Dealing with Bribery: A Perspective from Japan

By Ben Fouracre, Managing Directo

“Japan is one of the lower risk countries for foreign companies in terms of bribery issues.”

This is a statement recently made at a compliance forum in Tokyo attended by Japanese based corporates but also multinationals headquartered in a variety of global cities.

Japan has a clear legal framework on bribery under Articles 197 and 198 of the Japanese Criminal Code which forbids the giving, offering or promising to give a bribe, including anything that could be perceived as a bribe, by a private individual to a public official.

Certainly Japan ranks at 20 out of 170 on Transparency International’s Corruption Perceptions Index. But there have been a number of recent headlines that raise the question as to whether this is an accurate portrayal of the risks prevalent in Japan.

The Situation for Domestic Japan

Japan has some unique challenges when seeking to mitigate bribery issues.

Kansei dango

This is government led bid rigging on projects where a public official essentially determines which firm will win a bid. The Japan Fair Trade Commission (JFTC) has in the past demanded improvements from the Ministry of Land, Infrastructure and Transportation (MLIT) for their involvement in bid rigging.

Despite this, recent cases include:

  • March 2014– a criminal accusation filed by the JFTC regarding involvement of an MLIT administrative agency on bid rigging for engineering equipment.
  • June 2015 – MLIT’s Tokyo Civil Aviation offices were raided by the police in relation to a bid for sprinkler equipment inspections.
  • October 2016 – an MLIT employee was arrested for leaking information related to a bridge construction project.

Amakudari

This is the practice of government officials retiring into positions in businesses they used to regulate. In the mid-2000s there were some major kansei dango scandals where collusion between current and former government officials was discovered. The National Public Services Act was amended in 2007 and the current government campaigned to eradicate amakudari during their 2012 election. To date though, there has been no new legislation and as noted in the headlines above, recent amakudari cases have continued to cause controversy.

Minashi Koumin

This refers to issues around what constitutes ‘public officials’ and settai (entertainment) and concerns employees of entities that serve public functions such as privatised entities, employees of public hospitals and universities, permit, license and exam issuers etc. The lines may be difficult to draw and enforce given the culture of client entertainment that still prevails in Japan. In 2013, an employee at a Japanese subsidiary of a major international bank was arrested in connection with entertaining executives of a commercial pension fund.

"Certainly Japan ranks at 20 out of 170 on Transparency International’s Corruption Perceptions Index. But there have been a number of recent headlines that raise the question as to whether this is an accurate portrayal of the risks prevalent in Japan."

Weak Enforcement

Japan has been criticised for its lack of enforcement. The Unfair Competition Prevention Law was revised in 1998 and since that time there have been only four incidents where the law was enforced.

  • March 2007– two Japanese individuals were fined a total of approximately USD$8,000 for bribing two Filipino officials with the equivalent value of gifts to win a government contract.
  • 2009 – four Japanese individuals were given three year suspended sentences and their company fined JPY70 million for bribing a Vietnamese official in a construction project partly financed by ODA from Japan.
  • September 2013 – an individual was fined approximately USD$5,000 for bribing an official to ignore issues at an automotive parts factory in China.
  • February 2015– a railway consulting firm and its three former executives were found to have paid approximately USD$1.2 million in bribes to officials in Vietnam, Indonesia and Uzbekistan to obtain consulting contracts. The firm was fined around USD 90,000 and the individuals received three year suspended sentences.

It is a challenge for Japanese companies to create precedents and incentives for self-reporting. Traditional business culture is entrenched in Japan and will often stand in the way of any immediate significant reform. There is still generally an overwhelming loyalty by employees for their companies and the western culture of whistle blowing and calling out your colleagues is a very difficult proposition for individuals to buy in to. Any financial reward for reporting incidents or suspicions would not be worth the consequences of reporting your employer. The above headlines suggest that a lack of adequate enforcement results in the continuation of issues at the highest level of government and business.

The Situation for Japan Overseas

Corporate Japan is eager to expand into overseas markets and there is a big focus on the opportunities that exist in the emerging markets. Given the lack of governance and the prevalence of corruption in some of these markets, they present their own challenges in relation to bribery issues. Some examples of scenarios that Japanese companies have faced include:

  • A sales agent says he can secure business within three months of entering the market and requests an increase in commissions earned for his sales to customers in the country. Soon after entering the market, the company is successful in winning larger than expected contracts, including with state-owned entities.
  • A local government official has told a company representative that he can ease the anger of the local villagers if he is paid an amount of cash.
  • A manufacturing facility is accused of wastewater contamination and pollution. The local community is angry and demanding compensation, threatening to disrupt operations if demands are not met.

"Traditional business culture is entrenched in Japan and will often stand in the way of any immediate significant reform."

The companies that faced these issues all lacked two key elements of mitigating bribery risk: transparency and a strong anti-corruption compliance program that aims to provide safeguards against such illegal activities.

Japanese business traditions are often challenged by the push for global standards and often the tried and tested ways of doing business are valued above transparency. It is a challenge for companies to create incentives for individuals to adhere to rigid standards of compliance when the operating environment is prone to facilitations payments and influential government, political and military stakeholders.

FTI Consulting conducts investigations for Japanese companies globally as well as for foreign multinationals with operations in Japan and one of the key issues we are requested to focus on is potential risk exposure to bribery. In addition to the legal risks that bribery presents, which include criminal prosecution and settlement and investigation costs, business impact extends to reputational damage through marketing and financing issues, loss of confidence in partners and customers, and degrading of company value and culture. There is also a significant operational impact including market distortion and employee risk as well as developing an overall climate of corruption and destruction of trust in government, law, human rights and business dealings.

On the ground bribery is a challenge that is often difficult to address and manage. Dealing with the issue requires a strategic approach and commitment from top down to ensure the risks that bribery presents to a business are well understood and that adequate measures for mitigating such a risk are adopted and implemented.

Click here to download the full article.

Disclaimer
The information on this page may have been provided by a contributor to ChinaGoAbroad, and ChinaGoAbroad makes no guarantees about the accuracy of any content. All content shall be used for informational purposes only. Contributors must obtain all necessary licenses and/or ownership rights from the relevant content owner(s) before submitting such content (including texts, pictures, photos and diagrams) to ChinaGoAbroad for publication. ChinaGoAbroad disclaims all liability arising from the publication of any content/information (such as texts, pictures, photos and diagrams that infringe on any copyright) received from contributors. Links may direct to third party sites out of the control of ChinaGoAbroad, and such links shall not be considered an endorsement by ChinaGoAbroad of any information contained on such third party sites. Please refer to our Disclaimer for more details.
Top