Alleged fraud tied to Japan’s IT Implementation Subsidy
Police in Sapporo have re-arrested a Chinese couple on suspicion of defrauding a government subsidy designed to help small and midsize enterprises adopt digital tools, while a Japanese business owner has been newly arrested in the same case. Investigators allege the trio secured approximately 2.38 million yen through false filings under the IT Implementation Subsidy (known in Japanese as IT導入補助金), administered by SME Support, Japan (an independent administrative agency under the Ministry of Economy, Trade and Industry, METI). The case underscores Japan’s active oversight of taxpayer-funded programs and its determination to protect public money as it advances nationwide digitalization for SMEs.
Who was arrested
Those arrested on suspicion of fraud are: company operator Cao Xuefeng (51), a Chinese national residing in Sapporo’s Kita Ward; his wife and employee, Yang Chunfeng (53), also a Chinese national; and their acquaintance, system development company owner Rie Muto (60). Authorities allege that between October 25 and November 11, 2022, the suspects filed applications falsely claiming to meet subsidy requirements to receive about 2.38 million yen.
What police allege happened
According to investigators, Cao’s firm purchased systems for order management and inventory control from Muto’s company, with total payments around 3.85 million yen. Police say Cao and Yang submitted inflated implementation costs to SME Support, Japan and then received improper cash kickbacks from Muto. The kickback is believed to have exceeded 1 million yen, with both companies allegedly profiting unfairly. As with all criminal cases in Japan, the suspects are presumed innocent unless and until proven guilty in court, and police have not disclosed the suspects’ statements.
Linked rent grant case and prosecution update
The alleged subsidy fraud surfaced during an investigation into a separate case involving the national Rent Support Grant program, where Cao and Yang were arrested earlier this month on suspicion of illicitly obtaining 3.34 million yen. The Sapporo District Public Prosecutors Office indicted the couple on the 24th on fraud charges related to that rent grant. In September 2025, police executed searches at multiple locations to gather evidence for the IT subsidy matter; following the accumulation of evidence, the three suspects were arrested on the latest allegations. Investigators are now examining whether there are additional offenses.
What the programs are—and why this matters
Japan’s IT Implementation Subsidy supports SMEs in adopting software and digital services by offsetting eligible costs when businesses work with certified IT vendors. The goal is to raise productivity, competitiveness, and resilience across Japan’s regional and urban economies. The Rent Support Grant, introduced during the pandemic, aimed to stabilize businesses facing sudden revenue declines. Safeguarding these programs is a national priority. While the vast majority of applicants are compliant, alleged abuses draw swift scrutiny, audits, and, where warranted, criminal action. This case highlights Japan’s commitment to accountability: METI’s umbrella agencies, police, and prosecutors coordinate to recover funds and deter wrongdoing.
Context for foreign entrepreneurs in Japan
Japan remains an attractive destination for international founders, with clear rules and generous support for digitalization, regional revitalization, and startup growth. However, subsidy applications are technical, documentation-heavy, and closely checked. Foreign and domestic business owners alike should work only with certified vendors, keep invoices and implementation records transparent, and avoid any arrangement that resembles an off-the-books “rebate” or kickback. Violations can lead to repayment orders, disqualification from future programs, and criminal penalties. Done correctly, Japan’s support schemes offer real momentum to SMEs seeking to modernize operations responsibly and sustainably.
What’s next
Authorities have not disclosed the suspects’ positions on the allegations and continue to pursue potential additional offenses. As proceedings advance, more details may emerge about internal controls, vendor oversight, and application screening. For SMEs and expat entrepreneurs, the message is clear: Japan welcomes innovation and provides structured financial support, and it is equally serious about protecting the integrity of those public funds.
