Commencing operations in a foreign jurisdiction requires businesses to familiarize themselves with the laws and customs of their new market. What may be culturally and legally acceptable or even common practice in one jurisdiction may be illegal in another, and anti-bribery regulations are a good example of this. Both the United States and the United Kingdom are known for having very specific and broad-reaching anti-bribery legislation, and so many businesses are interested to learn Japan's stance on this important issue.
This article provides an overview on the various anti-bribery legislation currently in effect in Japan for non-Japanese companies considering establishing a subsidiary in Japan, transacting with a Japanese counterparty, or working with the Japanese government.
Which laws regulate anti-bribery in Japan?
Non-Japanese clients often ask whether there exists a Japanese equivalent to other globally renowned legislation such as the Foreign Corrupt Practices Act of the United States or the Bribery Act of the United Kingdom, due to their potentially far-reaching effects over foreign subsidiaries and counterparties. Although there is no exact Japanese equivalent to this legislation, the following Japanese laws and ancillary legislation, combined, cover a roughly analogous area of activity regarding anti-bribery and anti-corruption:
Unfair Competition Prevention Act (the "UCPA")
The UCPA addresses bribery of foreign public officials. The UCPA applies to: (i) an individual of any nationality, if the violation is committed in Japan; (ii) a Japanese national who offers a bribe to any foreign official regardless of where such conduct occurs.
The UCPA may also have application to an entity whose representative, agent or employee has engaged in the above types of conduct.
Penal Code (the "Penal Code")
The Penal Code addresses bribery of both Japanese and foreign public officials.
The Penal Code applies to: (i) an individual of any nationality, if the violation is committed in Japan; (ii) a Japanese national who offers a bribe to any public official (whether that official is Japanese or foreign) regardless of where such conduct occurs. The Penal Code, in this context, only applies to individuals (this would include representatives, agents and employees), however does not apply to the entity itself.
National Public Service Ethics Act (the "Ethics Act") and National Public Service Ethics Code (the "Ethics Code")
The Ethics Act applies to public servants in Japan including: (i) the prohibition of a public official from receiving any gift, etc. from someone over whom the public official exercises authority, and (ii) the requirement that any public official with a rank of assistant director or higher must disclose gifts, etc. in excess of JPY5,000. It provides the legislative basis for the creation of the Ethics Code which addresses, more specifically, the circumstances under which a public official/officer is prohibited from receiving gifts or entertainment from interested parties.
Article 967 of the Corporations Act addresses the crime of bribery as it relates to officers, managers, auditors and others with authority to make business decisions for a relevant entity. However, Article 967 of the Corporations Act requires a "wrongful request" as an element to establish such crime.
A "wrongful request" constitutes a situation where a request for highly unreasonable conduct has been made. That said, it is generally very difficult to establish the presence of a wrongful request, so in practice, there are not many examples of individuals being prosecuted for the crime of bribery under the Corporations Act.
Rather, when this type of conduct occurs, there is a tendency for the prosecution to build a case for an "aggravated breach of trust" (pursuant to Article 960 of the Corporations Act) which extends to a wider scope of conduct and therefore is easier to build a case against the offender. Although similar to the crime of bribery, aggravated breach of trust is limited to directors etc., while general employees may be prosecuted for "breach of trust" under Article 247 of the Penal Code.
In order to establish an aggravated breach of trust, it is necessary for the company to incur damages. Generally speaking, it is difficult to build a case unless there is a large kickback or commission, or property was purchased for a value exceptionally higher than market price.
Where such crime can be successfully evidenced, there is the additional possibility that the party providing the benefit(s) may face punishment as an accomplice to the crime.
Prevention of Transfer of Criminal Proceeds Act
This law was enacted to prevent money laundering in Japan and it primarily concerns money received from organized crime, or drug-related activity.
Penalization of Illicit Benefits Obtained by Public Officials Act
This law applies to lower house members, upper house members, and representatives and chairs at local municipal counsels as well as their secretaries, and penalizes profiting from the use of improper influence.
A further examination of the Penal Code
The Japanese Penal Code sets forth the following provisions regarding anti-bribery:
(1) Crime of Bribery (Penal Code Articles 197-198)
(a) Within the crime of bribery there are a number of different types of prohibitions against the receipt of bribes (Penal Code, Articles 197-197(4)). However, general speaking, Article 197(1)1 (simple receipt of bribe) addresses the acceptance, solicitation or promise to accept a bribe in connection with the duties of a Japanese public official (including retired and appointee public officials). The penalty for a violation of the first crime noted in Article 197(1) can be as high as imprisonment with labor (up to five (5) years) for the public official.
(b) Article 198 concerns the offer, promise, or actual giving of a bribe by an individual in Japan or Japanese national outside of Japan as defined in Articles 197-197(4) of the Penal Code. The penalty for a violation of Article 198 can be as high as imprisonment with labor (up to three (3) years) or a fine of JPY2,500,000 for the public official.
(2) Breach of Trust (Penal Code, Article 247)
The crime of bribery does not typically apply to employees of private companies, however when the applicable conduct is a violation of the employee's duty and the company is damaged thereby, there is a possibility that the crime of breach of trust (as noted above) could be applied in that situation.
A fundamental principle of Japanese criminal law is that, in order to be found guilty of a crime, that crime must have been clearly and objectively defined prior to the conduct which constitutes the purported crime. In other words, Japanese courts are extremely hesitant to find guilt where the crime itself has not been clearly defined.
For the purposes of the crime of bribery as defined in the Penal Code the term "public official" basically includes only national level public officials. That said, even where an individual is not necessarily a public official, if the nature of his/her duties is equivalent in the sense that they are conducted for public benefit or the public good and the individual is effectively performing public official-like role, then there are situations where such individual may face application of the Penal Code as a public official. Also, special enactments may criminalize bribery conducted by directors and/or employees of even a private company. These individuals would be "deemed" public officials.
For example, telephone operator NTT is a private company in Japan to which a specific enactment applies criminalizing bribery by its employees, etc. despite the fact that NTT employees are not public officials (NTT Act, Articles 19-21).
Consistent with the principle outlined in the first paragraph above, it is necessary for such enactment to exist in order to clearly establish the status of a private company employee/officer as a deemed public official. Therefore, unless relevant legislation relating the company exists, the Penal Code provisions are unlikely to apply.
Entertainment/Socializing and Gifts
In cases where a company's employees/officers are neither national public officials nor "deemed public officials", their engagement in social events and/or receipt of gifts from others would not generally be considered criminal so long as these activities fall within a socially acceptable scope. In the case of very extreme conduct there is some potential for them to be dealt with under the provisions of the Corporations Act and the Penal Code, as mentioned above.
In those cases, the party that provided the benefit may then possibly face potential prosecution as an accomplice. Likely more relevant in this case, would be the ethics code(s) (if any) of the receiving and/or giving party involved.
As set forth above, bribery and anti-corruption legislation in Japan is largely focused on preventing bribery of civil servants and politicians, but also extends in some basic ways to businesses as well. Importantly, there are a number of businesses and organizations in Japan which are deemed to be subject to anti-bribery legislation despite their private nature.
It is therefore very important to understand the subtle characteristics of the relevant Japanese legislation, which can be very different from similar legislation outside of Japan, despite the similar aim.