Brief overview of the law and enforcement regime
Japan is widely perceived as one of the least corrupt countries in the world. In 2020, Transparency International ranked Japan as the 19th least corrupt country out of 180 countries in its Corruption Perceptions Index.1 The World Justice Project's 2021 Rule of Law Index ranked Japan as the 15th least corrupt country out of 128 countries.2 The U.S. Department of State's 2021 Investment Climate Statements note that the direct exchange of cash for favours from government officials in Japan is "extremely rare".3
Despite the wide perception, corruption was an aspect of Japan's post-war economic boom. Types of conduct prevalent during the second half of the 20th century included: firms seeking to win lucrative public contracts through massive cash payments; firms offering insider stock information to win influence; and officials receiving lavish entertainment in exchange for favourable treatment. Japan's economic downturn during the 1990s soured the public's patience for such behaviour, and led to various reforms, including requiring disclosure of politicians' assets, bringing more transparency to political contributions, and imposing stricter ethical rules on public officials.
Domestic bribery
Japan has numerous laws that prohibit bribery of public officials. Under Article 197 of the Penal Code, a public official who, in connection with his or her duties: (i) accepts or solicits a bribe; (ii) causes a bribe payment to a third party; or (iii) accepts a bribe in return for exerting influence over other public officials, among other things, shall be subject to criminal liability. The punishment for a public official who accepts a bribe is imprisonment with work for up to five years, as well as confiscation of the bribe or its monetary value. If a public official agrees to perform an act in response to a request, the sanction is imprisonment with work for up to seven years. Further, if such public official consequentially acts illegally or refrains from acting in the exercise of his or her duty, the sanction is imprisonment with work for a period within a range of one to 20 years. Article 198 of the Code prohibits offering or promising to give a bribe to a public official, which may be subject to imprisonment with work for up to three years, or a maximum fine of JPY 2.5 million (approx. USD 23,700). There is no minimum amount. The Penal Code is generally only applicable to individuals, and not legal persons (i.e., firms and organisations).
In July 2017, Japan amended the Act on Punishment of Organised Crime and Control of Crime Proceeds to criminalise conspiracies by organised criminal groups of two or more people to commit certain crimes, including giving and receiving bribes. This was the first law in Japan to criminalise conspiracy, and while the law ostensibly is directed at criminal organisations, it may be applied to any group of two or more people who conspire to commit a crime, including employees of a firm.
The National Public Service Ethics Act provides guidance on gifts and other benefits a public official may receive, and the Act on Punishment of Public Officials' Profiting by Exerting Influence prohibits members of the National Diet from taking bribes in exchange for political influence.
Laws relating to domestic bribery are enforced by prosecutors in the Public Prosecutors' Office ("PPO"). Complex investigations, including cross-border cases and cases involving politicians, are handled by the elite Special Investigations Department (Tokusobu) of the PPO.
Bribery of quasi-public officials
Japan's legal system also regulates quasi-public officials (minashi koumuin) – private persons who perform a public interest-related service. Quasi-public officials such as employees of the Bank of Japan, other state-owned or quasi-state-owned enterprises (such as national hospitals and universities), entities that provide qualification testing for licences (such as driving schools), as well as former state-owned enterprises such as JR (Japan Railways) and JT (Japan Tobacco) are subject to laws and regulations that are similar to those applicable to public officials. Moreover, certain laws – e.g., the Companies Act, the Financial Instruments and Exchange Act, and the Bankruptcy Act – prohibit the employees of specific firms that perform public services from accepting or demanding bribes, even if the employees are not categorised as quasi-public officials.
Foreign bribery
As regards foreign public officials, Japan implemented the 1997 OECD (Organisation for Economic Co-operation and Development) Anti-Bribery Convention in 1998 and amended the Unfair Competition Prevention Act ("UCPA") to criminalise bribery of foreign public officials in Article 18 of the Act. Article 18 is enforced by the PPO, and applies to both firms and individuals. The Japanese government also amended the Income Tax Act and the Corporation Tax Act in 2006 to prohibit deducting bribes paid abroad as business expenses.
In March 2019, the OECD Working Group recommended that Japan: (1) increase the level of sanctions and the limitation period for foreign bribery; (2) broaden its framework for establishing nationality jurisdiction over legal persons; (3) encourage its agencies to become more proactive in detecting foreign bribery; (4) ensure that the Ministry of Justice transmits and clarifies allegations of foreign bribery without creating delays in opening investigations; (5) ensure that the prosecution exercises its role independent from the Ministry of Justice and the Ministry of Economy, Trade and Industry ("METI"); and (6) ensure that both the police and the prosecution are more proactive and coordinated when investigating foreign bribery, including by reducing the reliance on voluntary measures and confession. In October 2021, the Working Group issued a follow-up report expressing concern about "Japan's continued lack of implementation of the OECD Anti-Bribery Convention", particularly "Japan's weak enforcement of its anti-bribery offense".4
Commercial bribery
Article 960 of the Companies Act prohibits certain senior corporate executives from acting against their duties in favour of their personal interest or for the interest of a third party, or to cause harm to the firm (aggravated breach of trust). Theoretically, commercial bribery may be subject to criminal prosecution under this provision. However, prosecutions for commercial bribery are rare, and usually seen in the context of quasi-public officials (minashi koumuin).
Overview of enforcement activity and policy during the last year
Enforcement against domestic bribery
There have been several significant corruption cases in Japan during the past year.
In June 2020, former Justice Minister Katsuyuki Kawai and his wife Anri Kawai, both serving as Diet members of the ruling Liberal Democratic Party ("LDP"), were arrested for allegedly distributing a total of JPY 150 million (approx. USD 1.36 million) in cash to as many as 100 local politicians and supporters during Anri's campaign in the 2019 Upper House election. Anri was found guilty and sentenced to a five-year suspended sentence in January 2021, and Katsuyuki was found guilty and sentenced to three years' imprisonment with work and a JPY 1.3 million fine (approx. USD 12,000) in June 2021. Both declined to appeal and resigned as Diet members. Although 94 of the 100 alleged recipients admitted that they had received the payments, no charges were brought against any of them.
In January 2021, former Minister of Agriculture and LDP lawmaker Takamori Yoshikawa was indicted for allegedly taking bribes from an egg production firm while in office. The bribery case emerged after the prosecutors discovered documents during a search of the firm in connection with the above-mentioned Kawai investigation. According to the indictment, the former head of the firm paid Yoshikawa a total of JPY 5 million (approx. USD 48,000) on three occasions between November 2018 and August 2019. Yoshikawa resigned as a Diet member in December 2020, citing health reasons. In October 2021, the former head of the firm was found guilty and received a suspended sentence.
In December 2019, Tsukasa Akimoto, an LDP Diet member who had been appointed by the Abe administration to lead the government's promotion of "integrated resorts", was arrested for allegedly receiving a bribe from representatives of a Chinese gambling operator. Prosecutors also arrested three individuals formerly affiliated with the Chinese firm's Japanese subsidiary and raided the offices of other former and current lawmakers. In October 2020, the Tokyo District Court found two of the firm's former advisors guilty of bribery and gave suspended sentences. In February 2021, the Court found a former executive of the Japanese subsidiary of the firm guilty and gave him a three-year suspended sentence. In September 2021, the Court also found Akimoto guilty and sentenced him to four years in prison and a fine of approx. JPY 7.6 million (approx. USD 69,000). The Court also found Akimoto guilty of attempting to make witnesses give false testimony. Akimoto continues to maintain his innocence, but he withdrew from seeking re-election in October 2021 after the LDP withdrew its support.
In February 2021, 11 officials in the Ministry of Internal Affairs and Communications were reprimanded, ranging from temporary reductions in salary to warnings, for receiving expensive dinners and taxi tickets from employees of a media company. This incident did not result in any criminal prosecutions, but the Ministry determined that the conduct violated its ethics rules.
Enforcement against foreign bribery
The most recent publicly reported prosecution in Japan for foreign bribery was against the former employees of a Japanese power systems firm for bribing officials in Thailand. The company was not prosecuted because it voluntarily reported the conduct to the prosecutors, under Japan's new immunity agreement system. In September 2019, the Tokyo District Court found the former officer and his two subordinates to be guilty of conspiracy and imposed suspended sentences, but the Tokyo High Court held that the officer should only be guilty of aiding and abetting the bribery conducted by his subordinates, and should only be subject to a fine rather than a suspended sentence. In July 2020, the Tokyo District Court ordered a fine of JPY 2.5 million (approx. USD 22,700) against the former officer, which was appealed by both the prosecution and the defence.
In the OECD Working Group's two-year follow-up report published in October 2021, the Japanese government reported that there were 12 other foreign bribery investigations, but did not provide any information about them. The OECD Working Group criticised Japan for not providing more information about the investigations, and generally criticised its enforcement of foreign bribery as "weak".
In May 2021, METI updated its "Guidelines for the Prevention of Bribery of Foreign Public Officials" ("METI Guidelines"), which are available on its website in Japanese and English.5 Among other changes, the update included additional explanation of facilitation payments (discussed below under Facilitation payments), due diligence for contracting with third parties, and the importance of whistleblowing systems as a means for exercising oversight over foreign subsidiaries.
Law and policy relating to issues such as facilitation payments and hospitality
Facilitation payments
Domestically, the concept of "facilitation payments" does not exist – the Japanese term for "facilitation payment" is fashiriteishon peimento – and the distinction between a payment to gain an improper commercial advantage and a payment to facilitate a routine governmental function is not one that exists in Japanese law. Japan's Penal Code does not have a minimum threshold amount for bribery. As a result, "facilitation payments" are often explained in Japan as a "small bribe", which has led to confusion.
The original METI Guidelines issued in 2004 indicated that the UCPA does not explicitly exempt "small facilitation payments" ("SFPs") but that such payments would not be a criminal offence under the OECD Anti-Bribery Convention. The OECD criticised this (and METI's attempts to explain its interpretation) as confusing, and METI updated the Guidelines in September 2010 to clarify that SFPs would be illegal under Japanese law if the payments were intended "to obtain or retain improper business advantage in the conduct of international business". In May 2021, METI further revised the discussion of SFPs in the Guidelines, in response to OECD Working Group comments, to clarify that SFPs constitute a "small bribe" and are prohibited as such. However, the OECD Working Group's follow-up report commented that the Guidelines only instruct firms to stop paying "small bribes", and do not clearly instruct firms regarding SFPs in line with Commentary 9 of the OECD Anti-Bribery Convention. This debate will likely continue.
The Japan Federation of Bar Associations ("JFBA") proposed the "Guidance on Prevention of Foreign Bribery" in July 2016, as a supplement to the METI Guidelines. The JFBA Guidance, noting that the issue of SFPs often arises both in business practices and in legal consultations, states that paying even small sums to facilitate the smooth progress of ordinary administrative services is prohibited. Additionally, the JFBA Guidance suggests that Japanese companies cooperate with the Japanese embassy or consulate, chamber of commerce, Japan's Ministry of Foreign Affairs, and other institutions to press the local government to eliminate requests for SFPs.
Hospitality
Entertainment and gift-giving are integral parts of Japanese culture. Even in dealings with government officials, entertainment and gift-giving that are in accordance with social norms and do not involve a conflict of interest or are not intended to obtain wrongful advantage may not be considered illegal. The problem is that social norms and potential conflicts of interest can be difficult to ascertain. In certain cases, such as funerals, not giving appropriate amounts of cash may be viewed as impolite.
As discussed above, 11 officials in the Ministry of Internal Affairs and Communications were reprimanded for receiving entertainment over several years from employees of a media company, which is under the regulatory supervision of the Ministry. This was treated purely as an internal ethics issue and did not trigger a criminal investigation.
Japanese law does not provide bright-line rules on the value of gifts and entertainment that may be given without legal jeopardy, so regulation of entertainment and gift-giving are typically done through ethics and fair competition guidelines promulgated by government agencies, industry groups and firms.
Key issues relating to investigation, decision-making and enforcement procedures
Under Japanese law, public prosecutors have a high burden to prove bribery. They must prove that (i) a bribing party offered a bribe and a public official received it, (ii) the purpose of the bribe was to gain improper advantage, and (iii) the bribe was made in connection with the public official's authority. This is a very high bar because, in most cases, there is no explicit evidence to establish the intent of the bribing party and the bribed public official. Nevertheless, Japanese criminal prosecutions are well known for their high conviction rates, often based on signed confessions, and it has been estimated that 99% of indictments will result in a finding of guilt.
In June 2018, Japan's Code of Criminal Procedure was amended to introduce a new immunity system that is similar to the plea-bargaining system in other countries. Under the system, a public prosecutor may negotiate and enter into an immunity agreement with a potential suspect or defendant (including corporate entities) under which the prosecutor agrees to drop or reduce criminal charges in exchange for evidence and testimony.
The first publicly reported case involving an immunity agreement related to employees of a major Japanese power plant construction firm bribing Thai officials (discussed above under Enforcement against foreign bribery). The firm cooperated with the Public Prosecutors' Office by providing evidence that a former executive and his two subordinates conspired to bribe a Thai public official with approximately USD 357,000 to speed up the clearance of cargo. The former executive and his two subordinates were found guilty and given suspended sentences. This case garnered a mixed reaction: on the one hand, it showed the immunity agreement system to be a useful tool for prosecuting bribery of foreign public officials, for which gathering evidence overseas is often difficult; on the other hand, there was concern of a firm's "scapegoating" its employees in return for escaping corporate liability.
As the above cases indicate, penalties for bribery are relatively small by international standards. Even though the laws mandate possible prison terms, courts usually impose suspended sentences (i.e., probation) in lieu of actual imprisonment, except in the most egregious cases. Furthermore, it is highly unlikely for the briber to be subject to imprisonment, unless there is an aggravating factor such as witness tampering. The fines are also relatively modest. The risk of termination of employment and public embarrassment may be significant deterrents for some individuals, even without actual prison time or significant fines. For firms, the risk of prosecution is even lower, and they may view an anti-bribery compliance programme as having lower priority unless they also have potential FCPA or UKBA exposure.
Overview of cross-border issues
Japan has bilateral Mutual Legal Assistance Treaties in Criminal Matters ("MLATs") with the United States, South Korea, China, Hong Kong, the European Union and Russia, which permit foreign criminal enforcement authorities to request assistance from Japanese prosecutors and police, and vice versa. Japan has also ratified the Multilateral Convention on Mutual Administrative Assistance in Tax Matters, which enables authorities to share tax information for use in criminal foreign bribery investigations. To date, there have been no public reports indicating that Japanese authorities have actively cooperated with foreign authorities in cross-border bribery investigations.
A potential impediment for cross-border bribery investigations involving Japan is its data privacy law, which may restrict certain types of personal data from being transferred outside Japan without the express consent of the data owner. Japanese law does not provide an explicit exception for foreign government investigations or legal procedures. There have not yet been any reported cases of this argument being raised in the context of a cross-border investigation.
Japanese authorities have not been aggressive on extraterritorial enforcement. To date, there has not been a foreign firm, or foreign-resident individuals, who have been prosecuted in Japan for domestic bribery. In the recent case involving a Chinese gambling firm, only the former executive and consultants of the firm's Japanese subsidiary were prosecuted for giving bribes.
Corporate liability for bribery and corruption offences
As a general rule, legal persons (i.e., firms and organisations) are not liable for bribery under the Penal Code. As the law stands now, there is no corporate liability for bribery of Japanese public officials.
In contrast, Article 22(1) of the UCPA expressly imposes criminal liability on legal persons for violations of Article 18, which deals with bribery of foreign public officials. If an individual bribed a foreign official in connection with the business of a legal person, such legal person would be subject to a maximum fine of JPY 300 million (approx. USD 2.85 million).
In addition to corporate liability, it is possible for supervisors who approved a bribe to be criminally prosecuted for conspiracy or abetting.
Proposed reforms / The year ahead
In response to the OECD's continued criticism of Japan's low level of enforcement, Japanese authorities undertook more UCPA enforcement efforts in recent years, including revising the METI Guidelines and training police officers. The greatest challenge for increasing enforcement of UCPA Article 18 is creating incentives for firms to self-report, or for whistleblowers to come forward. There is some indication that the new immunity agreement system may encourage self-reporting. On the other hand, the type of whistleblower award programme instituted by the U.S. Securities and Exchange Commission will likely be difficult to implement in Japan, considering the smaller potential recovery available (i.e., the amount of the potential reward is unlikely to offset the downsides of reporting on one's employer).
In June 2020, the Diet enacted amendments to the Whistleblower Protection Act. The amendments require businesses to establish systems to properly respond to whistleblower reports and to designate a specific employee to respond to whistleblower reports. The designated employee is subject to confidentiality obligations regarding the whistleblower's anonymity. The amendment's definition of whistleblower now includes retired workers, temporary workers, and officers. Notably, however, the amendments did not create any criminal or administrative mechanisms for penalising companies that retaliate against whistleblowers. Furthermore, whistleblowers who can prove in court that they were fired for whistleblowing are only entitled to reinstatement, and no whistleblower rewards programme is available. A whistleblower who has suffered retaliation could file a tort claim, but whether such a claim would be successful remains unclear.
Government-led bid-rigging on public projects (kansei dango) remains deeply entrenched in Japan. This is a type of bid-rigging scheme in which a public official acts as an organiser to determine which firm will win. Typically, the official is a representative of the government entity that issued the bid request, who wishes to dole out favours to firms (especially in construction) that are major sources of political funds, or are potential sources of work after the official leaves government. After long acceptance, the government started prosecuting this type of conduct in the 1990s as part of the general trend towards anti-corruption. As the widespread nature of the practice became apparent, legal reforms were instituted in the early 2000s, including the passage of a law specifically prohibiting kansei dango, and amendments to the Anti-Monopoly Act. Shareholders began suing corporate executives on the premise that the executives' participation in the bid-rigging schemes had damaged their firm. Further, the Japan Fair Trade Commission ("JFTC") found that officials of the Ministry of Land, Infrastructure and Transportation ("MLIT") were involved in bid-rigging, requiring the JFTC to demand improvements of the MLIT. Despite these changes, new kansei dango cases continue to emerge into the 2020s.
Despite Japan's international image as a relatively non-corrupt country, recent domestic corruption cases and the OECD Working Group's continued criticism of Japan's efforts to deal with foreign corruption demonstrate that significant issues remain. Many Japanese firms with global operations are implementing stricter anti-bribery compliance programmes, but this trend is primarily a response to the risk of U.S. FCPA investigations as well as compliance requirements imposed by global business partners. Recent media attention on Japanese lawmakers and bureaucrats receiving lavish entertainment may cause some firms to re-evaluate their entertainment policy for domestic officials, but is unlikely to result in major changes in law or policy, as most of such incidents have involved members of the ruling party, the LDP. Thus, while Japan may implement some incremental changes to laws as well as to the METI Guidelines, a paradigmatic shift in Japan's attitudes towards bribery and corruption (particularly foreign bribery) is unlikely in the near term.
Footnotes
1. Transparency International – Corruption Perceptions Index 2020 – Japan (Hyperlink)
2. World Justice Project, Rule of Law Index 2021, 'Absence of Corruption' (Hyperlink)
3. U.S. Department of State, Bureau of Economic and Business Affairs, 2021 Investment Climate Statements: Japan(Hyperlink)
4.Implementing the OECD Anti-Bribery Convention: Phase 4 Two-Year Follow-Up Report: Japan(Hyperlink)
5. Ministry of Economy, Trade and Industry, Guidelines for the Prevention of Bribery of Foreign Public Officials (rev. May 2021) (Hyperlink)
This article was first published in Global Legal Insights - Bribery & Corruption 2022, 9th Ed.
Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.
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