Japanese law does not classify crimes into felonies, misdemeanours or other categories. The Penal Code of Japan provides for all the major criminal offences for individuals, and a lot of other laws also provide for criminal offences, including those for judicial persons. In addition to criminal sanctions, government authorities can impose administrative sanctions such as imposing a surcharge, revoking a licence for a regulated business, or disqualifying an entity from the bidding process for a governmental contract.
Elements of Crime
In order to establish a criminal offence, a public prosecutor must prove certain conduct by the defendant that meets the elements set forth in the relevant statute, as well as the criminal intent or negligence of the defendant. The illegality of conduct and criminal liability are also elements of an offence, and the prosecutor must prove such elements if the defendant raises the lack of such elements as a defence.
Many criminal offences require certain consequences of the defendant’s conduct (eg, physical injury of a victim). However, an attempt to commit certain criminal conduct can be punishable even when it does not result in any consequences, if it is specifically criminalised under relevant statutes. Negligence could constitute a criminal offence if it causes physical injury or another serious consequence, and is specifically criminalised under the Penal Code or other laws. Additionally, the Act on Punishment of Organised Crime and Control of Crime Proceeds criminalises the conspiracy to commit certain crimes.
The enforcement limitation period starts from the time when the criminal act ceases. Regarding a case of complicity, the period with respect to all accomplices starts from the time the final act of all accomplices ceases (Article 253 of the Code of Criminal Procedure – the CCP). The limitation periods are stipulated according to the type and range of the statutory penalty under Article 250 of the CCP. For example, the CCP stipulates that the statute of limitations runs out after five years with regard to crimes that are punishable with imprisonment of less than ten years, other than for crimes causing the death of a person. Where two or more separate criminal conducts are deemed a single criminal act in substance, the limitation period with respect to the entire crime starts from the time that the final act of the entire crime ceases. The limitation period is tolled if an offender is outside Japan or is in hiding, making it impossible to serve a transcript of the written indictment or notify the summary order (Article 255 of the CCP).
Articles 3 and 3-2 of the Penal Code stipulate that persons who have committed certain serious crimes outside Japan are punishable. For example, counterfeiting official Japanese government documents can be classified as a crime, regardless of the nationality of the offender and the location of the conduct. Certain crimes against Japanese nationals committed by non-Japanese offenders outside Japan are also punishable.
However, Japanese enforcement agencies do not have any jurisdiction to enforce their authority outside Japan, and can obtain evidence outside of Japanese territory only through voluntary co-operation with investigations or through mutual legal assistance, as described in 2.5 Mutual Legal Assistance Treaties and Cross-Border Co-operation.
In principle, only a natural person is criminally liable under Japanese law, and the Penal Code does not set forth any crimes of a judicial person. A judicial person may be held criminally liable only when there are specific provisions for punishment prescribed in the form of a dual liability provision (ryobatsu-kitei) under the laws. A dual liability provision makes entities, including corporations, punishable together with the natural person that is employed or otherwise retained by the entity and actually committed the offence, unless the judicial person proves that it was not negligent in appointing or supervising that natural person, or that it was not negligent regarding the measures it took to prevent the crime.
In addition to dual liability, when there is a triple liability provision, the representative of the entity in which the offender is employed may be held liable if they did not take the necessary measures to prevent the crime. The Act on the Prohibition of Private Monopolisation and the Maintenance of Fair Trade (the "AMA") and the Labour Standard Act contain provisions to this effect.
There is no written public policy on when to pursue indictment against an entity or an individual, or both. While an entity can be convicted only if a certain natural person is criminally liable, a prosecutor sometimes indicts only a natural person and suspends an indictment against an entity when the activities of the entity are found not to be egregious. On the other hand, a prosecutor may only indict an entity and suspend an indictment against a natural person when the activities of the relevant corporate executives or employees are found not to be egregious.
There seems to be no intensive discussion about criminal successor liability in Japan because only a natural person can be liable in the criminal context, and this issue has not been contested in any notable court cases. While the successor may not be held liable for the predecessor’s conduct in an asset deal, in theory the successor’s liability cannot be ruled out in the case of a merger.
Administrative Sanction Against Entity
Administrative sanctions such as a surcharge can be imposed on an entity without a dual liability provision or an establishment of illegal conduct by a natural person.
In addition to criminal disposition to a defendant, a defendant can be subject to civil remedies if his/her conduct constitutes a tort under the Civil Code. In principle, complaints claiming for damages in tort are filed with a civil division of the court and dealt with separately from the criminal case. A proceeding similar to a class action is available only for cases involving the violation of specific consumer protection laws. Parties other than qualified consumer groups cannot initiate this type of lawsuit and, as a result, the consumer group lawsuit is not actively used.
The restitution order system is available for victims of crime who are suffering from physical injury, unlawful confinement or kidnapping, but victims of white-collar crimes cannot use this system to recover their economic damage. Under this system, complaints claiming for damages in tort may be filed to a criminal court and the judge presiding in the criminal case has the power to render a judgment ordering the defendant to pay damages after the court has found the defendant guilty.
Remission Payments for Organised Crime
When a judicial decision is made to confiscate property damaged by organised crimes (eg, fraud or usury by a criminal group) as set forth in the Act of Punishment of Organised Crime, the prosecutor may set up a remission fund to restore the property to the victims under the procedure set forth in the Act on Issuance of Remission Payments Using Stolen and Misappropriated Property.
The plea bargaining system described in 2.7 Deferred Prosecution and 2.8 Plea Agreements was introduced in June 2018, and is the most notable development in Japanese criminal procedure in recent years. While only a few publicly reported cases have used this system so far, such cases are also noteworthy as white-collar crime precedents in various aspects.
Case of Foreign Bribery in Thailand
In July 2018, the special investigation team of the Tokyo Public Prosecutors Office indicted three executives of a Japanese manufacturer of power generation plants for bribing public officers in Thailand. The mass media reported that the company co-operated with the investigation by public prosecutors, which started before the introduction of the plea bargaining system, and entered into a plea agreement with the prosecutor. This is the first reported case of plea bargaining in Japan, which shows that a company – and not just natural persons – can be a party to a plea agreement in which it co-operates with the investigation and indictment against its employee. At the first instance, the Tokyo District Court found all three defendants guilty of bribery. However, one of the defendants, who is a former director, contested the ruling and the Tokyo High Court at the second instance found that he was not a main offender but just assisted in the bribery. Both parties appealed the ruling of the Tokyo High Court and this case is currently subject to the Supreme Court’s review.
Case of Securities Fraud and Other Corporate Fraud
A former CEO of a major global automobile manufacturer was arrested in November 2018 and prosecuted by the special investigation team of the Tokyo Public Prosecutors Office for (i) false statements regarding his compensation in annual securities reports of the company, and (ii) an aggravated breach of trust by transferring the financial obligations of his asset-holding company to the company. This is the second publicly reported case that used the Japanese plea bargaining system for investigation. The defence counsel for the former CEO argued that the plea agreement is illegal because it was used for the dismissal of the former CEO as a result of a power struggle in the company. The former CEO was detained for more than three months through a series of arrest and rejection of bailment, so that his long-term detention drew attention and controversy internationally. In December 2019, the former CEO fled abroad during his bail, and the criminal proceeding has been suspended since the middle of the pre-trial arrangement procedure.
Under the CCP, police officers are the primary investigative authority. After conducting an investigation, police officers will then send the case to the public prosecutors.
Public prosecutors can – and often actively do – investigate cases of white-collar crime by themselves or by instructing police officers. In particular, the special investigation team of the Tokyo and Osaka Public Prosecutors Office often deals with high-profile investigations, such as those against politicians.
Other administrative officers
Officers of some administrative agencies have investigative authority over certain white-collar crimes. For example, officers of the Japan Fair Trade Commission (JFTC) can investigate specific criminal violations of the AMA, and the Securities Exchange Surveillance Commission (SESC) can investigate securities fraud and other violations of securities regulations. After conducting a criminal investigation, the administrative agency could file an accusation with the public prosecutors.
Each investigative authority may conduct investigations at its discretion within its authority. While there is no rule on how to allocate cases, administrative officers specialising in the certain area of white-collar crime often take the lead in an investigation.
Authority for Prosecution
Public prosecutors are basically the sole authority for the prosecution of any crime. As an exception, the Committee for Inquest of Prosecution can bring a verdict that a certain case should be prosecuted. If the public prosecutor still does not agree to prosecute, the Committee can bring a verdict to compel prosecution of the case by a verdict of a supermajority vote. In such case, an attorney specially appointed in place of the public prosecutor will prosecute the case.
Certain administrative authorities have the power to impose surcharges (kachokin) and other sanctions on specific violations of certain regulations. For example, the JFTC has the power to impose surcharges on “unreasonable restraint of trade” including a cartel, bid rigging affecting prices, private monopolisation and other unfair trade practices violating the AMA and the Financial Services Agency has the power to impose a surcharge on violations of securities regulation after recommendation from the SESC.
Furthermore, in certain regulated industries, even if a surcharge or criminal sanction is not applicable, the competent regulatory authority could request a reporting of potential misconduct and revoke the licence of such regulated business operators. The authority could also issue a business improvement order and other instructions to such business operators.
An investigative or administrative authority may initiate an investigation at its discretion, and there is no rule or guideline that specifically governs or clarifies the threshold for the initiation of an investigation. The investigative authority initiates investigations based on various triggers, such as a complaint, an accusation, a report from another administrative organ, or a surrender.
Warrant for Compulsory Investigation
Police officers and prosecutors as described in 2.1 Enforcement Authorities have authority for compulsory investigations, which include search, seizure, inspection, arrest and detention upon a warrant issued by a judge. Articles 33 and 35 of the Constitution state that no person shall be apprehended, searched or seized except upon a warrant is issued by a judge, unless he/she is committing or has just committed an offence.
Practice of Investigation
Under the common practice of criminal investigation in Japan, when there is a need to gather documents, investigative authorities often request a relevant company to voluntarily produce documents or testimony first; companies often co-operate voluntarily with an investigation without a warrant. However, if a company declines to co-operate with an investigation, an investigative authority would conduct a search, seizure or inspection with a warrant issued by a judge. The investigative authority may choose a dawn raid first if it has concerns about the destruction or concealment of evidence by the suspects.
Interview of Employee or Officer of Company
The investigative authorities cannot compel an employee, officer or director of a company to submit to questioning, nor can they compel the company to submit such individuals, unless they are under arrest or detention. Even when they are under arrest or detention and are obliged to submit to questioning, they have the right to remain silent. The questioning can take place at an office of the authority, at the company or at any other location.
No statute or official guideline requires or suggests an internal investigation by a suspected company, nor consideration of such internal investigation in a decision to prosecute by the public prosecutor or a judgment of the court. However, in practice, an internal investigation that would help an investigation by the authority could be considered as an extenuating factor in a decision of prosecution or judgment. Furthermore, such internal investigation is virtually necessary when applying to a leniency programme under the AMA or when entering into a plea agreement with the public prosecutors.
Mutual Legal Assistance
When Japanese enforcement agencies request foreign enforcement agencies to conduct investigations and report the results of the investigations, they rely on the co-operation of such foreign agencies based upon treaties or international comity with these jurisdictions.
Regarding the request of foreign authorities for investigative co-operation, the Act on International Assistance in Investigation and Other Related Matters (AIAI) provides requirements and procedures for investigative co-operation through either diplomatic channels or Interpol. The AIAI permits co-operation if all of the following requirements are satisfied:
If such requirements are satisfied, prosecutors or police officers will conduct an investigation, and the evidence collected will then be provided to the requesting authority.
In addition, the Japanese National Police Agency also co-operates with foreign authorities as a member of the International Criminal Police Organisation if the first two requirements above are satisfied.
The Japanese government has entered into extradition treaties with the USA and Korea only. There is no publicly available information on the precedents of extradition.
Public prosecutors may initiate a criminal case by filing a written indictment (kisojo) with a competent court, which is usually located at the prefecture where the criminal conduct took place.
There are no written guidelines or standards governing the prosecutor’s decision to charge an entity or individual with a crime. Public prosecutors exercise their discretionary power to decide whether to initiate prosecution considering the characteristics of the suspect, the gravity of the offence, his/her situation after the offence, and other circumstances (Article 248 of the CCP).
Under the CCP, there is no statutory system of deferred prosecution agreement or non-prosecution agreement. However, the Japanese plea bargaining system described in 2.8 Plea Agreements can function as a deferred prosecution agreement or non-prosecution agreement to some extent, although it has significant differences to the plea bargaining system in the US or other jurisdictions. Under the Japanese plea bargaining system, a company can enjoy favourable treatment such as no prosecution in exchange for its co-operation with the investigation against its corporate executive allegedly involved in the criminal conduct, which is illustrated by the first case of plea agreement, as addressed in 1.6 Recent Case Law and Latest Developments. However, for a plea bargaining, a prosecutor may not consider a company’s compliance efforts or other measures to prevent recurrences, which are usually considered in plea bargainings in other jurisdictions.
Co-operation for Investigation Against Other Party
A prosecutor may enter into an agreement with a suspect or a defendant, including a corporate entity, under which the prosecutor agrees to drop or reduce criminal charges, or to provide favourable treatment, only when the suspect or defendant co-operates in the investigation against other individuals or corporate entities. Plea agreements are not available merely if a suspect or defendant voluntarily decides not to contest and co-operate with the investigation of his or her own case. However, the prosecutor may consider a voluntary declination of a suspect or defendant when the prosecutor decides on an indictment or a recommendation of sentencing within his or her discretion.
Plea agreement can be used only if both the crime for which the suspect or defendant is subject to investigation or prosecution and the crime for which the suspect or defendant co-operates in the investigation fall under certain categories of crimes specified by the statutes (“specified crimes”). Such crimes include bribery, embezzlement, tax fraud, and crimes under the AMA, the Financial Instruments and Exchange Act (FIEA) or other specific laws stipulated by the CCP, and relevant government ordinances. According to the CCP, co-operation in an investigation against other suspects or defendants includes making a statement of the true facts to the investigation authorities, testifying the true facts as a witness at court and providing evidence.
A prosecutor has wide discretion whether to enter into plea bargaining with a suspect or defendant taking into account the factors stipulated in the CCP. For example, a prosecutor will carefully examine the reliability of evidence submitted by a suspect or defendant while cooperating in the investigation and will enter into a plea agreement only if the prosecutor finds the evidence is substantially useful. Since waiving the defendant’s right to defend the case could be a complex decision, the suspect or defendant must retain an attorney and a plea agreement cannot be entered without the consent of his/her attorney. The court has no authority to be involved with the plea bargaining in any case.
The Companies Act (CA) imposes sanctions against fraudulent conduct by corporate executives in relation to a company’s business, on top of the Penal Code. For example, when a director or other corporate executive commits an act in breach of their duties and causes financial damages to the company for the purpose of promoting their own interest or the interest of a third party, or inflicting damage on the company, such person is subject to imprisonment of not more than ten years and/or a fine of not more than JPY10 million (Article 960). Certain other misconduct by corporate executives that puts a company’s property at risk is also criminalised under the CA and is subject to imprisonment of not more than five years and/or a fine of not more than JPY5 million (Article 963).
The Penal Code provides that accepting, soliciting or promising to accept a bribe, or giving, offering or promising to give a bribe, in connection with the duties of Japanese public officers, is a punishable offence. Giving, offering or promising to give a bribe is subject to imprisonment with labour of not more than three years or a fine of not more than JPY2.5 million (Article 198). This penalty is not applicable to corporate entities.
The Unfair Competition Prevention Act (UCPA) provides that giving, offering or promising to give money or any other benefit to foreign public officers in order to have the officers act or refrain from acting in a particular way in relation to the duties of officers or in order to obtain a wrongful gain with regard to international commercial transactions is a punishable offence (Article 18). A violation of the UCPA by an individual is subject to imprisonment of not more than five years and/or a fine of not more than JPY5 million (Article 21). If a representative, agent or employee of a company commits such violation in the course of the company’s business, the company is subject to a fine of not more than JPY300 million (Article 22).
No statute imposes criminal or administrative sanctions on a failure to prevent the bribery of employees, nor on a failure to establish a compliance programme for that purpose. On the other hand, the CA requires the directors of a company to establish an internal control system, including a system to prevent illegal conduct; failure to establish such system could constitute a breach of a director’s duty of care as a good manager and cause a director’s civil liability against the company.
Insider trading by corporate insiders
The FIEA provides that officers, employees and agents of a listed company (including its parent company and subsidiaries) and other statutorily defined corporate insiders who know any non-public material fact pertaining to the business or other matters of a listed company (“Material Facts”) are prohibited from making a sale, purchase or other transfer for value, or from accepting such transfer for value of shares of the listed company, until and unless such facts have been publicly disclosed.
Material Facts are statutorily defined as:
Such facts regarding the subsidiaries of a listed company are also included in the definition of “Material Facts”.
Insider trading is subject to imprisonment of not more than five years and/or a fine of not more than JPY5 million.
Insider trading in connection with a tender offer
The FIEA provides that purchasers of shares who know facts concerning a launch of a tender offer, and sellers of shares who know facts concerning a termination of a tender offer, are prohibited from trading shares of the listed company until and unless such facts have been publicly disclosed. The applicable criminal penalty is the same as that listed above.
The FIEA provides that corporate insiders are prohibited from tipping a non-public Material Fact to other persons, and from recommending other persons to engage in trading for their own profit or avoidance of loss. The applicable criminal penalty is the same as that listed above.
The following are prohibited as “market manipulation” under the FIEA:
Disseminating information in connection with the sale of securities that is inconsistent with the facts and/or has no rational basis, for the purpose of trading or influencing the price of securities, is prohibited by the FIEA as “spreading rumours”.
The applicable criminal penalty is the same as that listed above.
Various fraudulent conducts by financial institutions against the regulator or customers are prohibited under the Banking Act or other relevant regulations. For example, fraudulent advertisement and providing fraudulent explanatory documents prior to contract are subject to imprisonment of not more than six months and/or a fine of not more than JPY500,000.
Tax evasion is punishable under the laws prescribed for each type of tax, as well as back taxes and additional penalty tax. For example, intentional evasion of corporate income tax or receiving a refund through deception or other wrongful acts, such as making false documents or creating a secret bank account, constitutes a criminal offence. There is no legal obligation for an entity to prevent tax evasion by its executives or employees in the criminal context, but a company may be subject to a criminal fine if an individual executive or employee is found guilty of a tax offence for corporate income tax and the company cannot establish that it has exercised due care to prevent the occurrence of such misconduct.
Under the CA, when a director or other applicable person of a company fails to prepare accounting books or record balance sheets, such person will be subject to an administrative monetary penalty (karyo) of up to JPY1 million (Article 976 of the CA). Additionally, a director (or other applicable person) who produces documents that contain false statements about material when soliciting subscribers for shares of the company will be subject to imprisonment with work for up to five years, or a fine of up to JPY5 million, or both (Article 964 of the CA). The act of illegal earnings manipulation with illegal dividends also constitutes a crime (imprisonment with work for up to five years, or a fine of up to JPY5 million, or both (Article 963 of the CA)).
Financial Instruments and Exchange Act (FIEA)
Under the FIEA, a failure to submit any required documents including certain financial statements (such as a tender offer report or an annual securities report) will be subject to a penalty, as will producing documents containing false statements about material matters, depending on the type of document (Articles 197 and 197-2 of the FIEA). Additionally, a company may be subject to a criminal fine if an individual executive or employee is found guilty of the above offences and the company cannot establish that it has exercised due care to prevent the occurrence of such misconduct.
If such violation is committed by an officer or employee of a company, the corporation will also be subject to a fine, the amount of which is determined based on the type of violation by the individual (Article 207 of the FIEA).
Separately, such violation may be subject to an administrative order or the imposition of an administrative fine by the FSA, depending on the type of violation (Articles 172 to 172-4 of the FIEA).
The JFTC may impose cease-and-desist orders and administrative fines (surcharges, or kachokin) calculated based on a formula set forth in the AMA, which prohibits the following anti-competitive acts or practices:
If the JFTC determines that a case is particularly serious and malicious, and has a significant effect on people’s lives, it may file a criminal complaint with the prosecutors’ office. The penalty will be a fine of up to JPY500 million for a company and imprisonment with work for up to five years and a fine of up to JPY5 million for individuals (Articles 89 and 95 of the AMA).
Misrepresentation Prohibited by the Specified Commercial Transactions Act
The Specified Commercial Transactions Act (SCTA) prohibits the misrepresentation of prices or payment conditions, or an intentional failure to disclose such contract terms, and a violation thereof will be subject to an instruction of business improvement (jigyo kaizen shizi), a business suspension order (jigyo teishi meirei) or a business prohibition order (jigyo kinshi meirei) as an administrative disposition (Articles 8-2 and 62 of the SCTA). A person who violates the law will also be subject to a penalty of imprisonment for up to three years or a fine of up to JPY3 million (Article 70 of the SCTA).
Misleading Representations Prohibited by the Act Against Unjustifiable Premiums and Misleading Representations
The Act against Unjustifiable Premiums and Misleading Representations (UPMRA) prohibits acts that could interfere with consumers’ voluntary and rational choice-making by prohibiting certain acts, including the following:
A violation of the UPMRA will be subject to an order to cease the representation (sochi meirei) as an administrative disposition (Article 7). A person who violates the law will also be subject to a surcharge (kachokin), calculated based on a formula set forth in the UPMRA.
Deceiving customers may also constitute fraud and is subject to imprisonment for up to ten years under the Penal Code (Article 246 of the Penal Code).
Cybercrimes and Computer Fraud
The Act on Prohibition of Unauthorised Computer Access prohibits the use of an identification code of another person or other information or commands to a computer via telecommunications lines in order to operate a computer in a manner that is not allowed or authorised. Such act is subject to imprisonment for up to one year or a fine of up to JPY500,000 (Articles 6 and 12-3).
Obtaining profits from creating a false electromagnetic record by giving false information or a wrongful command to a computer is subject to imprisonment for up to five years or a fine of up to JPY500,000 under the Penal Code (Article 161-2).
Other misconduct conducted through the internet could constitute fraud or other traditional crimes.
Protection of Company Secrets
Under the UCPA, a person who uses or discloses a trade secret acquired by the following means is subject to imprisonment for up to ten years or a fine of JPY10 million, or both (Article 21 of the UCPA):
Under the Customs Act, exporting or importing prohibited items, receiving an exemption from customs duty through deception or other acts of falsification, exporting or importing goods by making a false declaration or producing falsified documents, and other acts, are subject to administrative and criminal penalties.
Foreign Exchange and Foreign Trade Act
Under the Foreign Exchange and Foreign Trade Act (FEFTA), undertaking a certain transaction with the objective of providing specified technology, or exporting a specific kind of good, without obtaining permission is subject to administrative and criminal penalties.
The FEFTA also prohibits certain investments in Japanese companies by foreign investors and certain investments in foreign companies by Japanese investors without the prior approval of the governmental authority. The government can impose economic sanctions, such as asset freezing, and transactions with sanctioned parties are prohibited under the FEFTA. The violation of such requirements or prohibitions is subject to administrative and criminal penalties.
Concealment Prescribed by the Penal Code
Under the Penal Code, a person who harbours or enables the escape of another person who has either committed a crime punishable with a fine or greater punishment or has escaped from confinement, or who suppresses, damages, counterfeits or alters evidence relating to a criminal case of another person, or who uses counterfeit or altered evidence, is subject to imprisonment for up to two years or a fine of up to JPY200,000 (Articles 103 and 104). A witness who has been sworn in accordance with law and gives false testimony may be sanctioned with imprisonment with work for not less than three months but no more than ten years (Article 169).
Concealment Regarding Organised Crimes
For organised crimes prescribed under the Act on Punishment of Organised Crimes and Control of Crime Proceeds, known as the Organised Crime Punishment Act (OCPA), a person who disguises facts with respect to the acquisition or disposition of criminal proceeds, or conceals criminal proceeds, or disguises facts with respect to the source of criminal proceeds, is subject to imprisonment for up to five years or a fine up to JPY3 million, or both (Article 10).
General Offence for Aiding and Abetting
A person who commits a crime jointly with another person, or induces another to commit a crime, may be treated in sentencing as a principal under the Penal Code (Articles 60 and 61). A person who aids a principal is also punishable, but the punishment imposed on such person shall be reduced from the punishment for the principal (Article 62).
Conspiracy of Organised Crimes
Conspiracy to commit terrorism or other organised crimes is punishable under the OCPA if any of the persons involved in the conspiracy conducted any preparatory actions, such as the arrangement of funds or goods based on such conspiracy (Article 6-2).
Offences Related to Money Laundering
Money laundering is punishable based on the Anti-Drug Special Provisions Act and the OCPA. The former prohibits the concealment and receipt of drug crime proceeds, and the latter prohibits the following:
Duty to Prevent Transfer of Criminal Proceeds
Under the Act on Prevention of Transfer of Criminal Proceeds, for the purpose of preventing money laundering, specified business operators, including banks and insurance companies, are subject to the following duties:
If a specified business operator fails to observe such duties, a competent administrative agency may order the specified business operator to take necessary measures to rectify the violation (Article 18).
Lack of Intent
For crimes requiring a specific intent, acts made without such intent may constitute a defence (for example, for the bribery of foreign public officers stipulated under the UCPA, the purpose of having the officers act or refrain from acting in a particular way must be proved).
For the crime of negligence, the unpredictability or non-avoidability of the results constitutes a defence.
Several laws prescribe a company’s dual liability clause, where a company is punished with the natural person who actually committed the crime. In such cases, the company is exempted from dual liability if it exercised due care in the appointment and supervision of the natural person (please also see 1.4 Corporate Liability and Personal Liability).
Existence of an Effective Compliance Programme
When a company has established an effective compliance programme, it may be useful to claim unpredictability and non-avoidability of the results in negligence, or the defence of dual liability as mentioned above.
No industry or sector is exempt from compliance with white-collar crime requirements in Japan. There is no de minimis exception for anti-bribery regulations (including domestic bribery punishable under the Penal Code and bribery of a foreign official under the UCPA), but gifts or gratuities within the scope of social courtesy may not be interpreted as “bribes”. The Penal Code does not have any de minimis exceptions.
Surrender (Penal Code)
The Penal Code stipulates that a criminal sanction may be reduced if the person who committed the crime surrendered himself/herself before being identified as a suspect by an investigative authority (Article 42). The court decides whether and how much to reduce the penalty, taking all the circumstances of the case into account.
Leniency Under the AMA
With respect to unreasonable restraint of trade under the AMA, as mentioned in 3.7 Cartels and Criminal Competition Law, the JFTC does not file an accusation to public prosecutors and does not impose surcharges against the first applicant who reported criminal activities to the JFTC before the JFTC’s investigation has commenced. The second or later applicants for leniency could be granted some reduction of the surcharge.
As addressed in 2.8 Plea Agreements, a plea bargaining could be available in the case of the voluntary disclosure of certain criminal conduct.
In addition to the above-mentioned legal systems, self-disclosure and co-operation with investigators or prosecuting authorities may be considered as mitigating factors, as may other circumstantial factors of judgement determined by investigators, prosecutors or the courts.
Under the Whistle-Blower Protection Act (WBPA), an employer shall not dismiss, demote, reduce compensation for or otherwise unfavourably treat qualified whistle-blowers under certain circumstances.
In response to criticism that whistle-blower protection is inadequate, the government amended the WBPA in June 2020, to strengthen the protection of whistle-blowers.
Expansion of Scope of Qualified Whistle-Blowers
Under the amended WBPA, qualified whistle-blowers include retired employees and corporate executives. The reporting of criminal conduct and misconduct is subject to administrative sanctions, added to the scope of protection.
Duty to Establish a Reporting System
Under the amended WBPA, companies with more than 300 employees must establish a reporting mechanism to receive and respond appropriately to whistle-blowing reports, and companies with 300 or fewer employees must make efforts to establish such a system (Article 7).
Duty to Protect the Confidentiality of Whistle-Blowers
The amended WBPA requests a person who is engaged in an internal investigation to protect the confidentiality of information that could identify the whistle-blower, and any violation may be subject to a criminal penalty. The violation of such statutory obligation of confidentiality is subject to criminal sanctions (Articles 12 and 21).
Exemption from Civil Liability for Damages
The amended WBPA clarifies that a whistle-blower is exempt from civil liability for damages suffered by companies due to his/her report (Article 7).
In criminal court proceedings, prosecutors generally bear the burden of proof and must prove guilt beyond a reasonable doubt.
Under the Constitution, a defendant in criminal proceedings is presumed innocent until they are convicted.
Courts impose punishment according to their own discretion, within the range set forth in the Penal Code or other laws. Under the CCP, if the prosecutor issues an indictment in breach of a plea agreement, such indictment must be dismissed by the court (Article 350-13).
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New Era of Government Investigations
In May 2016, Japan’s Code of Criminal Procedure was amended to introduce a new plea bargaining system, which came into effect on 1 June 2018. This brought a huge change in the way criminal investigations are conducted in Japan.
Global companies doing business in Japan should be aware of two relatively more recent trends and changes: one is the practice of “independent investigation committees” (daisansha iinkai) and the other involves changes to whistle-blower protections in Japan, especially the amendment of the Whistleblower Protection Act in 2020.
Plea Bargaining Started in 2018
Under the 2016 amendments to the Code of Criminal Procedure, Japan introduced its brand new plea bargaining system, which took effect in June 2018. This amendment was based on the criticism that Japanese prosecutors’ investigations relied too much upon interrogation and confession. Also, there was an analysis that it was becoming more difficult for the prosecutors’ office to investigate white-collar crimes than before, because businesses and business activities had become more complex and more cross-border focused, and that traditional methods of investigation such as conducting raids and searches were no longer as effective as they had been in the past. These problems led to calls for a new style of government investigation, especially one that featured co-operation between the prosecutors’ office and suspects and/or defendants. The great success of the leniency programme that was introduced in 2006 for investigations and enforcements involving alleged violations of the Antimonopoly Act, such as bid rigging, was also a factor that supported the argument to introduce a plea bargaining system.
Overview of the plea bargaining system
Under the new plea bargaining system, prosecutors and suspects and/or indicted defendants, with their defence counsel, will negotiate a settlement agreement. The suspects/defendants agree to co-operate with investigations related to criminal charges against third parties, and the prosecutors will give merits, such as non-prosecution agreements and reduction of charges.
It should be noted that Japan’s new plea bargaining system is different from so-called self-reporting systems, in that the co-operating party (suspect/defendant) needs to provide information to prosecutors relating to the investigation of a third party’s criminal conduct, and not for investigations into the co-operating party’s conduct.
Crimes covered by plea bargaining
The scope of the plea bargaining system is limited to “specific crimes”, which could be categorised into three areas: (i) organised crimes, (ii) white-collar crimes and (iii) the destruction of evidence in cases related to alleged crimes included in categories (i) and (ii).
This limitation has two important consequences: first, the suspect and/or the defendant must be under investigation for these specific crimes; secondly, the suspect and/or the defendant must co-operate by providing the prosecutor with information regarding the specific crimes of third parties. There is no requirement that the crimes committed by the co-operating suspect and/or defendant and the crimes allegedly committed by the third parties must be the same.
The category of organised crimes includes drug crimes, firearms-related crimes and other crimes typically committed by antisocial organisations like the Yakuza. These types of crimes were likely included in the new system because, in many investigations related to these crimes, it is quite difficult to indict higher-ranking members of criminal organisations who actually instructed or incited lower-ranking members to commit crimes. Under the new plea bargaining system, lower-ranked suspects/defendants can co-operate with the prosecutor by providing information regarding the instructions given by the higher-ranking members of the criminal organisation.
White-collar or category (ii) crimes are also specifically listed in the Code. These offences include bribery, fraud, violations of the Antimonopoly Act, embezzlement, tax law violations, foreign bribery and insider trading.
Category (iii) crimes include the destruction of evidence, the intimidation of witnesses and harbouring criminals, in cases involving crimes listed in categories (i) and (ii).
Negotiation and agreement
The parties to the negotiation and the settlement agreement are the public prosecutor and the suspect (before indictment) and/or the defendant (after indictment). Also, defence counsel for the suspect and/or defendant are required to be involved because it is not expected that the suspect and/or defendant can fully negotiate with the prosecutor without counsel’s involvement.
Corporations can use the new plea bargaining system, in addition to individual suspects/defendants. This is because a corporation can be a suspect or a defendant in cases where the Criminal Code provides criminal liability for a corporation based on the criminal conduct of one of its directors or employees. For example, if a director or employee of a corporation commits specific types of crimes, such as tax evasion and foreign bribery, the corporation can be criminally liable (subject to a fine).
The Code of Criminal Procedures does not stipulate who is entitled to initiate plea bargaining negotiations, so either the prosecutor side or the suspect/defendant side may do so.
If the parties reach a settlement, the settlement agreement needs to be signed by all of the parties, the prosecutor, the suspect/defendant and defence counsel.
Types of co-operation by suspects/defendants
The suspect and/or defendant will co-operate by doing the following:
As mentioned above, it is an important feature that the co-operation must be for a criminal investigation into a third party, not for the criminal investigation into the co-operating person’s conduct.
Quid pro quo obtained by the suspect/defendant through co-operation
As consideration for the suspect and/or defendant’s co-operation, the prosecutor will be able to give the following quid pro quo:
To decide what kind of quid pro quo should be given, a prosecutor considers a variety of factors, including the significance of the evidence obtained by the co-operation, and the seriousness, circumstances and relevance of the crimes regarding which the co-operating suspect and/or defendant will give information. Until the introduction of this plea bargaining system, prosecutors were not allowed to negotiate with a suspect/defendant by giving some merit in exchange for obtaining evidence for the investigation of others. Now, they are able to officially offer such consideration to the co-operating suspect and/or defendant.
Judges' role in settlement agreements
A judge is not a party to the settlement agreement. In this regard, theoretically, there is a risk that a judge will not adopt the quid pro quo that a prosecutor has agreed upon with a suspect/defendant. For example, even though the prosecutor makes a recommendation to the court for a lighter penalty, or makes a petition for an expedited trial, or requests a summary order subject to the settlement agreement, there is no guarantee that the judge will also be subject to the settlement agreement. It should also be noted that there are no sentencing guidelines in Japan like the US federal sentencing guidelines. Thus, although there is some expectation that a judge will probably respect such settlement agreement, a risk still exists to some extent. In the meantime, some forms of quid pro quo, such as a non-prosecution agreement, are solely within the discretion of the prosecutors’ office. As such, there is very little risk that the prosecutors’ office will violate those portions of a settlement agreement.
If the agreed quid pro quo is not actually given, the suspect and/or defendant will be entitled to withdraw from the settlement agreement. In such case, the suspect/defendant will have no longer have any obligation to co-operate with the prosecutor, and the prosecutor will not be able to use the evidence given through the co-operation by the suspect/defendant. Conversely, the prosecutor will be entitled to withdraw from the settlement agreement if the suspect/defendant violates the settlement agreement, in which case the prosecutor will not be obliged to give the suspect/defendant the agreed merits, such as non-prosecution.
Application of the plea bargaining system
Since its introduction, there have been three reported cases where the new plea bargaining system has been applied.
The first was a foreign bribery case where Mitsubishi Hitachi Power Systems Ltd – a joint venture company between Mitsubishi and Hitachi (MHPS) – co-operated with the prosecutors’ office and reached a settlement agreement in June 2018.
According to the MHPS announcement, in February 2015 an MHPS importer attempted to unload components for the construction of a power plant in Thailand. However, the unloading was stopped and a Thai official demanded the payment of fees before the unloading was allowed to continue. To avoid the delay and damages to the construction project, MHPS executives prepared the money and made the payment through the importer to the Thai official. The amount was approximately THB11 million.
MHPS discovered this fact through an internal report from a whistle-blower in March 2015, conducted internal investigations and submitted a report to the Tokyo district prosecutors’ office in June 2015. Since then, the company has co-operated with the prosecutors’ investigations, and the prosecutors’ office made a plea bargaining offer to MHPS in June 2018. According to the settlement agreement, three former executives of MHPS were indicted in July 2018 but the company itself was not indicted. The two former employees were found guilty with imprisonment with suspended sentences at the Tokyo District Court on 1 March 2019, and the remaining former director was sentenced to a fine on 21 July 2020 at the Tokyo High Court.
This case clearly demonstrated that a company is able to make use of the plea bargaining system and, in such case, will be giving information with regard to its executives and/or employees as “third parties” against whom the prosecutor would conduct investigations.
This was a different situation from the typical case that the media and practitioners had discussed before the introduction of this system, in which a mid-level manager under arrest or investigation for a crime would co-operate with the prosecutor by giving evidence that he or she had received an instruction from his or her supervisor(s), including the executives, that led to the commission of the crime. Under these circumstances, the manager would obtain sufficient quid pro quo. However, since many companies are now making substantial efforts towards compliance, they will definitely consider this plea bargaining as one option, because companies need to make the wrongdoer (its executives or employees) fully liable for their conduct. In such cases, the company will co-operate with prosecutors by giving the necessary information with regard to the criminal investigations into its executives and/or employees as “third parties”.
The second case concerns Nissan Motor Co’s chairman Carlos Ghosn, which is still under ongoing investigations (at the time of writing). Nissan announced that this case started from whistle-blower information, and after conducting thorough internal investigations, the prosecutors’ office and other executives of Nissan had agreed to a plea bargain.
The third reported case was an embezzlement case committed by some executives of apparel company GLADHAND. The special investigation department of Tokyo district prosecutors’ office obtained the co-operation from another employee of the company who got involved in the crime.
Importance of robust compliance programmes
Because this plea bargaining system has brought about a new style of government investigation in the area of white-collar crimes, companies and executives now have a potential risk of being investigated by using this new plea bargaining system through the co-operation of lower-level employees of their own company or executives or employees of other companies. Companies doing business in Japan now need to know that the importance of having a robust compliance programme is even more acute, and especially the importance of having a well-designed and well-working internal whistle-blowing system.
Independent Investigation Committees
Another topic of which companies doing businesses in Japan should be aware relates to the practice of creating a so-called Independent Investigation Committee (daisansha iinkai), which Japanese companies organise when white-collar crimes or other corporate fraud cases occur. It has been widely used in practice for Japanese companies to conduct internal investigations, and has some unique features.
Formation of independent investigation committees
An independent investigation committee is not required or regulated under Japanese law. Instead, there is a soft law rule, known as the Guidelines for Independent Investigation Committees published by the Japan Federation of Bar Associations in 2010 (the JFBA Guidelines). The JFBA Guidelines are not compulsory, but it is common practice in Japan to consider the requirements, at least to some extent, and companies dealing with a scandal often fully comply with the JFBA Guidelines.
The distinguishing feature of the JFBA Guidelines is a very high-level requirement of the independence of the committee: no one who has any interest in relation to the company under investigation can become a member of the committee. For example, a “komon” lawyer, who is a regular outside counsel to the company, cannot be a member. Also, the power to write the final report belongs fully to the committee, and the committee will not disclose the final report, even in part, before the committee officially submits it to the company.
Also, the JFBA Guidelines require the corporation under investigation to disclose the final report submitted by the independent investigation committee to the stakeholders without delay, unless some exception applies. The JFBA Guidelines state that the meaning of “stakeholders” will be decided on a case-by-case basis, but if the scandal is about a public company and affects the trust of the capital market, or if it is related to an indefinite or a large number of consumers, the JFBA Guidelines require the publication of the whole of the final report, in principle.
The ultimate purpose of the JFBA Guidelines is for the company in question to recover its trustworthiness and sustainability; for this purpose, the JFBA Guidelines require the company to voluntarily organise an independent investigation committee to fulfil its accountability to the stakeholders in terms of corporate social responsibility. The practice of using independent investigation committees has been growing because of increased awareness of the committees and their importance. However, there has been strong criticism that, in several cases, companies facing scandals created independent investigation committees that did not have enough independence to conduct thorough investigations.
In February 2016, Japan Exchange Group, Inc (JPX) published the “Principles for Responding to Corporate Scandals” (the JPX Principles), which noted that “not all companies address scandals with the proper sense of resolve and urgency. There are cases where companies fail to pinpoint the root causes of problems or implement sufficient recurrence-prevention measures, for example. In other cases, companies might not ensure that their investigative frameworks have an objective, neutral standpoint or disclose information in a prompt, accurate manner.” The JPX Principles emphasise that when a company in scandal establishes an independent investigation committee, said committee will need to have the necessary independence, neutrality and expertise. The essence of the JFBA Guidelines is once again recognised.
Litigation risk and privilege issues under the JFBA Guidelines
From another standpoint, there is an argument that the JFBA Guidelines need to be reconsidered, especially as the requirement for the final report to be published can bring risks to the corporation, such as litigation. For instance, in the case of corporate fraud that could have effects inside and outside of Japan, like the case of Kobe Steel Group in 2017, it is extremely difficult for the company in issue to fully publish the independent investigation committee’s final report because it could easily lead to litigation in countries that have extensive evidence disclosure requirements, such as the pre-trial discovery process in the USA. The company would need to consider how much it could make use of its attorney-client privilege, and when it might need to waive it. At present, the JFBA Guidelines do not appear to include such considerations.
Global companies doing businesses in Japan will need to consider both compliance with the JFBA Guidelines and such risk of litigation and attorney-client privilege.
In the field of white-collar criminal defence, whistle-blower protection is critically important to prevent and investigate wrongdoings at early stages. After the US movement to protect whistle-blowers following the Enron and Worldcom cases in the early 2000s, Japan had a similar movement, because of several serious corporate fraud cases that had been revealed by the efforts of whistle-blowers. Japan’s Whistleblower Protection Act was passed in 2004 and came into effect in 2006.
After more than a decade, there have been recent discussions and changes to whistle-blower protection in Japan, based on corporate fraud and white-collar criminal cases where internal whistle-blowing systems did not work at all.
The Consumer Affairs Agency (CAA) is the Japanese government section in charge of this area, and has been reforming the whistle-blower protection regime, especially since 2016, to contribute to corporate compliance and safer consumer life. The three main areas are amendment of the internal whistle-blowing system guidelines, introduction of the self-accreditation certificate regime, and amendment of the Whistleblower Protection Act.
The CAA amended the Guidelines for enterprises with regard to the Whistle-blower Protection Act issued in 2005, and published new guidelines titled “the Guidelines for enterprises with regard to maintenance and operation of internal whistleblowing systems” (the New Guidelines) in 2016.
The New Guidelines represented a substantial increase in volume: the number of items more than doubled. The New Guidelines emphasise the importance of enterprises preparing an environment where employees are able to internally report or consult without concern, and request that the top management takes the lead to promote this effort. The protection of the confidentiality of whistle-blowers and their reports and consultation is a key element, alongside the prohibition of retaliation against whistle-blowers. The New Guidelines show examples of the best practices taken by companies that are in the advanced level of internal compliance whistle-blowing systems.
The CAA also amended the guidelines for the national and local governmental agencies in 2017, providing guidance for governmental agencies that receive information from whistle-blowers working at enterprises supervised by said agencies. This indicates that whistle-blowers working at companies are encouraged to speak up to the supervising authorities. Companies need to further polish their internal whistle-blowing systems.
Self-Accreditation Certificate regime and WCMS mark
In February 2019, the CAA started the Self-Accreditation Certificate regime, where companies self-evaluate their internal whistle-blowing systems according to the criteria issued by the registration organisation designated by the CAA. Companies that believe they satisfy the criteria submit an application to the registration organisation, and if it is confirmed that they satisfy the criteria, the companies are registered with the Self-Accreditation Certificate and allowed to use the Whistleblowing Compliance Management System Mark (the WCMS Mark). As of 2 October 2020, 80 companies are registered with the Self-Accreditation Certificate.
The CAA also announced that, later on, it will start the third-party certificate regime. Details such as the timing of the introduction of this next step have not yet been decided.
Amendment of Whistleblower Protection Act
On 8 June 2020, the Japanese Diet passed a bill to amend the Whistleblower Protection Act, in order to better protect whistle-blowers. This amended law will come into effect by June 2022.
The amendment can be summarised as follows:
As can be seen in the increasing number of registered Japanese companies with Self-Accredited Certificates, and as companies need to prepare for the start of the legal obligations for companies under the amended law, the internal whistle-blowing system will become more important in Japan. Corporations doing businesses in Japan should be aware of this changing area.