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Announcement on critical compliance matter:Improper contributions for campaign groups for local assembly members

February 10, 2009

Kobe Steel, Ltd. discovered that its Kakogawa Works (in Kakogawa, Hyogo Prefecture), Takasago Works (in Takasago, Hyogo Prefecture), and Chofu Works (in Shimonoseki, Yamaguchi Prefecture) have appeared to have made improper payments for expenses for campaign groups under the category of donations, which are prohibited under the Political Funds Control Law. Kobe Steel announces the current results of its investigation.

Kobe Steel deeply regrets losing the trust of numerous parties including people in the community, business partners, stockholders, and authorities concerned and sincerely apologizes.

In the elections for city council members for Kakogawa, Takasago and Shimonoseki, and the election of Hyogo Prefecture council members, Kobe Steel undertook support activities through a number of campaign groups for assembly member candidates (who were Kobe Steel employees or former Kobe Steel employees) that were endorsed by the Kobe Steel labor union. Meanwhile, the Political Funds Control Law was revised in 1995 and also in 2000. Despite the tightened regulations for companies making donations to campaign groups, Kobe Steel's three facilities continued to assume part of the payment for activity expenses, such as office running expenses for the campaign groups and labor costs incurred in office work at the campaign groups.

The internal investigation began in November 2008 during a tax audit. In local elections since 2001, the three facilities supported assembly candidates endorsed by Kobe Steel's labor union. As a result, through evidence, confirmation of internal records, and hearings of relevant people, in the eight elections since 2001, it was found that a total amount of 27 million yen was believed to have been donated in violation of the Political Funds Control Law.

In 2006, the air emissions problem at Kobe Steel's Kakogawa Works and Kobe Works was a turning point. More than ever before, Kobe Steel strengthened its efforts in adhering to laws and regulations. However, in this new case, as improper acts were newly uncovered and taken with utmost seriousness, it was decided that Kobe Steel's President & CEO would return his right to represent the company and step down at the end of March 2009. Similarly, the Chairman would also return his right to represent the company and step down at the end of March 2009.

From now on, while receiving feedback from people employed outside the company, Kobe Steel intends to implement preventive measures to restore its trust. Kobe Steel will cooperate fully with the decision of the judicial authorities.

Once again, Kobe Steel deeply apologizes for the considerable trouble it has caused to all related parties.