the matter,etc. The General Manager of the Seal Products Division also explained to the Former President,
among other matters, that addressing this matter with each customer may be time-consuming
because of, among other reasons, the strict customer specifications and the need to obtain customer
consents if the molds need to be improved.
In mid-July 2017, the General Manager of the Seal Products Division told the Former
President his outlook that it would take a significant amount of time before this problem will be
resolved since there is an extremely large number of relevant products. The Former President gave
instructions to accelerate the review of the details.
Subsequently, on October 16, 2017, the General Manager of the Seal Products Division
provided an interim report on the work of the Quality Improvement Project to the Former President.
He reported that, with respect to dimension inspections, to resolve the Specification NonConformances for the 570 products on the Lists that were produced in the past 2 years, it will benecessary to create new mold prototypes or amend molds. He also reported his outlook that it willtake 3 years or more to resolve the Specification Non-Conformances for the 244 material
compounds on the Lists because some require a re-examination of the material compounds,
although some can be removed from the Lists by reviewing the references to public standards. In
response to this, the Former President instructed the General Manager of the Seal Products Division
to summarize the analysis by November 2, 2017.
On October 19, 2017, the Former President reported the content of the above interim reportto an advisor who was the former Representative Director and President of MCI (“Advisor”). The
Former President shared his thoughts that he planned to resolve the problem with theaforementioned “soft landing” since there were many affected customers and he believed that
Minoshima Works at the time would not be able to handle this if a report was made to all affectedcustomers at once. On the next day (October 20, 2017), the Advisor told the Former President that it
would be better to stop shipments of the products on the Lists, and that he should make a report to
MMC.
The Former President, thinking that if a report is made to MMC, a request for an early
resolution would be made after reporting to all affected customers at once, so on the same day, heinstructed the General Manager of Minoshima Works at the time to analyze the business impact if
the Misconduct is reported to customers, and also instructed him to stop shipments of the productson the Lists from October 23, 2017.
29

On October 25, 2017, the Former President reported the Misconduct to MMC, and started
reporting to customers on a consecutive manner after that.
10

Reasons why no decisions were made to stop shipments and notify customers after
February 2017

According to the Former President, as mentioned in 8 above, the Former President launched
the Quality Improvement Project in order to clarify the causes and details of the Misconduct andconsider remedial measures, report to each customer individually in an orderly, consecutive manner
the circumstances and remedial measures, and reach a “soft landing” resolution. Thereafter, on
October 16, 2017, when he received the interim report on the work of the Quality Improvement
Project, the Former President was told that there was a significant problem concerning material
compounds, that there was a large number of affected customers, and that resolving theSpecification Non-Conformances would take 3 years. As the details of such report showed asignificantly slower schedule than what the Former President had presumed, he became aware thatthe selection (sorting) of remedial measures33 should be accelerated, such as not accepting orders
for products that are technically difficult to handle, etc. On the other hand, the Former President
stated that he believed that Minoshima Works would be unable to handle customers’ audits andindividual demands, etc., and also unable to deliver products, and that it could ultimately expand to
MCI being liable for damages and lead to MCI’s business failure if reports on the Misconduct weremade to all affected customers at once, so he was aiming to reach a “soft landing” resolution even atthat stage. As a result, after February 2017 until the Advisor told the Former President thatshipments of the products of the Lists should stop and that a report should be made to MMC on
October 20, 2017, there was no decision by MCI to stop shipments or notify customers, and also nodecision to report to MMC.
END

33 According to the Former President, he expected the selection of remedial measures as stated above and collection of information

for decision making for such purpose to be conducted by the Quality Improvement Project, but partly because the members
consisted mainly of engineers, it ended up focusing solely on technical considerations rather than on the abovementioned work,
which included business judgment. On this point, he said that he thinks he should have followed up closely on the details of theactivities of the Quality Improvement Project by reading the minutes, etc.

30

Attachment 3
Restructuring Measures of the Governance Framework for Quality Control in the MMC GroupIn light of the recent series of quality issues, Mitsubishi Materials Corporation (“MMC”) will
formulate measures to restructure our group’s governance framework with respect to quality control.
We will propose these specific measures promptly and implement them.
In addition to considering quality control, we are also considering our group’s governanceframework, which entails considering how to “promote communication within the group,” “improvethe escalation of issues within the group,” “foster senior manager candidates” and other items.
1) Implementation of a Front Loading System for Receipt of Orders
We will aim to further expand implementing on a group-wide basis a process (a Front Loading
System) for making decisions on specifications and accepting orders at the time such orders are madeafter having the various departments within the business, including development and design,
manufacturing, inspections and sales, consider whether the order can be accepted, taking into accountmanufacturing capability.
The primary purpose of the Front Loading System is to prevent accepting difficult orders thatexceed the company’s manufacturing capabilities. By further implementing this process, thefollowing measures will also be necessary:① Promoting communications among the departments;② Understanding the imbalances of capabilities among the departments and resolving such
imbalances; and③ Improving imbalances in authority among the departments.
The following are examples of specific actions that we will take to promote this initiative andincrease its effectiveness on an on-going basis:① Regularly review production capabilities (including processes, inspections, shipping andother capabilities);② Based on the results of ①, develop appropriate maintenance plans and upgrade and install
new facilities and equipment; and③ Assign the appropriate personnel and provide training to resolve insufficiencies in
employees’ skill sets.
2) Strengthening the Framework and Authority of the Quality Control Department
With the Quality Management Dept. of Technology Div. taking the lead, we will establish aframework aiming at improving quality control for our entire group and will restructure the required
quality control function for each business and product. In order for our group to conduct quality
control in a unified and consistent manner, we are considering the following measures:① Redefining the allocation of responsibility for quality control functions within each businessand reflecting those changes in internal rules and regulations;② Based on the above-mentioned allocation of responsibility, making organizational changes
among the corporate departments, companies, business establishments and subsidiaries, asnecessary;③ Granting authority to the quality control departments of each business so that they canconduct appropriate inspections and quality assurance reviews;④ Ensuring that the quality control departments are independent from the manufacturingdepartments; and⑤ Establishing a system to train personnel to become experts in quality control, and actively
assigning potential candidates for senior management from each company and department to
the quality control departments.
3) Expansion of Quality Training
We will aim to have our group employees at all levels (from the manufacturing line tomanagement level) and all lines of work (including manufacturing, inspection and sales) understandthe importance of quality and what must be done to maintain and enhance quality. We will conduct
training sessions on quality awareness, including the compliance with customer contracts, theimportance of the quality of the products that we provide to our customers, the need to structure the
manufacturing process so as to promote quality, our pride as a manufacturing company and adhesion
to quality (we will use the current issues as examples in these trainings).
Additionally, in order to conduct quality training throughout our entire group, MMC will
formulate guidelines on the training that should be conducted for each employee level andincorporate these guidelines into the training programs conducted for each employee level at allgroup companies. In doing so, we will have consistency within our group and establish a practicaltraining system corresponding to each group company’s business.
4) Promoting Automated Inspection Equipment
For all inspection data, from when it is obtained during the manufacturing process through thefinal inspections, by promoting the initiatives set forth below, we will aim to establish a system thatwill prevent misconduct, including the rewriting of data, and will establish a system that allows formore accurate and prompt confirmation that inspection data is consistent with customer
specifications by:① Automating acquisition of inspection data;② Uploading inspection data into manufacturing control systems; and③ Confirming that the inspection data is consistent with the applicable specifications.
These initiatives are expected to take time and will be costly to review and develop. To
implement these initiatives, MMC will be required to confirm the feasibility both of automating theacquisition of inspection data from each testing device and of linking order-receiving systems withproduction systems so that customer specifications can be uploaded into the manufacturing control
systems. We will begin implementing certain action items, on a group-wide basis, relating to these
initiatives where it is feasible to do so. We will also allocate the necessary budget to implement theinitiatives.
5)

Enhancement of Quality Audits

With the Technology Division’s Quality Control Department and the General Administration
Division’s Internal Audit Department taking the lead, we aim to establish more robust quality audits
by considering and executing the measures set forth below:① Improving the independence of our group’s internal audit departments and strengthening
their authority;② Increasing internal audit staff and increasing the frequency of quality audits;③ Training personnel to become experts in quality audits;④ Applying audit methods for the prevention of misconduct;⑤ Enhancing coordination among MMC’s Internal Audit Department and the internal audit
departments of our affiliates; and⑥ Improving internal audit operations with the use of IT.
6) Engagement of Outside Consultant
In order to incorporate a third-party perspective in our group’s quality control, we will engage
an outside consultant that is knowledgeable about and experienced in quality control on an on-goingbasis. The outside consultant will regularly visit business locations of MMC and its subsidiaries, andwill provide guidance and advice on our group’s quality control and quality assurance operations. We
will avoid our group’s quality control operations from becoming complacent and establish effective
quality control operations.
End