As far as I remember the faces ( at least the passport ones and I bet some others too) Are digital scans from some handmade busts.
http://i.gyazo.com/c62a23b466991608f65476ce66b93542.png
https://encrypted-tbn0.gstatic.com/images?q=tbn:ANd9GcSIOojzDPnjbl_Xm9XhFLdziPUOmaYl9d2d7z0M3ZNOxOYDSiPbuw
Those busts were used not only in the passport but in the Shenmue online trailer and official artwork.
Passport
http://i.imgur.com/l5OzfC9.jpg
Shenmue online
http://img1.ak.crunchyroll.com/i/spire1/081c121996067879e2804bfc7024dcd01233201400_full.jpg
Artwork
http://images4.wikia.nocookie.net/__cb20100104004206/halofanon/images/b/b3/Shen2-ryo-hazuki2.jpg
Passport Face ( tweaked +Into a new model)
http://i.imgur.com/1Yt7ryo.jpg
And as some of you may know I have used those passport faces as base for new models, they are fully rigged
Left original artwork, right reconstruction using the ripped face from the game.
http://i.imgur.com/HTguH99.png
http://i.imgur.com/rFJaTAf.jpg http://i.imgur.com/aWkSTOH.jpg
http://i.imgur.com/R84fSTY.jpg http://i.imgur.com/nq5piLz.jpg
http://i.imgur.com/4JaLmwX.jpg
http://www.shenmue500k.co.uk/wp-content/uploads/2015/07/Esppiral-nozomi-flower-shop.png
http://i.imgur.com/gSvTeSf.png http://i.imgur.com/5O1DYlz.jpg
http://i.imgur.com/78IiaW5.jpg
Every single model uses the passport faces as a base.
Sorry for the overload of images, I know it seems I always try to post my pics when this topic surfaces....
Bu t my point is, the excuse of old models and new tech incompatible is... well... BS.
So the real reason why they aren't using faces close to the originals is beyond my comprenhension...