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.
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:
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.
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."
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.
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:
"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.
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