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Trends and climate
Have there been any recent changes in the enforcement of anti-corruption regulations?
The Japanese government remains active in the enforcement of anti-corruption regulations. For example, the mayor of Minokamo City in Gifu Prefecture was convicted by the Nagoya High Court in November 2016 for taking bribes in 2013 in connection with the installation of a water cleaning system at a local school while serving as a member of the municipal assembly. In December 2017 the Supreme Court ruled in favour of the prosecution and the High Court ruling became final.
In relation to the bribery of foreign officials, the former president and two executives of a consultancy firm based in Tokyo were convicted by the Tokyo District Court in February 2015 for bribing foreign officials at state-run railway companies and transport ministries in Vietnam, Uzbekistan and Indonesia in connection with consulting contracts relating to projects funded by overseas development aid.
Are there plans for any changes to the law in this area?
There are currently no plans for any major changes to anti-bribery and corruption law in Japan.
However, following legislative changes made in 2016, Japan will introduce a new plea bargaining system that will enter into force on June 1 2018. Under this system, a natural person or corporation will be able to enter into a plea bargain with the prosecutor, under which they agree to give information relating to charges against or crimes of another natural person or corporation. A person or corporation will not be able to take advantage of this new system by offering information relating to the charge against them – they must offer information relating to others.
Once this system enters into force, the Japanese authorities will likely have access to much more information than before through plea bargain arrangements with suspects and defendants, and will therefore be able to successfully prosecute more crimes, including anti-bribery offences.
Skepticism remains as to whether such a system, which relies on individuals reporting on others rather than giving information relating to themselves, would be unsuccessful in a collectivist-leaning country such as Japan. However, the successful introduction of a leniency system by the Japanese Fair Trade Commission in 2005 in regard to cartel conduct and bid rigging indicates that the new plea bargaining system could be effective.
An amendment to the Penal Code (which became effective in 2017) has extended the extra-territorial reach of the code to conduct outside of Japan which constitutes the offence of giving, offering or promising to give a bribe to Japanese public officials.
Which authorities are responsible for investigating bribery and corruption in your jurisdiction?
The responsibility for investigating bribery and corruption in Japan mainly rests with the Public Prosecutor’s Office and police agencies (ie, the National Police Agency and the prefectural police departments).
What are the key legislative and regulatory provisions relating to bribery and corruption in your jurisdiction?
The primary anti-bribery and corruption laws in Japan are Chapter XXV of the Penal Code, which prohibits the bribery of Japanese officials and the Unfair Competition Prevention Act, which prohibits the bribery of foreign officials.
Chapter XXV of the Penal Code prohibits the bribery of Japanese public officials, as well as the soliciting of bribes by Japanese public officials. Only natural persons can be found liable under the Penal Code.
The main purpose of the Unfair Competition Prevention Act is to prevent the bribery of foreign officials by Japanese citizens or on Japanese territory. Unlike the Penal Code, the act prohibits both corporations and natural persons from engaging in active or passive bribery in respect of foreign officials, which includes employees of foreign government-owned corporations or international organisations constituted by governments.
In addition to the above, the Ministry of Economy, Trade and Industry (METI) has published Guidelines on the Prevention of Bribery of Foreign Public Officials. The METI guidelines, while not binding on the Japanese courts, are useful reference materials for interpreting the Unfair Competition Prevention Act and were last updated in September 2017.
Further, Japanese public officials are bound by the National Public Service Ethics Act and the National Public Service Ethics Code, which provide guidelines relating to gifts, hospitality and benefits that may be accepted by public officials, as well as applicable reporting thresholds. The act and the code contemplate a number of categories of public officials, including:
- senior officials;
- designated senior officials; and
- very senior officials.
Different obligations attach to each category. Breaches of the National Public Service Ethics Act or the National Public Service Ethics Code by a public official will not result in criminal prosecution of that official, but rather disciplinary action.
What international anti-corruption conventions apply in your jurisdiction?
Japan is a signatory to the Organisation for Economic Cooperation and Development Convention on Combating Bribery of Foreign Public Officials in International Business Transactions, as well as the UN Convention against Transnational Organised Crime and the UN Convention against Corruption.
Further, Japan is also a member of the Asian Development Bank and the Organisation for Economic Cooperation and Development Anti-corruption Initiative for Asia and the Pacific.
Specific offences and restrictions
What are the key corruption and bribery offences in your jurisdiction?
Public sector bribery offences
Bribery of Japanese public officials Under the Penal Code, it is an offence for:
- any natural person to give, offer or promise a bribe to either a public official or third-party beneficiary in connection with the public official’s duties;
- any natural person to induce, conspire in respect of, aid and/or abet bribery; and
- a public official to accept, solicit or promise to accept bribes, either for themselves or a third party, in connection with the public official’s duties, whether directly or through a third party.
The Penal Code does not define the term ‘bribe’, although the courts have interpreted this to mean anything, whether tangible or intangible, that “fulfils a man’s need, greed or desire”. However, a benefit is not considered a bribe if it does not affect the public official’s duties or if it is given and received according to normal social conventions, considering the value of the benefit and the intention behind it.
The Penal Code provides no defences to bribery offences and there is no de minimis value threshold under which the authorities will not prosecute for bribery.
Bribery of foreign public officials Under the Unfair Competition Prevention Act, both legal and natural persons are prohibited from giving, offering or promising any money or other benefit to a foreign public official, for the purpose of inducing them to act or not act with respect to their official duties or to use their official influence, in order to achieve an illicit business gain in the conduct of international commercial transactions.
As under the Penal Code, the Unfair Competition Prevention Act does not define the term ‘money or other benefit’, which is generally interpreted to mean ‘bribe’.
The Unfair Competition Prevention Act applies to Japanese citizens who attempt to bribe foreign public officials anywhere in the world, as well as attempted bribery of foreign officials on Japanese territory, regardless of the actor’s nationality.
National Public Servant Ethics Act and the National Public Servants Ethics Code The National Public Servants Ethics Code generally prohibits all public officials from undertaking the following activities with or in relation to interested parties:
- receiving gifts;
- borrowing money at significantly advantageous rates;
- playing certain sports; and
- travelling privately.
An ‘interested party’ is defined as a business entity or individual on behalf of such an entity, who:
- is applying for a permit or (indirect) subsidy;
- is due to undergo an audit or inspection;
- is subject to administrative action;
- has bid for a contract;
- is engaged in giving administrative guidance; or
- is a national agency that will receive a budget.
However, breaches of the National Public Servant Ethics Act and the National Public Servants Ethics Code will not result in criminal prosecution, but rather disciplinary action.
Private sector bribery offences
There is no general prohibition against bribery in the private sector. However, the Companies Act prohibits both active and passive bribery relating to directors or statutory auditors. Further, the Companies Act prohibits the provision or request of benefits in order to secure or prevent the exercise of shareholder rights in a certain manner.
In addition, the Financial Instruments and Exchange Act generally prohibits financial instruments and exchange business operators (FIEBOs), such as securities companies and banks from providing ‘property benefits’ to clients to make up for losses in securities or derivative transactions. The Cabinet Office Ordinance on Financial Instruments and Exchange Business further restricts FIEBOs and their officers and employees from providing a ‘special advantage’ to clients, while also restricting credit rating agencies from receiving, demanding or accepting offers of money or goods with a value exceeding Y3,000 from clients generally.
Are specific restrictions in place regarding the provision of hospitality (eg, gifts, travel expenses, meals and entertainment)? If so, what are the details?
The National Public Servants Ethics Act and the National Public Servant Ethics Code provide rules on the types of gift, entertainment and travel that public officials may accept from interested parties.
Under the Ethics Code, the general rule is that a public official may accept small, inexpensive gifts if they are distributed widely, such as at a party or as an advertisement or souvenir. The term ‘distributed widely’ is not defined; the emphasis is on the gift being something widely available, rather than bespoke. As regards foreign officials, the Ministry of Economy, Trade and Industry Guidelines on the Prevention of Bribery of Foreign Public Officials suggest that offering or giving small gifts for the express and sole purpose of building relationships or creating a better understanding of a company’s products may reduce the risk or perception of bribery.
However, the Penal Code contains no de minimis thresholds for when a gift would be considered to be a bribe. Under the Ethics Code, public officials are generally prohibited from receiving a gift of money, goods or real estate from an interested party, regardless of value. A public official is also prohibited from receiving a loan from an interested party, other than a loan from a financial institution at normal interest rates.
Entertainment and hospitality
A public official may accept modest refreshments at an official meeting, conference or roadshow from an interested party. They may also accept meals and drinks at a buffet-style party attended by ‘many people’ – the Ethics Board has stated informally that this means a party with at least 20 people.
Private dining with an interested party may also be permissible if the meal is not extravagant, and the public official pays their own tab or a third, non-interested party pays for them. Entertainment at sports or cultural events is acceptable as long as they are not perceived to be a bribe, which is judged in light of the value of the hospitality, whether the event is separate from official meetings and the ratio of interested parties to attendees.
Other than private dining paid for by the interested party and extravagant entertainment, the Ethics Code also prohibits a public official from participating in certain social activities (including golf, mahjong and card games) with an interested party, regardless of who pays the official’s expenses.
Travel and accommodation expenses
The Ethics Code prohibits a public official from travelling privately with an interested party, even where the public official pays for his or her own expenses. However, it is acceptable for a public official and an interested party may travel together for official purposes by means of ‘reasonable transportation’ (eg, as part of an official tour).
It is unlikely to ever be acceptable for an interested party to pay a public official’s accommodation expenses.
What are the rules relating to facilitation payments?
Facilitation payments are considered bribes under Japanese law. Neither the Penal Code nor the Unfair Competition Prevention Act incorporates the exemption found in other laws, such as the Organisation for Economic Cooperation and Development Convention on Combating Bribery of Foreign Public Officials in International Business Transactions or the US Foreign Corrupt Practices Act, for ‘small facilitation payments’. As such, offering a public official even a small payment or gift is an offence if there is an intention to obtain or retain an improper business advantage.
Scope of liability
Can both individuals and companies be held liable under anti-corruption rules in your jurisdiction?
Yes, but only in part. Only natural persons (ie, individuals) can be held liable under the provisions of the Penal Code relating to the bribery of a Japanese public official. On the other hand, both natural persons and corporations can be held liable under the Unfair Competition Prevention Act for the bribery of a foreign public official.
Can agents or facilitating parties be held liable for bribery offences and if so, under what circumstances?
Yes. Japanese criminal law provides for liability of accomplices, who are prosecuted in the same manner as the person who actually committed the crime. An accomplice is a person who either:
- acts in conspiracy with another to commit a crime, even where they do not actually act in the commission of the crime itself; or
- induces another to commit a crime.
Further, a person who aids another in the commission of a crime is liable to be prosecuted as an accessory – in this case the accessory will be subject to a lighter sentence than the principal offender.
Can foreign companies be prosecuted for corruption in your jurisdiction?
Yes. However, foreign companies can only be held liable for offences under the Unfair Competition Prevention Act, as only natural persons can be prosecuted under the Penal Code. Despite this, the reputational damage to a company, domestic or foreign, whose employee is convicted of offering bribes to Japanese public officials would be significant.
Whistleblowing and self-reporting
Are whistleblowers protected in your jurisdiction?
Yes, whistleblowers are protected under the Whistleblower Protection Act, which prohibits the termination of an employee whistleblower, as well as any discriminatory treatment given to a whistleblower, such as demotion or reduction in salary, where such termination or discriminatory treatment is due to the whistleblowing.
However, to qualify as a whistleblower the employee must meet the Whistleblower Protection Act requirements, which state that he or she must:
- not have a wrongful purpose (eg, obtaining a wrongful gain or causing damage to others by whistleblowing);
- be reporting about a ‘reportable fact’, which is a fact relevant to:
- the commission of certain criminal acts, the protection of human life, consumers, the environment, competition and the life, property and interests of Japanese citizens; or
- violations of administrative penalties, recommendations or orders;
- be reporting in regard to an act committed by their employer or officers, employees or agents of their employer;
- report to the designated person in their company or to a government agency with the power to impose penalties in regard to the reportable fact or to any person necessary to prevent the occurrence or spread of damage.
Is it common for leniency to be shown to organisations that self-report and/or cooperate with authorities? If so, what process must be followed?
Not at this stage. An individual that commits a crime may receive a lighter sentence if they turn themselves in before being identified as a suspect by law enforcement agencies under Article 42 of the Penal Code; however companies are not able to take advantage of this provision.
Companies will be able to take advantage of the new plea bargaining system when it comes into force in June 2018. Under this system, should a company give information to the prosecutors about a crime committed by other individuals or corporations, the prosecutors may at their discretion reduce the penalty given to the company or dismiss the charge completely.
Dispute resolution and risk management
Is it possible for anti-corruption cases to be settled before trial by means of plea bargaining or settlement agreements?
Not at this stage. Japanese criminal procedure does not ordinarily provide for plea bargaining or settlement agreements, although amendments to the Criminal Procedure Code made in May 2016 introducing a plea bargaining system will come into force on June 1 2018. While some charges are explicitly excluded from the new plea bargaining system (eg, murder), charges such as bribery and fraud are subject to it.
However, unlike traditional plea bargaining, such as that found in the United States, the Japanese plea bargaining system will allow for the reduction or dropping of criminal charges where a suspect or defendant provides evidence or testimony relating to charges against other individuals or corporate entities. The provision of information by a suspect or defendant relating to the offence which he or she is being charged will not allow him or her to take advantage of the new plea bargaining system.
Are any types of payment procedure exempt from liability under the corruption regulations in your jurisdiction?
No, specific payments are not exempt, nor is there a de minimis threshold for bribes. However, the provision of gifts that are not bespoke and hospitality that is modest and where the public official pays their own expenses are permissible.
What other defences are available and who can qualify?
There are no defences available specifically for bribery offences under Japanese law.
What compliance procedures and policies can a company put in place to assist in the creation of safe harbours?
Companies should refer to the Ministry of Economy, Trade and Industry Guidelines on the Prevention of Bribery of Foreign Public Officials, as well as the National Public Servants Ethics Act and National Public Servants Ethics Code before offering any entertainment to public officials. Companies’ anti-bribery and corruption policies should be drafted with these guidelines in mind.
Record keeping and reporting
Record keeping and accounting
What legislation governs the requirements for record keeping and accounting in your jurisdiction?
The Companies Act and the Company Accounting Regulations are the main statutes that require companies to keep accurate corporate records, prepare periodic financial statements and in the case of larger corporates, be externally audited. Further, the Financial Instruments and Exchange Law places the same requirements on public Japanese corporates, as well as the requirement to establish effective internal control systems. Tax laws also require businesses (both natural persons and corporations) to keep accurate records and prepare periodic financial statements.
What are the requirements for record keeping?
The Companies Act requires stock companies to retain financial statements – including the annexed detailed statements accompanying them – account books and ‘important materials regarding its business’ for 10 years from the time of the closing of the account books.
What are the requirements for companies regarding disclosure of potential violations of anti-corruption regulations?
Companies are not required to disclose violations of anti-bribery or corruption laws. However, if the violation of anti-corruption laws by a public company leads to accounting irregularities that, were they known, would affect investor decisions relating to the company’s stocks, then such irregularities must be disclosed under the Financial Instruments and Exchange Law or relevant regulations of the Stock Exchange where its stocks are listed.
What penalties are available to the courts for violations of corruption laws by individuals?
The penalties for violations of anti-bribery laws vary depending on the offence.
Penalties under the Penal Code
For a natural person convicted of the offence of giving, offering or promising to give a bribe to a Japanese public official, the Penal Code provides for a penalty of up to three years’ imprisonment or a fine of up to Y2.5 million.
For a Japanese public official convicted of the offence of accepting, soliciting or promising to accept a bribe in connection with their duties, the Penal Code provides for a penalty of up to five years’ imprisonment.
Penalties under the Unfair Competition Prevention Act
For a natural person convicted of the offence of bribing a foreign official, the Unfair Competition Prevention Act provides for a penalty of up to five years’ imprisonment, a fine of up to Y5 million or both.
Companies or organisations
What penalties are available to the courts for violations of corruption laws by companies or organisations?
Corporations are not liable for penalties under the Penal Code for bribery.
However, under the Unfair Competition Prevention Act, where an employee, agent, officer or director of a company or organisation breaches the anti-bribery provisions of the act in connection with the company or organisation’s business, the company or organisation may be subject to a penalty of a fine of up to Y300 million.
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Author: David Gilmore, Elaine Wong and Yosuke Homma
Source: Herbert Smith Freehills LLP
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