25 February, 2012
1 What are the main bodies responsible for investigating and combating
corruption, money laundering and terrorist financing?
• the Japan Financial Intelligence Center (“JAFIC”);
• the Japan Fair Trade Commission (“JFTC”);
• the National Public Service Ethics Board (“Ethics Board”); and
• the Board of Audit of Japan (“Board of Audit”).
2 What does each of these bodies investigate?
JAFIC is the principal agency responsible for preventing money laundering and terrorist financing in Japan. All financial and certain non-financial institutions (eg, dealers in precious stones, dealers in precious metals, real estate agents, credit card companies, finance lease companies, post-office box agencies, telephone reception agencies), both public and private, are required to file reports with JAFIC when they find suspicious transactions. If JAFIC finds suspicious activities, it is required to report them to the relevant law enforcement authorities, such as the National Police Agency, the Public Prosecutor’s Office or the Securities and Exchange Surveillance Commission, which may then result in administrative penalties or even criminal investigations.
JFTC enforces Japan’s Act on Prohibition of Private Monopolisation and Maintenance of Fair Trade (“Antimonopoly Act”) with a view to maintaining fair and free competition in the market. Recent amendments to the Antimonopoly Act granted criminal investigation powers to JFTC. If an investigation is commenced, JFTC may itself file criminal proceedings with the Public Prosecutor’s Office under the terms of the Antimonopoly Act.
The Ethics Board polices public officials suspected of violating the National Public Service Ethics Act (“Ethics Act”). To do this, the Ethics Board may, either jointly with the person who appointed the public official or, if it finds it particularly necessary in order to maintain ethics pertaining to the duties of officials, acting on its own, conduct on-site investigations to clarify suspected misconduct. The Ethics Board may summon witnesses and request witnesses to submit necessary reports or any relevant materials that it deems necessary for maintaining public confidence in public
The Board of Audit is required to audit the accounts of corporations when the Japanese government is the owner of 50% or more of the corporation’s shares, as well as the state accounts. If any corruption is found during this audit, the Board of Audit is required to notify the Public Prosecutor’s Office, which may again result in criminal investigations. It should be noted that, in practice, notice to the Public Prosecutor’s Office is seldom given.
3 What is the source of anti-corruption regulations in Japan?
The Ethics Act establishes the Ethics Board and grants its investigative powers. The purpose of the Ethics Act is to ensure the public’s trust in public officials and to deter activities that would create suspicion or distrust in relation to public officials’ performance of their duties. This Act requires senior public officials to report to their heads of ministries or agencies whenever they receive money, gifts, hospitality or compensation (“gifts”) worth more than JPY5,000 from anyone. This report is private unless the gifts are worth more than JPY20,000.
The National Public Service Ethics Code (“Ethics Code”) is a cabinet order which crystallises the Ethics Act. The Ethics Code imposes stricter limits where gifts come from parties who have vested interests (“Interested Parties”). The Ethics Code prohibits each and every public official:
• from receiving gifts from an Interested Party;
• from borrowing money at an interest rate significantly lower than the market rate from Interested Parties;
• from dining with an Interested Party;
• from playing certain sports such as golf with an Interested Party (note, this prohibition applies even where the public official pays his own fees); and
• from travelling together privately with an Interested Party. This even includes where the public official pays for his personal travel costs. However, a public official may go on business trips with an Interested Party provided that the public official pays his own expenses.
There are certain exemptions to these general prohibitions, such as receiving promotional items which are widely distributed for sales promotion or as token gifts (please refer to question 6 below).
The Penal Code also includes specific punishments for bribery-related crimes relating to public officials.
There was a revision to the Unfair Competition Prevention Act (“UCPA”) in 1998, where the bribery of foreign public officials was also defined as a chargeable offence.
The Antimonopoly Act prohibits bid collusions and the Act on Elimination and Prevention of Involvement in Bid Rigging, etc. and Punishments for Acts by Employees that Harm Fairness of Bidding, etc. prohibit public officials’ involvement in bid riggings.
The Public Offices Election Act also provides for various punishments where there is corrupt conduct in the course of public elections.
The Act on Prevention of Transfer of Criminal Proceeds was fully enacted in March 2008. This new law imposes obligations on financial institutions to comply with procedures to properly identify their customers (eg, by taking a copy of the customer’s driver’s licence) and to report any suspicious transactions. Such obligations will also apply to some non-financial institutions.
The Act on Punishment of Organised Crimes and Control of Crime Proceeds (“Anti-Organised Crime Act”) prohibits money laundering, such as concealing and receiving criminal proceeds.
The Act on Punishment of Public Officials’ Profiting by Exerting Influence prohibits Lower and Upper House Members, local governors and members of the local government (“Holder of Office”) from accepting bribes and promising to exercise influence on a company where 50% or more of the shares are held by the Japanese government or local authority. It also prohibits a person from offering bribes to the Holder of Office for this purpose.
4 What constitutes a bribery/corruption offence under the anti-corruption regulations in Japan?
A criminal bribery/corruption offence would be committed by a person who gives, offers or promises to give a bribe either to a public official or to a third party connected to that public official. The bribe must be made in connection with the performance by the public official of his duties. In essence that means the giver or offeror must intend to achieve some benefit or advantage in giving or offering the bribe. Inevitably, this will be a question that will depend on the facts of the case.
It is notable that merely attempting to give a gift or hospitality can be construed as bribery and may be an imprisonable offence even if the bribe is not accepted.
In each case, both the person making or attempting to make the bribe and the public official who accepts it are liable to be punished. In addition, if a supervising officer or any other employee is found to have conspired in the bribe or attempted bribe, they too may be liable to criminal punishment.
5 Do local anti-corruption regulations have extra-territorial effect?
As a general rule, Japanese criminal sanctions do not apply to activities unrelated to Japan. However, the UCPA (Article 21(6)) applies the Penal Code provision with extra-territorial effect mutatis mutandis to certain offences under the UCPA and makes it an offence for any Japanese citizen to offer a bribe to a foreign public official outside Japan (see also Articles 18 and 21(2)). The UCPA also applies to such Japanese citizens’ employers (including companies) who could be held liable for the actions of their employees.
The Penal Code makes it an offence for any Japanese public official to accept, solicit or promise to accept a bribe outside Japan, although a person who gives, offers or promises to give a bribe outside Japan is not liable.
6 Are there any statutory defences provided under the Japanese legislation, eg, de minimis exceptions, payments that are legal in the country in which they are offered etc?
(1) Under the UCPA
The UCPA, which makes it an offence for anybody to offer a bribe to a foreign public official outside Japan, has been established to develop the legal system such that it complies with the Convention on Combating Bribery of Foreign Public Officials in International Business Transactions. Certain facilitation payments are legal under this treaty, but the UCPA does not have similar provisions.
(2) Under the Ethics Code
The following is a non-exhaustive list of exemptions to the basic rule described under question 3 above:
(i) accepting a gift from an Interested Party which is distributed widely as advertisement goods or as a souvenir;
(ii) accepting refreshments at an official meeting from an Interested Party;
(iii) accepting meals and drinks from an Interested Party at a buffet or “stand up” party attended by many people; and
(iv) dining with an Interested Party if the public official’s expenses are paid either by himself or by a non-Interested Party who shared the table. If the public official’s expenses are likely to be in excess of JPY10,000 (approximately US$125), he must make a prior report to the Ethics Supervisory Officer. If unavoidable circumstances mean that the public official cannot make a prior report, he is permitted to make a report after the event.
There are certain terms within these exemptions that are not fully defined and have not (to our knowledge) been considered by the Japanese courts. Such terms include “distributed widely” and “many people” (the Ethics Board provides, as an informal guideline, that approximately 20 people is considered to be “many” people). As such, each case will be considered on its facts. As the purpose of the Ethics Act and Ethics Code is to further prevent the appearance of corruption, the most important issue is whether a particular gift would suggest some sort of attempt to influence a public official or his office in the performance of his duties. If so, the gift or hospitality should not be offered, and if offered should be declined by the public official.
7 What powers of investigation do the Ethics Board and the JFTC have and what are the consequences of non-compliance?
The Ethics Board may question any public official suspected of violating the Ethics Act, conduct on-site investigations to clarify suspected misconduct, summon witnesses and request witnesses to submit any reports it deems necessary or any relevant materials. Non-compliance with the investigation (such as false statements or concealment of facts)
would result in disciplinary sanctions such as suspension from office, salary reduction or reprimands.
JFTC may investigate any alleged or suspected offence under the Antimonopoly Act with compulsory measures for administrative inspections, or even criminal investigations regarding alleged or suspected criminal offences. Penalties for interference with administrative inspection include imprisonment of a maximum of one year or a maximum fine of JPY3 million. When it is necessary to investigate a criminal case, JFTC may request suspects or witnesses to attend hearings at the Fair Trade Commission, question suspects, inspect objects possessed or abandoned by suspects and may even retain objects voluntarily submitted or abandoned by suspects. JFTC may also, when necessary, conduct site visits and searches and seizures pursuant to a warrant issued in advance by the courts.
As a general rule, criminal investigations of a compulsory nature, such as search and seizure at a private residence or the interception of communications, are not permitted by law unless there are express provisions which provide such powers to the relevant body. In this connection, the Antimonopoly Act provides JFTC with the power to perform certain acts such as conducting visits or searches or seizure of relevant documents or property as described above, but does not explicitly refer to the power of intercepting communications. Therefore, it can be interpreted that JFTC does not have the power to do such acts. Conducting covert surveillance, however, may arguably be permitted as an investigation of a non-compulsory nature, ie, an investigation that can be carried out without infringing the person’s fundamental human rights (notwithstanding the fact that it may be against the implied will of the person in question) and no express power is required. Under the Ethics Act, the Ethics Board does not have the power to conduct criminal investigations of a compulsory nature, such as search and seizure at a private residence or the interception of communications.
8 What are the powers of arrest and detention of the relevant bodies?
JFTC, the Ethics Board and the Board of Audit have no authority to arrest or detain suspects. This must be done through cooperation with the National Police Agency or the Public Prosecutor’s Office.
9 Do the relevant bodies have powers to freeze properties which may be proceeds of a bribery/corruption offence pending conclusion of their investigation?
Under the Anti-Organised Crime Act the court may, at its discretion or upon the request of the Public Prosecutor, issue an order to freeze property, provided that (i) it has good reason to believe that the property consists of unlawful proceeds that are subject to forfeiture under applicable laws; and (ii) the court finds freezing property in this matter necessary for their forfeiture.
10 Are there any provisions requiring investigations or information disclosed during the course of investigations to be kept quiet?
Generally, such investigations are disclosed by the relevant authority, but there is no official requirement for the relevant authorities to make this disclosure public. Similarly, there are no provisions prohibiting witnesses or suspects from disclosing information obtained from the relevant authority in relation to a corruption/bribery investigation.
11 Are there protections available when responding to investigations by the relevant bodies, eg, right to legal representation at interviews, privilege against self-incrimination and legal professional privilege?
People or companies may hire lawyers for protection during investigations at their own cost. Japan’s Constitution and relevant Criminal Procedure Laws also allow for certain rights, such as the right to an attorney, the right to a translator and the right against self-incrimination, but only where criminal proceedings are brought.
12 Do the relevant anti-corruption measures relate only to the bribery of “public”individuals and/or bodies?
Bribery offences under the Penal Code relate only to the bribery of public officials. However, certain Acts identify a number of private bodies which are considered “public” because of their public character.
Of particular relevance is Article 7 of the Penal Code, which defines a “public official” as “a national or local government official, a member of an assembly or committee, or other employee engaged in the performance of public duties in accordance with laws and regulations”. Criminal sanctions for bribery are applicable to such public officials.
13 What sanctions/sentences may the relevant authorities impose?
There are no express penalties set out in the Ethics Act; however, the Ethics Board does have discretion to take necessary actions against an offending public official. This includes a decrease in remuneration, suspension from duties and, in the most serious cases, dismissal from office.
Suspects may be prosecuted under the Penal Code in the courts if it is found that (i) the evidence is sufficient to justify instituting proceedings; and (ii) the public interest requires a prosecution to be pursued.
The maximum sentence for public officials under the Penal Code is 20 years’ imprisonment. The maximum sentence for a member of the general public who bribes a public official under the Penal Code is three years’ imprisonment and/ or a fine of up to JPY2,500,000.
For a simple bribe (ie where a public official accepts, solicits or promises to accept a bribe in connection with his duties), the maximum sentence is five years. If the official further agrees to perform an act in response to a request, the maximum sentence is seven years. If the official does subsequently act improperly or refrain from acting in the exercise of his duties, the maximum sentence is 20 years.
Under the UCPA, a person who bribes either (i) a foreign public official; (ii) anyone employed by companies of which more than 50% of the shares are owned by a foreign state or local government; or (iii) a person who works for an international organisation (ie, those constituted by governments) could be given a fine of up to JPY5 million or imprisonment with hard labour of up to five years. The same law renders a company employing such person liable for a fine of up to JPY300 million. These penalties can be imposed on a company if its employee/representative has committed a violation with regard to the business of that company.
JFTC is also able to impose penalties on companies allegedly involved in bid rigging. The maximum penalty rate is 10% of the sales amount of the relevant goods or services.
14 Is it possible to enter into a settlement to resolve any enforcement action/ prosecution by the JFTC?
A leniency programme was introduced in 2007 whereby the first three to five offenders who approach the relevant authority to confess may obtain a 30% to 100% immunity from penalty depending on the time and order.
15 Are there provisions for persons to appeal against any enforcement action/prosecution taken against them?
A person found guilty of a corruption offence by the courts has a right of appeal to the appellate courts.
16 Do the police assist the relevant authorities in their investigations?
JAFIC, JFTC, the Ethics Board and the Board of Audit cooperate with the police as necessary.
17 How do JAFIC and JFTC interact with overseas regulators?
JAFIC has signed bilateral information exchange agreements regarding suspicious transactions connected with money laundering or terrorist financing with 26 countries and regions including the US, the UK, Belgium, Canada, Australia, Korea, Hong Kong, Thailand, Indonesia and Singapore. These agreements continue to allow for the exchange of financial intelligence and enhance the information available to Japanese law enforcement and intelligence agencies. JFTC also maintains cooperation with anti-monopoly authorities in various countries.
18 Are there any laws or regulations imposing obligations on persons to “whistleblow” or disclose suspected corruption or money laundering within an organisation?
Yes, but this is limited to requirements on businesses, such as dealers in precious stones, dealers in precious metals, real estate agents, credit card companies, finance lease companies, post-office box agencies and telephone reception agencies (as mentioned above in question 2), to report suspicious transactions to the relevant agency (such as JAFIC). The relevant agency may also issue an administrative order requiring the non-compliant business operator to comply with the obligations to report suspicious transactions. Failure to comply with such an administrative order will result in criminal punishment.
The Whistleblower Protection Act also protects employees who whistle-blow on their employers. However, it does not provide any penal provisions or administrative punishments for failure to comply with this Act.
19 What is the impact of overseas anti-corruption laws such as FCPA and the UK Bribery Act on companies and/or individuals in Japan?
The US Foreign Corrupt Practices Act (the “FCPA”) prohibits the bribery of “foreign officials”. It is extra-territorial in effect and impacts all US companies and persons as well as foreign companies and persons if they issue securities on a US Exchange or otherwise engage in activities in furtherance of a bribe in US territory. Importantly, in pursuing potentially unlawful acts under the FCPA, the US Department of Justice has adopted an expansive definition of what it means to be committing an act of bribery in the US and has interpreted it to catch the transfer of money through US bank accounts including, potentially, all US dollar transactions that are cleared through bank accounts in the US.
The FCPA also contains a books and records provision requiring issuers to make and keep accurate books, records and accounts, which, in reasonable detail, accurately and fairly reflect the issuer’s transactions and disposition of assets. In addition, the FCPA’s internal controls provision requires issuers to devise and maintain reasonable internal accounting controls aimed at preventing and detecting FCPA violations. These provisions apply to all companies, both US and non-US, that have their securities issued on a US exchange. They are expansive provisions and have been used to prosecute companies in cases where bribes have been paid to private individuals.
The UK Bribery Act 2010 (the “Bribery Act”) covers bribery of private persons as well as public officials. It also has extra-territorial application. For example, the Bribery Act prohibits offering or accepting a bribe outside the UK provided that the offender has a close connection with the UK. Persons with a “close connection” include British citizens and
organisations incorporated in any part of the UK. Similarly, the Bribery Act’s corporate offence – which occurs when an organisation fails to prevent those performing services on its behalf from paying bribes – applies not only to organisations incorporated under UK law, but also to any other company carrying on a business, or part of a business, in the UK, regardless of where the act of bribery takes place.
The fact that conduct may not constitute an offence under local law does not necessarily mean it is permitted under the FCPA or the Bribery Act. Companies doing business in Japan are advised not only to comply with domestic legislation, but should also be fully aware of the far-reaching extra-territorial effect of both the FCPA and the Bribery Act.
For further information, please contact:
Peter Godwin, Partner, Herbert Smith