Japanese law does not classify offences as misdemeanours and crimes, although there is an act called the Misdemeanour Act. The main piece of legislation is the Penal Code, but many other statutes include provisions dealing with criminal sanctions. The constituent elements of a crime are as follows:
A crime must also be “illegal”, and this component is missing in the case of self-defence, emergency or other justifiable acts.
Regulatory Provisions and Legislation
The main regulatory provisions and legislation relevant to white-collar crime include the following.
Corporate Fraud (White-Collar Crime) Offences
The main offences relevant to white-collar crime are as follows.
Further offences
Sanctions against white-collar crime also apply to the following offences:
All crimes listed above require intent. Therefore, to secure the conviction of a corporation or an individual, the public prosecutor must prove the occurrence of the criminal act and criminal intent beyond reasonable doubt.
The applicable limitation periods depend on the type of crime and the amount of the statutory penalty (Article 250, Code of Criminal Procedure or CCP) and they range from one year to 30 years (except for offences punishable by death). The limitation period starts running from the time when the criminal act has stopped (Article 253, CCP). Where accomplices are involved, the period starts from when the last criminal act committed by an accomplice has ceased (Article 253, CCP). If the offender is abroad, the statute of limitations is tolled during their time abroad (Article 255, CCP).
In general, Japanese laws and regulations do not apply to the activities of foreign companies outside Japan as their territorial scope should be limited to Japan. However, the PC lays down that its provisions may apply to a person who commits certain categories of serious crime outside Japan (regardless of nationality). It is also understood that if only part of the act or the result of a crime occurs in Japan, it is considered as a “crime occurring in Japan”. Therefore, the PC may apply if a fraudulent act causes a damage to a resident of Japan.
By contrast, the extraterritorial application of administrative powers is generally not specified. In general, Japanese administrative laws and regulations may even apply to acts outside the territory of Japan if they affect or have consequences for persons and properties in Japan.
In principle, only individuals are criminally liable under Japanese law, and most related crimes are covered by the PC without dealing with juristic persons. In Japan, a body corporate can only be held criminally liable if there is a specific statutory provision (Article 8 of the PC, the dual-liability provision). This generally means that a body corporate can be punished by a fine only after it has been proved that one of its officers or employees has committed a specific crime in connection with the business of that body corporate. In a merger context, it is understood that the criminal liability of the dissolving company cannot be assumed by the surviving company (24 February 1984, Supreme Court Criminal Cases, Volume 38, No 4, p 1,287).
Administrative sanctions (eg, administrative monetary penalties) can be imposed on bodies corporate without a dual-liability provision being required (eg, under the Act on Prohibition of Private Monopolisation and Maintenance of Fair Trade or “AMA”).
Civil Remedies
Victims of white-collar offences may seek remedies if the offender’s actions constitute a tort under the Civil Code (Article 709). Proceedings are generally initiated before the district court as the court of first instance, depending on the severity of the matter (otherwise, the summary court for petty claims). Civil proceedings are conducted separately from white-collar crime cases. For white-collar crimes, torts resulting from a breach of duty to provide explanations or from the principle of suitability will be taken into account. In addition, the FIEA contains special provisions on the quantum of damages that must be paid by persons who make false statements in security registration statements. Theoretically, contractual liability and unjust enrichment can be pursued as civil remedies, but when the issue is whether a white-collar crime has been committed, it is usually sufficient to seek tortious liability. However, there are cases in which contractual liability should be pursued due to the statute of limitations.
Remission Scheme Against Organised Crime
In principle, property extorted from a victim as a result of a crime or property derived from such property is not confiscated (Article 19, paragraph 2 of the PC; Article 13, APOC). Under a restitution order system used in this context and concerning the confiscation of the proceeds of crime and the collection of sums equivalent to the proceeds of crime, the public prosecutor’s office can conduct procedures to issue remission payments for victims, etc, from confiscated or forcibly collected property (procedures to issue remission payments), based on the Act on Issuance of Remission Payments Using Stolen and Misappropriated Property. In addition, when a criminal current deposit account is frozen, the DIC and the bank where such deposit account is opened may take the initiative of distributing the funds from such account to the victims (Act on Payment of Damage Recovery Benefits from Funds in Deposit Accounts Used for Crime).
Class Actions
In principle, US-style class actions are not available in Japan. However, certain organisations certified by the Prime Minister (the Secretary-General of the Consumer Affairs Agency) are permitted to file actions against business operators to request injunctions to end or prevent violations of the Consumer Contract Act committed by business operators against many unspecified individuals. Furthermore, organisations that are specifically certified among these consumer organisations are entitled to file actions for the “confirmation of common obligations”, and can take judicial action to ascertain the rights of such consumers. However, these consumer organisations may not represent consumers without their individual consent.
Legal Reform
The main development in relation to white-collar offences was the launching in June 2018 of a plea-bargaining system following a reform of the Criminal Procedure Code. The plea-bargaining system allows a suspect and a defendant to enter into negotiations with prosecutors. Under this system, evidence of criminal conduct by or testimony about the criminal conduct of third parties (individuals or companies; third-party suspects) can be provided in return for a reduction or withdrawal of criminal charges. The system covers white-collar crimes such as fraud, bribery, embezzlement and antitrust offences, and certain offences relating to taxation and trading in financial products and instruments.
There are various ways in which an individual or company (a co-operating party) can co-operate with prosecutors in relation to third-party suspects. These include assisting with the collection of evidence, and responding truthfully to enquiries in an investigation by the authorities or in a court trial. To prevent a co-operating party from providing false information on a suspect third party in the hope of a reduced penalty, a co-operating party found to have provided false information may be subject to criminal sanctions, including imprisonment of up to five years.
Case of Foreign Bribery in Thailand
In July 2018, the Tokyo public prosecutor’s office indicted three executives of a Japanese power plant manufacturer for bribing public officials in Thailand in connection with a thermal power plant construction project, in violation of the Unfair Competition Prevention Act, which prohibits the bribing of foreign public officials. This was the first case in Japan in which the plea-bargaining system was used. At first instance, the Tokyo District Court found all three defendants guilty. However, one of the defendants, a former director, contested the ruling, and the Tokyo High Court in the second instance ruled that he was not the main offender but just assisted in relation to the bribery. The case was then heard by the Supreme Court, and in May 2022 the decision of the Tokyo High Court was reversed by the Supreme Court, resulting in the confirmation of the Tokyo District Court’s decision.
Case of Securities Fraud and Other Corporate Fraud
In November 2018, the Tokyo District public prosecutor’s office arrested and indicted the former CEO of an automobile manufacturer on charges of:
The former CEO was detained for over three months, with repeated arrests and denials of bail requests. He then fled abroad in December 2019 while on bail and criminal proceedings were suspended in the middle of the pretrial proceedings. By contrast, a former director and subordinate of the former CEO, who was also indicted, was convicted in 2022. The decision is noteworthy because the credibility of the testimony obtained through the plea-bargaining system was carefully scrutinised by the judges and the former director was acquitted of some of the charges.
Two main types of authorities are involved in relation to the prosecution, investigation and enforcement of corporate or business fraud.
Authorities With Powers Over Criminal Cases
The authorities with powers over criminal cases are the police and the public prosecutor’s office. They have the power to conduct compulsory investigations, but often make enquiries or interview suspects on a voluntary basis. As an additional punishment to the principal sentence for a criminal offence, the courts may confiscate the proceeds of crime or collect their equivalent in cash. For white-collar crimes, the public prosecutor’s office has established special investigation departments in Tokyo, Osaka and Nagoya, and the police also often have special divisions, but there is no special court for white-collar crimes.
Authorities With Powers Under Administrative Laws and Regulations
Those with authority under administrative laws and regulations are divided into ministries and agencies. White-collar crimes are often dealt with by the Japanese financial authorities, as such crimes frequently involve financing. They have regulatory authority over financial institutions (including banks and insurance companies) to ask questions, conduct site inspections and order the submission of reports and materials. The financial authorities generally conduct investigations into financial institutions on a voluntary basis for the purpose of requiring them to improve their business procedures in accordance with applicable laws and administrative guidance (financial inspections are based on Article 25 of the Banking Act, etc, and penalties are imposed for evading such inspections).
By way of example, the Financial Services Agency of Japan (FSA) is responsible for ensuring the stability of the financial system, protecting investors and carrying out surveillance over securities transactions. The Securities and Exchange Surveillance Commission (SESC) is entrusted by the FSA with daily market surveillance, inspections of securities firms, inspections of disclosure documents and related activities.
In addition to the FSA, the Japan Fair Trade Commission (JFTC) is also important as an administrative authority with respect to white-collar offences. The JFTC is the domestic competition watchdog. Its members are experts in law or economics, and it performs its duties as an independent administrative commission. Its organisational unit (the general secretariat) takes charge of the JFTC’s clerical affairs in infringement investigations and supervises cases involving infringements of the AMA.
The Consumer Affairs Agency has general regulatory authority over misleading labelling, and the competent authorities for individual laws regulating labelling and advertising in specific fields (eg, the Pharmaceutical Affairs Law) are also regulatory authorities.
For violations of administrative regulations, penalties are often prescribed instead of administrative sanctions. When the administrative authorities believe that a crime has been committed with respect to the laws and regulations under their jurisdiction, they must press charges with the investigative authorities.
Administrative sanctions
Non-compliance with administrative regulations may give rise to administrative sanctions, which can include:
In general, the authorities mentioned in 2.1 Enforcement Authorities have discretion as to whether to initiate an investigation. There are no specific acts generally dealing with the initiation of an investigation, even though the Act on Prohibition of Private Monopolisation and the Maintenance of Fair Trade Act require the authorities to initiate an investigation when they accept a report (Article 45 of the AMA). The provisions of the Administrative Procedure Act (eg, notice hearings) do not apply to investigations directly aimed at gathering information (Article 3, paragraph 1, item 14 of the Act).
Power to Conduct Searches and to Compel Disclosure
In principle, in criminal cases, having obtained a warrant issued by a court (Article 218, CCP), the police or the public prosecutors have the power to conduct the necessary searches (including obtaining evidence). The requirement is “when it is necessary in connection with the investigation of a crime”, which is broad (Article 218 of the CCP). Requests for hearings and submissions can also be made on a voluntary basis. Rejection of a request may trigger an arrest if there is any suspicion.
The administrative authorities of licensed enterprises (eg, the FSA) usually have the power to conduct on-site inspections. The requirement is broad, as in the case of criminal investigations (eg, an inspection of a bank “when it is deemed necessary to ensure the sound and proper operation of the bank’s business”). Administrative agencies cannot conduct investigations by suppressing defiance, while any avoidance or prevention/blocking of an on-site inspection usually constitutes a crime. It is often difficult for enterprises to file an action to revoke administrative dispositions like an investigation; as such, an investigation cannot end until the court decides to revoke or suspend it. As an alternative to a compulsory investigation, the administrative authorities often ask relevant enterprises to submit information on a voluntary basis.
The administrative authorities can decide to conduct a dawn raid (this is customary practice by the JFTC in relation to cartel investigations), especially when they have concerns about the destruction or concealment of evidence.
Questioning Powers, etc
In criminal cases, the police or the public prosecutors can interrogate a suspect when they arrest or detain such a suspect with a warrant issued by a court (Article 198, CCP). The requirement for arrest is “when there is probable cause to suspect that the suspect has committed a crime” (Article 199, CCP). They can also interview a suspect on a voluntary basis. Plea bargaining (limited to cases involving the criminal conduct of third parties, as opposed to one’s own) was introduced into Japanese law recently (Article 350-2 et seq, CCP) and public prosecutors can therefore now grant immunity from prosecution to a witness, although the courts tend to scrutinise the credibility of the testimony of such witnesses and there have only been very few cases in Japan. Arrest and detention are made to prevent escape and destruction of evidence and are a means of furthering criminal investigations. They are also used in practice by the police and public prosecutors to interrogate suspects and defendants.
The administrative authorities supervising licensed enterprises (eg, the FSA) usually have the power to ask questions and order them to submit reports. The requirements and sanctions for non-compliance are generally the same as for administrative inspections. The administrative authorities often interview and monitor enterprises on a voluntary basis.
In criminal cases, the suspects and the accused have:
These rights are based on the Constitution. However, attorney-client privilege is not recognised under Japanese law in a criminal context; though attorneys have the right to refuse to seize documents, etc, pertaining to their client. Attorneys are in practice not allowed to attend the interrogation of suspects during criminal investigations.
Unlawfully obtained evidence may be excluded by a court, taking into account the seriousness of the illegality, and the necessity to prevent procedural violations and solve cases. Appeals against the retention or seizure of evidence can be filed with a court (Article 430, CCP).
Attorney-client privilege is not available throughout examinations conducted by the administrative authorities, with the exception of cartel matters under the AMA and related JFTC guidelines. In practice, the administrative authorities do not permit counsel to be present at such examinations.
Power to Obtain Evidence Abroad
In addition to the foregoing, in criminal cases, the police or the public prosecutors may obtain evidence located abroad with the co-operation of other jurisdictions in pursuance of international assistance arrangements other than voluntary investigative assistance in the course of diplomatic relations.
If the evidence is located abroad, the administrative authorities will request the relevant corporation or branch office to submit such evidence on a voluntary basis, or may seek to collect such evidence with the co-operation of the foreign countries’ competent agencies in accordance with applicable mutual legal assistance treaties (if any).
Power of Arrest and Detention, and Relief
See Questioning Powers, etc as just discussed. An appeal may be filed against a detention order (Article 429, CCP). The period of arrest is up to 72 hours, and the period of detention is up to 20 days. There is no right to bail before indictment. When indictment takes place during detention, detention continues after the indictment and can be renewed if deemed necessary by the court. The defendant may be entitled to bail with a few exceptions, such as when there is reasonable cause to suspect that the accused may conceal or destroy evidence (Article 89, CCP). A court can also allow a defendant to post bail on its own authority when it deems it appropriate (Article 90, CCP).
There is no specific statutory or regulatory obligation to conduct an internal investigation under Japanese law, even if there is a suspicion of wrongdoing. However, a director’s duty of care to a company could prompt senior management to commence internal investigations. Under the Companies Act, if a director fails to conduct an investigation despite being aware of the possibility of misconduct, the director may be found to be in breach of their duty to mitigate losses or damage suffered by the company.
Director’s Duty of Care
In addition, industry-specific statutes or regulations may indirectly compel a company to conduct investigations. For example, when a pharmaceutical company or medical device manufacturer becomes aware of issues relating to the efficacy or safety of its pharmaceutical or medical devices, it must report the issue to the authorities and an investigation, even preliminary, must be conducted beforehand.
Self-Regulated Organisations
Self-regulated organisations, such as the Japan Exchange Regulation (JPX-R) have established their own guidelines concerning the obligations of listed companies to make an effort to conduct investigations when they become aware of misconduct.
Co-operation
Evidence for criminal cases in Japan can be obtained from foreign countries based on a treaty or agreement regarding mutual legal assistance in criminal matters with Japan (eg, agreements with the USA, South Korea, China, Hong Kong, the EU, Russia and Vietnam, except for cases that do not constitute a crime according to the laws of these countries). For foreign countries that have not entered into a treaty or agreement, co-operation is conducted through diplomatic channels based on the principle of reciprocity (Act on International Assistance in Investigation and Other Related Matters). Assets derived from criminal activity can be seized in a foreign jurisdiction based on treaties or agreements and through diplomatic channels. Japan has concluded and ratified the United Nations Convention against Transnational Organized Crime, which allows for requests for assistance relating to organised crime between authorities in signatory countries, without going through diplomatic channels.
Administrative authorities usually share information on a bilateral and multilateral basis.
Blocking Statute
There is no statute that is clearly and explicitly intended to block the assertion of foreign jurisdictions within Japan.
Extradition
The Japanese government has entered into extradition treaties with the USA and Korea. Moreover, there are multilateral treaties with provisions on extradition to which Japan is a party, such as the United Nations Convention against Transnational Organized Crime and the United Nations Convention against Corruption. The Extradition Act serves as implementing legislation.
Only public prosecutors have the authority to prosecute (Article 247, CCP). In most cases, public prosecutors ultimately decide to prosecute criminal cases based on the results of a police investigation. However, public prosecutors may proceed with investigations independently from the police. If the administrative authorities become aware of the existence of a crime in connection with the relevant laws and regulations under their jurisdiction, they must file a complaint in relation to the crime with the police or the public prosecutor’s office.
The public prosecutor’s office decides at its discretion whether to prosecute by taking into consideration, for example:
However, a criminal case will be commenced if the Committee for the Inquest of Prosecution (a committee composed of 11 members elected by lot from among citizens) resolves that the case should be prosecuted, even if the public prosecutor has decided not to prosecute.
There are no clear prosecution guidelines or standards.
Under the CCP, there is no deferred prosecution system or non-prosecution agreement scheme. See 2.8 Plea Agreements, which can have a relatively similar effect.
A plea-bargaining system was launched in June 2018 following a reform of the CCP. This system allows a suspect and a defendant to enter into negotiations with prosecutors in the presence of their attorneys. Evidence of criminal conduct by, or testimony on the criminal conduct of, third parties (individuals or companies; third-party suspects) can be provided in return for the reduction or withdrawal of criminal charges. The system covers white-collar crimes such as fraud, bribery, embezzlement and antitrust offences, and certain offences relating to taxation and trading in financial products and instruments.
There are various ways in which an individual or a company (co-operating party) can co-operate with prosecutors in relation to third-party suspects, including:
To prevent a co-operating party from providing false information on a third-party suspect in the hope of a reduced penalty, the provision of false information may be subject to criminal sanctions, including imprisonment of up to five years.
A court recently expressed the view that statements based on plea agreements “should be carefully examined from the viewpoint of whether there are circumstances in which their credibility should be positively recognised, such as the existence of sufficient corroborative evidence, objective evidence or statements by credible third parties”, and that “statements without direct corroborative evidence should be examined more carefully from the viewpoint of the nature and content of the statement and whether the content of the statement is certain in light of the stable facts related to the statement”.
See 1.1 Classification of Criminal Offences. In addition to the offences covered by the PC and other laws, the CA also imposes sanctions against the fraudulent activities of corporate officers and employees. The CA specifies many types of corporate crime, including the following.
Special (Aggravated) Breach of Trust
A director can be criminally liable for aggravated breach of trust under the CA if they breach their duties for the purpose of unduly seeking their own benefit or in the interest of a third party, or to inflict damage on the company’s assets (imprisonment of up to ten years and/or a fine not exceeding JPY10 million).
Endangering a Company’s Assets
This includes:
Other CA Offences
These include:
Fraud and embezzlement are covered by the PC.
General
In Japan, various statutes prohibit bribery and classify it as a crime:
In addition, the Political Funds Control Act and the Public Officers Election Act regulate political contributions.
The National Service Act and the National Public Service Ethics Act regulate the conduct of national public servants and their receipt of benefits from certain persons and organisations. The National Public Service Ethics Board provides specific guidance in the code of ethics for national public officials regarding permissible gifts, hospitality and other business courtesies, and regarding facilitation payments in an administrative disciplinary context in Japan.
Public Officials
The PC prohibits both paying a bribe to public officials and receiving a bribe from public officials. The PC generally prohibits a public official from accepting, soliciting or promising to accept a bribe in connection with their duties. It also prohibits a person from giving, offering or promising to give a bribe to a public official. Employees of state-owned or state-controlled entities, such as the Bank of Japan, national universities and Japan Tobacco, are usually deemed to be public officials and are subject to the bribery provisions of the PC, or to similar provisions under special laws. Intention to commit the offence (awareness of the bribe) is required.
Unless otherwise provided, the maximum prison term for a person found guilty of bribery is 20 years under the PC. A public officer found guilty of receiving a bribe, excluding specified offences, may be punished with imprisonment with work for a term of not more than five years. For the said specified offences, acceptance of a bribe on request by a public officer may be punished with imprisonment with work for a term of not more than seven years, and if the public officer consequently acts illegally or refrains from acting in the exercise of their duty, the prison term will be aggravated by one to 20 years. Imprisonment with work consists of confinement in a penal institution with assigned work. A person found guilty of giving, offering or promising to give a bribe may be punished with imprisonment with work for not more than three years or a fine of not more than JPY2.5 million.
A person who jointly commits the crime of bribery or induces another to commit such a crime may be punished as severely as the principal. However, a person who is merely an accessory to its commission is subject to a lesser punishment.
Foreign Public Officials
Japan amended the UCPA in 1998 (criminalising the bribery of foreign public officials in international business transactions) in order to implement the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions, 1997. Japan became a party to this Convention in 1998.
The UCPA prohibits the payment of bribes to foreign public officials. Article 18(1) of the UCPA provides that “no person shall give, offer or promise to give any money or other benefits to a foreign public official for the purpose of having the foreign public official act or refrain from acting in a particular way in relation to their duties, or having the foreign public official use their position to influence another foreign public official to act or refrain from acting in a particular way in relation to that official’s duties, in order to obtain illicit gains in business with regard to international commercial transactions”.
A violation of the UCPA is subject to imprisonment of up to five years and/or a fine of up to JPY5 million. If an individual who violates the UCPA’s foreign bribery provision is an employee, agent, officer or director of a company and the bribe is made in connection with the company’s business, the company can be subject to a fine of up to JPY300 million.
The Ministry of Economy, Trade and Industry (METI) has published best practice guidelines entitled “Guidelines for the Prevention of Bribery of Foreign Public Officials”.
Private Commercial Bribery
No general Japanese law prohibits commercial bribery among private persons. However, bribery of board members of companies is a crime under the CA. Directors or statutory auditors are prohibited from accepting, soliciting or promising to accept property benefits in connection with their duties, and those who have provided, offered or promised to give such benefits will be punished. The CA also makes bribery or the provision or request of benefits in relation to the exercise of shareholders’ rights a crime.
Specific laws also regulate the provision of advantages or benefits between private parties. For example, the FIEA generally prohibits Financial Instruments and Exchange Business Operators (FIEBOs), such as securities companies, banks and so on, from providing property benefits to clients to make up for losses in securities or derivative transactions.
The Cabinet Office Ordinance on financial instruments and exchange business, etc, restricts FIEBOs and their officers or employees from providing a special advantage to clients. The Ordinance also restricts the staff of registered credit-rating agencies (CRAs) from receiving, demanding or accepting an offer of money or goods that exceeds JPY3,000 per case from their clients in general. No criminal punishment is applicable to these acts. However, FIEBOs or CRAs may be subject to administrative action by the relevant regulatory authority.
No statute imposes a specific obligation to prevent bribery and influence peddling. There is no obligation to maintain a compliance programme to prevent bribery. However, the CA requires the directors of a corporation to establish internal control systems, including a system to prevent unlawful conduct. Failure to do so constitutes a breach of a director’s duty of care.
There is no systematic market practice in combating corruption and corporate crime. However, generally most, if not all, listed companies in Japan have established or strengthened their internal control systems and compliance procedures by, for example:
Insider Trading
The FIEA prohibits:
Regulatory Authorities and Guidelines
The regulatory and supervisory authorities relevant to insider trading and market abuse are the following.
The FSA
The FSA is responsible for ensuring the stability of the financial system, protecting investors and carrying out surveillance over securities transactions.
The SESC
The SESC is entrusted by the FSA with daily market surveillance, inspections of financial instruments firms, inspections of disclosure documents and related activities.
The FSA and the SESC periodically issue and update guidelines relating to the FIEA. In addition, several self-regulatory organisations, such as the Japan Exchange Regulation (JPX), the Japan Securities Dealers Association (JSDA), and the Japan Investment Advisers Association (JIAA) publish self-regulatory guidelines for the prevention of insider trading.
Offences
The following are insider trading offences under the FIEA.
Insider trading by a corporate insider (Article 166, FIEA)
Any of the persons listed below (“Corporate Insider”) who has come to know of a material fact pertaining to the business or other matters of a listed company (“Material Fact”) and makes a sale, purchase or other transfer for value or agrees to a transfer for value of shares of the listed company before the Material Fact is publicised, has violated the insider trading rules set out in the FIEA.
“Corporate Insider” includes:
“Material Facts” includes:
Decisions, occurrences, differences in settlement of account information, and the matters covered by the catch-all clause (similar to the above) with respect to the subsidiaries of the listed company also constitute Material Facts.
Insider trading in connection with a tender offer (Article 167, FIEA)
The same punishment for insider trading by a Corporate Insider (see above) will be imposed on a person who has come to know of a fact concerning the launch or suspension of:
Communicating information and advising on transactions (Article 167-2, FIEA)
A person listed in item 8 above in relation to insider trading by a Corporate Insider, who has come to know of a Material Fact, must not inform another person of such Material Fact and must not advise another person to sell or purchase stock of the subject listed company, for the purpose of allowing such other person to make profits or avoid losses, before such Material Fact is publicised. If such other person proceeds to commit insider trading after receiving said information or advice, the person who provided information on such Material Fact or the advice will be punished.
Insider trading offences are not strict liability offences in terms of criminal liability. Criminal intent by the person who has committed the insider trading offence must therefore be established. Attempts to commit insider trading offences are not punishable. An insider trading action can be brought against individuals and corporate bodies.
Penalties
A person who commits insider trading can be punished by imprisonment for up to five years and/or a fine of up to JPY5 million (Article 197-2(13), (14) and (15), FIEA). The property/earnings gained through insider trading will be confiscated and any shortfall will be collected from the offender (Article 198-2, FIEA). If the violation is committed by its representative, agent or employee, a company can be punished by a fine of up to JPY500 million (Article 207(1)(ii), FIEA).
In addition, the FSA may order a person who commits insider trading or a person who violates the above-mentioned regulation regarding the communication of information to pay an administrative surcharge (Article 175-1, 175-2, FIEA).
Market Abuse
The FIEA prohibits the following (Article 157, FIEA):
In addition, Article 158, FIEA prohibits spreading rumours or using fraudulent means, assault or intimidation for the purpose of:
The FIEA also prohibits market manipulation. The following are the main acts prohibited as market manipulation (Article 159, FIEA).
Penalties
A person who commits market abuse can be punished by imprisonment for up to ten years and/or a fine of up to JPY10 million (Article 197(1)(v), FIEA). A person who commits market abuse and sells or purchases securities at prices that are the result of market abuse, with the intent of making economic gains, can be punished by imprisonment of up to ten years and by a fine of up to JPY30 million (Article 197(2), FIEA). The property/earnings gained through market abuse will be confiscated and any shortfall will be collected from the offender (Article 198-2, FIEA). If the violation is committed by its representative, agent or employee, a company can be punished by a fine of up to JPY700 million (Article 207(1)(i), FIEA).
In addition, the FSA may order a person who commits administrative market abuse to pay a fine under the FIEA (Article 174-1, 174-2, FIEA).
Tax evasion is punishable under the law applicable to each type of tax. If a taxpayer under-reports its payable tax amount, fails to file a tax return or fails to pay withholding tax by the due date, the tax authorities can impose additional tax, which is collected as an administrative penalty. Delinquent tax can also be applied.
Under-Reporting
The penalty tax for under-reporting is 10% of the tax increment (the difference between the unreported and reported taxes) resulting from a correction or an amended return when the original final return was filed on or before the due date. If the tax increment exceeds the tax amount of the original tax return filed by the due date or JPY500,000 (whichever is greater), 15% additional tax is applied to the excess amount. Notwithstanding the general rules, where a taxpayer who has not been notified of the commencement of a tax audit files an amended tax return voluntarily, the additional tax is not applied. If a voluntarily amended return is filed by a taxpayer who has been notified of the commencement of a tax audit without awareness of the possible correction based on the audit, a 5% additional tax is applied. In this respect, if the tax increment exceeds the tax amount of the original tax return filed by the due date or JPY500,000 (whichever is greater), 10% additional tax is applied to the excess.
Failure to File a Tax Return
In the case of failure to file a tax return, the extra tax is 15% of the principal amount of tax determined by the tax office or set out in a final or amended return when the final tax return was filed after the statutory due date.
Where the principal amount exceeds JPY500,000, the rate of the additional tax increase becomes 20% with respect to the excess, and, with regard to taxes for which returns are due on or after 1 January 2024, where the principal amount exceeds JPY300,000, the rate of the additional tax increase will become 30% with respect to the excess.
Moreover, an extra 10% is added to those rates if extra tax for failure to file or a heavy additional tax has been imposed within five years with regard to the tax in question.
Notwithstanding the general rule, where a taxpayer who has not been notified of the commencement of a tax audit files a tax return voluntarily after the statutory due date, a 5% additional tax is applied. In addition, if a taxpayer who has been notified of the commencement of a tax audit files a return voluntarily without any awareness of the possible correction or determination based on the audit, 10% additional tax is applied (15% to the excess amount of the principal tax over JPY500,000).
Withholding Tax
For additional tax for failure to pay withholding tax, 10% of the unpaid amount of the principal tax is added in a case of payment notification after the deadline. However, where a taxpayer voluntarily pays the tax after the due date, the rate of extra tax is reduced to 5%.
Tax Evasion
In the case of tax evasion, additional penalty tax applies at the rate of 35% for under-reporting tax and for failure to pay withholding tax, and at 40% for failing to file a tax return. Moreover, an extra 10% is added to these rates if either an additional tax for failure to file or a heavy additional tax is imposed within five years with regard to the same tax. In addition, a tax offender may be subject to imprisonment for up to ten years or a fine not exceeding the evaded tax, or both.
Obstruction
In the case of tax audit by the tax authorities, a taxpayer is punishable by imprisonment for up to one year or a fine of up to JPY500,000 if they do not answer, or provide a false answer or obstruct/interfere with the audit.
Corporate Duties
A company may be liable to a criminal fine if an officer or employee is found guilty of a corporate income tax offence.
The Companies Act (CA)
According to the CA and its implementing regulations, joint stock companies and limited liability membership companies must prepare accurate accounting books in a timely manner (Articles 432 and 615, CA), and joint stock companies must publish their balance sheets and, where applicable, their profit and loss accounts (Article 440, CA).
According to the CA and its implementing regulations, the director (or applicable person) of a company who fails to prepare accounting books or record balance sheets properly will be subject to an administrative monetary penalty of no more than JPY1 million (Article 976, CA). In addition, when the director (or other relevant person), in soliciting subscribers for shares of the company, uses documents concerning such solicitation that contain false statements about important matters, the director (or other relevant person) may be subject to imprisonment with labour for no more than five years, or a fine of no more than JPY5 million, or both (Article 964, CA).
Financial Instruments and Exchange Act (FIEA)
According to the FIEA and its implementing regulations, a person who conducts a public offering of securities must prepare financial and accounting documentation in accordance with the rules governing terms, format and preparation methods applicable to financial statements (Article 193, FIEA). These documents must be submitted to the FSA as part of the securities registration statement at the time of the public offering, and annual securities reports (in addition to semi-annual securities reports and, for listed companies, quarterly securities reports) must also be drawn up and disclosed to the public.
According to the FIEA, failure to submit any required financial statement or report will be subject to a penalty, depending on the type of document. For example, a person who conducts a public offering before a securities registration statement has been accepted, or who fails to submit an annual securities report by the prescribed time, will be subject to imprisonment with labour for no more than five years, or a fine of no more than JPY5 million, or both (Article 197-2, FIEA). Also, a person who has made false statements about important matters regarding those documents will be subject to imprisonment with labour for no more than ten years, or a fine of no more than JPY10 million, or both (Article 197-1, FIEA).
In addition, if the above-mentioned violation of provisions of the FIEA is committed by an officer or employee of a corporation, the corporation will also be subject to a fine, as follows:
Furthermore, if such a violation is committed, it will be subject to a separate order by the FSA to pay a surcharge of a prescribed amount, depending on the type of violation (Articles 172-1 to 172-4, FIEA).
Cartels
The Act on the Prohibition of Private Monopolisation and Maintenance of Fair Trade, commonly known as the Anti-monopoly Act (AMA), governs cartels (and bid-rigging). Cartels are prohibited as an “unreasonable restraint of trade”, defined as “business activities, by which any enterprise, by contract, agreement or any other means irrespective of its name, in concert with other enterprises, mutually restricts or conducts their business activities in such a manner as to fix, maintain or increase prices, or to limit production, technology, products, facilities or counterparties, thereby causing, contrary to the public interest, a substantial restraint of competition in any particular field of trade” (Article 2(6), AMA).
The JFTC is the government agency responsible for enforcing the AMA and can conduct primary investigations and impose cease-and-desist orders and administrative fines (surcharge payment orders). The surcharge amount is calculated as a percentage (10%) of total sales of the products or services concerned. The calculation period covers a period of ten years preceding the date on which the JFTC starts its investigation, and the period under the statute of limitations is seven years. In addition, the maximum surcharge amount imposed can be increased by 50% for:
There is also a framework allowing the JFTC to factor in the degree of co-operation and to award a corresponding discount to the fines.
Criminal Sanctions
In addition to administrative sanctions, firms and individuals can face criminal sanctions for cartel violations. The filing by the JFTC of a criminal accusation to the Prosecutor General is the exclusive means by which a criminal prosecution can be brought against firms and individuals for cartel violation of the AMA (Article 96(1), AMA). Cartel violations may result in a fine of up to JPY500 million for firms, or imprisonment of up to five years and a fine of up to JPY5 million for individuals.
In a recent case, although the AMA does not state whether it applies to acts committed overseas, the Supreme Court ruled on 12 December 2017 that the JFTC could impose administrative surcharges on firms that join cartels established overseas if the cartels could impair free competition on the Japanese market. This was the court’s first decision approving the application of the AMA to cartels created abroad. Foreign companies had agreed to set the minimum price of cathode ray tubes for televisions to be sold to local subsidiaries of Japanese companies. In 2010, the JFTC decided that these companies had formed a price cartel and ordered one of them to pay a surcharge of about JPY1.37 billion.
Other Restraints
The JFTC is required to impose surcharges (administrative fines) if an enterprise is found to be engaged in certain conduct. The surcharges are calculated by applying certain rates to the sales of relevant goods or services during the violation period (up to ten years). The sales calculation methods and surcharge rates differ according to the type of conduct, as follows.
Criminal sanctions may apply for private monopolisation under the AMA but have so far never been imposed. Enterprises face a maximum criminal fine of JPY500 million.
The Penal Code
A person who defrauds another person of property can be punished by imprisonment for not more than ten years (Article 246, PC).
The Act on Specified Commercial Transactions (ASCT)
The Act on Specified Commercial Transactions regulates transactions related to:
Taking door-to-door sales as an example, it is prohibited to make misrepresentations about the performance or value of a product. Those who violate this rule may face business improvement, business suspension or business prohibition. Violators may also be subject to imprisonment for up to three years or a fine of up to JPY3 million.
The Act Against Unjustifiable Premiums and Misleading Representations (AUPMR)
This Act regulates premiums and representations in connection with transactions of goods and services in order to ensure fair competition and thereby protect the interests of general consumers. The AUPMR prohibits certain acts, including the following misrepresentations, which would trigger the imposition of an administrative fine on a business that has made such misleading representations (Article 5):
A cease-and-desist order would be issued to stop the misrepresentations and prevent any recurrence. The administrative fine is 3% of sales that were made during the misrepresentation period. If the business that made the misrepresentation can prove that it did not know the representation was misleading and that it has paid a fair amount of attention to whether it was misleading or not, the administrative fine is not imposed. If the business reports the misrepresentation before the government starts an investigation, the administrative fine is reduced by half. If the business makes a plan to refund consumers to compensate for the misrepresentation, and if such a plan is approved and carried out by the business, the administrative fine is reduced or eliminated.
Cybercrimes and Computer Fraud
Also relevant are:
Protection of Company Secrets
The UCPA protects trade secrets and shared data with limited access (Article 2). A trade secret is technical or business information useful for commercial activities, such as a production method, sales method, or any other technical or operational information useful for business activities that is controlled as a secret and is not publicly known. Shared data with limited access means technical or business data that is handled as data to be provided to specific persons on a regular basis and is accumulated in substantial quantities by electronic, magnetic or other methods that cannot be recognised by human senses alone (excluding information that is kept secret).
According to Article 21, 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 JPY20 million, or both:
Persons to be punished include:
Foreign Exchange and Foreign Trade Act (FEFTA)
The Ministry of Finance (MOF) and the Ministry of Economy, Trade and Industry (METI) have the authority to impose financial/trade sanctions under the FEFTA. Japanese authorities exercise trade control by way of appropriate implementation of measures that are in compliance with the FEFTA, such as:
Furthermore, Japan actively exchanges information with other countries, and collects information concerning the circumventing of exports to countries of concern and relevant sensitive technology that may be targeted for circumventing exports, in order to increase effectiveness in trade control.
Export Control
The legal structure of Japan’s export control system is extremely complicated. It is a mix of primary legislation and secondary legislation:
The FEFTA defines the basic framework and the principles of the control of exports of weapons and dual-use items, and of technology transfers, as well as the need for a licence from the METI. Any person who conducted a transaction subject to the provisions of Article 25(1) or 25(4) without obtaining a licence as provided for in the Article faces criminal penalties (Article 69-6).
Any person who meets either of the following conditions will be subject to a penalty of not more than seven years’ imprisonment or a fine of not more than JPY20 million, or both (in some case, five times the value of the items involved exceeding JPY20 million):
Not more than ten years’ imprisonment or a fine up to JPY30 million, or both, applies for the exportation of specific technology designated by Cabinet Order as being:
Foreign Direct Investments
Depending on the type of business in which the target entity is engaged or the nationality of the foreign investor, the FEFTA requires a foreign investor to submit a prior notification and/or a post-transaction filing through the Bank of Japan to the MOF and relevant ministries. The FEFTA also prohibits certain investments in foreign companies by Japanese investors without the prior approval of the authorities. The violation of such requirements or prohibitions is subject to administrative and criminal penalties.
The Customs Act
Under the Customs Act, the following are subject to administrative and criminal penalties:
Harbouring Criminals and Suppressing Evidence
A person who harbours or enables the escape of another who has committed a crime punishable with a fine or a harsher punishment, or who has escaped from confinement, will be punished by imprisonment for up to three years or a fine not exceeding JPY300,000 (Article 103, PC).
A person who damages, forges, counterfeits or alters evidence relating to the criminal case of another, or who uses counterfeit or altered evidence, will be subject to the same sanctions (Article 104, PC).
Regarding perjury, a sworn witness who gives false testimony can be punished with three months to ten years in jail (Article 169, PC).
The APOC contains provisions on special categories of crime carried out by organised crime and provisions in relation to the concealment, receipt and confiscation of the proceeds of a crime.
Under the PC, two or more persons who commit a crime jointly are deemed to be principals and a person who induces another to commit a crime may be treated in sentencing as a principal (Articles 60 and 61). An accessory or person who aids a principal is also punishable, but the punishment is less than the punishment of the principal (Articles 62 and 63).
The following laws prohibit or restrict money laundering:
These laws are supplemented by the Guidelines on Anti-money Laundering and Combating the Financing of Terrorism issued by the FSA. JAFIC, which is established within the National Police Agency (NPA), is the relevant financial intelligence unit (FIU) under the Financial Action Task Force on Money Laundering (FATF) regime. JAFIC collects and analyses information on money laundering.
The APTCP and FEFTA impose obligations on financial institutions to use certain measures for the purpose of preventing money laundering and terrorist financing, which include:
Non-compliance with these obligations can lead to administrative sanctions by the relevant authority.
The APOC prohibits the following conduct in connection with money laundering.
Obtaining bank books or cash cards with the intention of receiving banking services by passing oneself off as another person is punishable under the Act on the Prevention of Transfer of Criminal Proceeds.
Passing oneself off as another person to receive, transfer or solicit a transfer of deposits or savings is punishable under the Act on the Prevention of Transfer of Criminal Proceeds.
Terrorist Financing
The following laws set out matters in relation to combating the financing of terrorism (collectively known as the “CFT regulations”):
These laws are supplemented by the Guidelines on Anti-money Laundering and Combating the Financing of Terrorism issued by the FSA.
JAFIC is also the relevant FIU under the FATF scheme. JAFIC collects and analyses information in relation to the financing of terrorism.
Furthermore, the MOF is also in charge of the CFT regulations. The MOF has the authority to supervise, monitor and inspect suspicious cross-border financings which may be associated with terrorism under the FEFTA.
There are no special defences for white-collar offences, either criminal or administrative. In criminal cases, the prosecutor bears the burden of proving all the elements of a crime, such as:
There is no general rule regarding the burden of proof in administrative litigation, which is determined on an individual law provision basis. Aside from simple crimes, defendants often claim that their conduct was legitimate and based on a legitimate business purpose. In each case, such claims will be challenged in the presence or absence of fulfilment of criminal legal requirements, illegality and intent.
Lack of Intent
All crimes listed in 1.1 Classification of Criminal Offences require intent, and to secure the conviction of a corporation or an individual, the public prosecutor must prove the occurrence of a criminal act and sufficient criminal intent, beyond reasonable doubt. A possible defence would therefore be lack of intent.
Dual Liability
In principle, only individuals are criminally liable, but a body corporate can be held criminally liable if a specific statutory provision exists in the form of a dual liability provision. A company’s liability could be discharged or mitigated if the company can show it has exercised due care in its appointment and oversight of the individual who may be criminally liable (eg, when dealing with the acts of a rogue employee).
Compliance Programme
With respect to the company’s liability in the context of dual liability, the existence of a compliance programme or in-house training could be an important fact in proving there was no negligence. Moreover, the fact that a company implements a compliance programme and in-house training may be viewed favourably by the prosecutors or courts when determining prosecution or punishment. However, there are few court cases that have granted an exemption.
There are no exempt industries and/or sectors for the white-collar criminal offences described in 1.1 Classification of Criminal Offences.
Bribery of Domestic Officials
There is no definition of a bribe in the PC. However, it is generally interpreted as an advantage given to a public official to influence the performance of their duties. A bribe is not limited to a monetary or property benefit and can include the satisfaction of a demand or desire of the official. Gifts, travel, meals, entertainment or free lease of property are generally viewed as an advantage.
However, it should be noted that gifts, gratuities and other things within the scope of social courtesy are not deemed to be bribes, while the criteria for what is within the scope of social courtesy are unclear.
Bribery of Foreign Officials
There is no provision in Article 18 of the UCPA that clearly allows small facilitation payments, and the bribery of foreign public officials in Japan will not be exempted from punishment just because the bribe is a small facilitation payment. There is no clear “safe harbour” rule for small facilitation payments under the UCPA or the guidelines on bribery of foreign officials issued by METI, and provided the prerequisite “in order to obtain illicit gains in business with regard to international commercial transactions” is fulfilled in specific cases, this payment will constitute the offence of bribery of foreign public officials under the UCPA, regardless of whether or not it is a small facilitation payment. However, the following acts are less likely to be regarded as a bribe:
Safe Harbours and Insider Trading
Certain transactions that are considered as not undermining the fairness and credibility of a securities market are exempt from the insider trading regulations under the FIEA (Article 166, paragraph 6; and Article 167, paragraph 5). These include:
Surrender Under the PC
The punishment of a person who has committed a crime and denounced themselves before being exposed as a suspect by an investigative authority may be reduced. This rule also applies with respect to a crime which cannot be prosecuted without a criminal complaint, and to a person who turns themselves in to a person who has the right to make a criminal complaint (Article 42, PC).
Leniency Under the AMA
Cartels and bid-rigging are caught by Articles 3 and 6 of the AMA, which prohibits unreasonable restraints of trade.
The AMA sets out a leniency system first introduced in 2006 and revised in 2019. The leniency programme operates as a system whereby administrative surcharges are waived or reduced on the condition that the enterprises that have been involved in cartels or bid-rigging voluntarily report these activities to the JFTC. The sooner they report their activities to the JFTC before it initiates an investigation, the more surcharges they will be exempt from. Under the new system (Articles 7-4 and 7-5, AMA), the following applies.
In addition to these uniform rates, a further discount rate may be applied according to the degree of co-operation with the investigation at a rate depending on the timing of the application. Enterprises that report a violation before a dawn raid are entitled to a reduction in administrative surcharges of up to 40%, while those applying after the dawn raid are only entitled to a reduction of up to 20% (eg, if an applicant ranks second before the dawn raid and co-operates with the investigation, it can be awarded an additional rebate of up to 40% on top of the standard 20% reduction – ie, a total of up to 60% reduction).
Guidelines issued by the JFTC clarify how it assesses an applicant’s level of co-operation and values the evidence submitted by the applicant.
When more than one enterprise of the same group commits an infringement, group enterprises can file a single joint application, in which case the same leniency status/pecking order is granted to all group enterprises named as applicants on the form (Article 7-4, paragraph 4, AMA).
To be eligible for a reduction, applicants must not be involved in illegal activities after the JFTC has commenced its investigation. Applicants that engage in certain activities can be disqualified and lose the benefit of leniency (Article 7-4, paragraph 1, item 2; paragraph 2, item 5; and paragraph 3, item 3, AMA).
Plea Agreements
See 2.8 Plea Agreements.
Other Co-operation or Self-Disclosure
Apart from the legal systems previously discussed, the administrative authorities, prosecutors or courts may consider co-operation and self-disclosure as being a factor for reducing administrative dispositions, surcharges, criminal charges or punishment.
The Whistle-Blower Protection Act (WPA) provides that a business operator is not authorised to dismiss or treat a worker (which may include retired employees and officers) unfavourably on the basis of the worker’s whistle-blowing, or to claim damages against them for damage suffered by the business operator as a result of the worker’s whistle-blowing, where both:
According to the amendments to the WPA effective from 2022, companies must establish a system to appropriately respond to whistle-blowing (with an effort obligation for companies with fewer than 300 employees).
Detailed guidance on how business operators should establish whistle-blowing systems (Guidelines for Appropriate and Effective Implementation of the Whistleblowing System) has been issued by the Consumer Affairs Agency, together with commentaries on said Guidelines. The requirements include having:
The fact that such an internal whistle-blowing system is established is not a safeguard.
There are no special legal incentives for whistle-blowers.
Under the Japanese criminal justice system, the burden of proof lies with the prosecutors who must prove in court that the defendant has committed the crime – that is, a court will render a judgment of not guilty and acquit the defendant of the charge unless the prosecutor proves beyond reasonable doubt that the defendant has committed the crime for which they were indicted (Article 336, CCP and Article 31, the Constitution). There is no institutional presumption mechanism beyond inferences in individual fact-finding by the court. This is no different in white-collar crime.
Regarding administrative sanctions, an administrative disposition is valid unless rescinded by the court, so the person who received the disposition needs to file a lawsuit (this is a kind of presumption mechanism). There is no general rule regarding the burden of proof in administrative litigation, which is determined on an individual law provision basis. The standard of proof has been expressed as: “Certainty of veracity to the extent that an ordinary person would not raise doubts.”
The court is responsible for setting the punishment within the parameters set by the applicable statutes at its discretion, taking into consideration various factors, such as:
In this regard, the court may render suspended sentences if certain conditions are met – eg, if the defendant is a first-time offender and is sentenced to imprisonment of not more than three years (Chapter 4, PC).
Although the range of said parameters is wide, there are no clear guidelines or standards for setting the punishment. However, due in part to the availability of sufficient data on past sentences, the punishment of similar cases has not, to date, greatly varied in Japan.
As part of the sentencing procedure, after the examination of the evidence, the prosecutor must state their opinion, including the sentence, and the defendant and their attorney can also state their opinions (Article 293, CCP). The court is not bound by these opinions, but in practice, a somewhat more lenient sentence than that suggested by the prosecutor is often given.
There are no rules or guidelines governing the assessment of penalties in the event of a plea agreement.
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stago@iwatagodo.com www.iwatagodo.com/englishWhite Collar Crime in Japan: Overview of Trends and Practices
In Japan, diverse types of white-collar crime – such as fraud, embezzlement, insider trading, date manipulation, cartels and bribery – have continually occurred, and have been prosecuted as criminal cases. Recently, white-collar crimes have been treated as corporate malfeasance or corporate scandals, and have become a target of public criticism through extensive press coverage.
When white-collar crimes or corporate malfeasance are discovered in Japanese companies, many such companies:
This is a unique practice in Japan today. The investigation report usually includes:
Some investigative reports published by the companies involved in the corporate malfeasance state that the root causes of the malfeasance are not only the problems of personal ethics, but also of organisational structures including internal control, corporate governance and corporate culture. Under such practice, it is beneficial for Japanese companies to analyse investigation reports published by other companies and utilise them to prevent similar malfeasance.
From another point of view, in cases where corporate malfeasance with significant social impact occurs and is widely reported as a serious incident, Japanese laws and regulations related to such corporate malfeasance are often amended to add such malfeasance to new regulations or to make it more severely punishable. Therefore, Japanese companies should understand and comply with the latest amendments to laws and regulations. The following describes recent major legal amendments in Japan related to white-collar crime.
Amendment of the Whistle-blower Protection Act
The amended Whistle-blower Protection Act (WPA) came into effect on 1 June 2022.
Whistle-blowing is an effective way of detecting white-collar crime in a company. In fact, serious white-collar crimes and corporate malfeasance are often uncovered through whistle-blowing from employees.
However, there have been cases where whistleblowers were disadvantaged or harassed by their company as a result of their whistle-blowing. Some whistleblowers filed lawsuits against their companies, which were widely reported, and the problems with Japan’s whistle-blowing system (especially the insufficient protection of whistleblowers) were highlighted. Therefore, the WPA, which stipulates the requirement for whistle-blowers to be protected, as well as the details of protection to be provided by the company to whistle-blowers, was enacted and first came into effect on 1 April 2006.
In recent years, however, the investigation reports published by companies involved in malfeasance have pointed out the dysfunction of the whistle-blowing system, such as:
Therefore, the WPA was amended to make the whistle-blowing system more effective and to ensure that whistle-blowers are better protected. The authors believe that the essence of the whistle-blowing system is to prevent white-collar crime and corporate malfeasance by employees of the company, and to strengthen the self-cleansing function, whereby the company detects malfeasance or misconduct at an early stage and investigates and corrects these on its own.
The authors also believe that the amended WPA can be evaluated as a good step towards boosting the essence of the whistle-blowing system. Japanese companies, including Japanese subsidiaries of foreign companies, should understand not only the contents of the WPA but also the essence and importance of the whistle-blowing system.
The main points of the amendment are as follows.
Establishment of a system for responding to whistle-blowing
From the viewpoint of making it easier for whistle-blowers to feel secure in reporting, it is stipulated that business operators with over 300 employees must establish the necessary systems as stated in the guidelines published by the Consumer Affairs Agency (the “Guidelines”) based on Article 11(1) and (2) of the WPA, and in the commentary of the Guidelines (the “Commentary”), in order to respond appropriately to whistle-blowing.
The Guidelines require companies and organisations to install various measures, such as:
The Commentary explains the purpose and background of the Guidelines, and shows the concepts, specific examples and recommendations for compliance therewith. If a company does not comply with the WPA or the Guidelines, there is a possibility that the Secretary General of the Consumer Affairs Agency will take administrative measures (ie, advice/guidance, recommendations, and publicising the company’s name) against the company.
For small and medium-sized businesses with 300 or fewer employees, this obligation is considered an effort obligation. Even if a foreign company has already established a global group whistle-blowing system, Japanese subsidiaries thereof with over 300 employees must stipulate their own internal regulations according to the WPA and the Guidelines.
Designation of a person in charge of handling whistle-blowing
Article 11(1) of the WPA obligates companies to designate a “person engaged in the business” who handles the series of processes regarding whistle-blowing – ie:
These can be separate appointments.
Additionally, the Guidelines require companies to notify such a person that they are appointed as a “person engaged in the business” by written notice, etc.
Article 12 of the WPA imposes a confidentiality obligation on a “person engaged in the business” regarding information identifying the whistle-blower. If such person violates the confidentiality obligation, they may be punished by a fine not exceeding JPY300,000 (Article 21 of the WPA).
Ensuring protection of whistle-blowers
In order to make it easier for whistle-blowers to be protected, the amended WPA broadens the scope of whistle-blowers, of whistle-blowing and of protection.
Regarding the scope of whistle-blowers, executives and retired employees who have been retired for one year or less can now be protected by the WPA. Also, conduct to be administratively sanctioned has been added to the scope of the whistle-blowing protected by the WPA, in addition to criminally punishable conduct.
As for the scope of protection, in addition to the prohibition of disadvantageous treatment such as demotion or salary cuts for a whistle-blower who is or was an employee on the basis of such whistle-blowing, exemption from liability for compensation of damages to the whistle-blower on the basis of such whistle-blowing is newly added.
Easing of conditions for being protected in reporting to administrative organs and other external parties
In order to facilitate whistle-blowers’ reporting to administrative organs and other external parties, including media organs, the amended WPA eased conditions for being protected when reporting to such parties. From the viewpoint of the persons planning to whistle-blow, this amendment increases their options for reporting.
In contrast, from the viewpoint of companies, the amendment increases the risk that employees will report directly to administrative organs or media organs rather than through internal reporting channels.
If the whistle-blower reports directly to the administrative organ rather than to the contact point in the company, the investigation by the administrative organ may proceed without the company being aware of it. If the whistle-blower reports directly to the media organ, a news article exposing a corporate scandal may be scooped in a way that catches the company off guard.
To reduce such risks as much as possible, it is important for companies to establish trust with their employees, so that they feel safe to report through internal channels first.
Amendment to the Unfair Competition Prevention Act
On 7 June 2023, the Unfair Competition Prevention Act (UCPA) was amended. The amended UCPA is scheduled to go into effect within one year from 14 June 2023, which is the promulgation date thereof.
The amended UCPA includes a wide range of amendments, such as strengthening the protection of trade secrets. In relation to white-collar crime, the penalties for the crime of bribery of foreign public officials were strengthened and expanded by the amendment.
In 2019, the Fourth Periodic Review Report made by the OECD Working Group on Bribery (WGB) was released; the WGB indicated that Japan has not yet fully implemented the law criminalising bribery of foreign public officials, and that Japan must urgently address long-standing concerns over foreign bribery enforcement. The report then made many recommendations under the following headings:
Based on the recommendations, the Guidelines for the Prevention of Bribery of Foreign Public Officials (the “METI Guidelines”; most recently revised in May 2021) were published by the Ministry of Economy, Trade and Industry.
Also, in order to fulfil the aforementioned recommendations, the part regarding bribery of foreign public officials in the UCPA was amended. In light of this broadening of the acts subject to punishment and heavier penalties, measures against the scandal of bribery of foreign public officials have evidently become even more important. The main points of the amendment are as follows.
Strengthening the penalties for natural persons
The penalty for natural persons who bribe foreign officials was strengthened by the amended UCPA:
Strengthening the penalties for corporations
A legal entity can be subject to charges of bribery of foreign public officials, as dual criminal liability for bribery is provided under the UCPA. The penalty for a legal entity, including a corporation in which its officers or employees bribe foreign officials, was strengthened by the amended UCPA. The maximum amount of the fine increased from JPY300 million to JPY1 billion, which is the highest in Japan’s criminal legislation at the time of writing.
Expanding the scope of penalties for overseas independent bribery
The amended UCPA expanded the scope of punishment to include bribery by non-Japanese officers and employees of Japanese companies overseas.
Amendment of the Code of Criminal Procedure
On 10 May 2023, the Code of Criminal Procedure (CCP) was amended. This was mainly due to cases in which defendants on bail fled abroad, which had a significant impact on criminal procedure in Japan. The amended CCP includes protecting the information of victims.
For preventing the escape of defendants and those who have been sentenced, the amended CCP adopted various new systems and regulations, as follows:
The amended CCP will be in effect within five years from 17 May 2023, which is the promulgation date thereof.
Since it is not uncommon for executives and employees who are foreign nationals to be prosecuted in white-collar crimes, it is beneficial to understand the contents of criminal procedure based on the amended CCP. In particular, it is important for companies involved in white-collar crime to understand the amended CCP as there is a risk of further reputational damage if an indicted employee or executive has violated it.
From the viewpoint of white-collar crime, the important points of the amendment are as follows.
Establishment of a system to obtain the location information of a defendant on bail by means of a location-measuring terminal
In cases where the court deems it necessary, in order to prevent a defendant who is released on bail from fleeing the country, the amended CCP established a system for obtaining the location information of a defendant on bail by means of a location-measuring terminal.
As regards the contents of this system, the court may first establish compliance requirements for the defendant, such as not entering certain areas (including airports and ports where they can leave Japan, and not removing the terminal). If the defendant fails to comply with these requirements without just cause, the bail of the defendant will be revoked.
This new system is important because there had previously been no system in Japan for monitoring the location of defendants, including those released on bail, in criminal proceedings by having them wear a GPS device on their bodies, unlike in the USA or other countries.
Establishment of a system to restrict the departure of a person who has been sentenced to imprisonment or more
For preventing those who have been sentenced from fleeing abroad, the amended CCP established a new departure restriction system. Under the amended CCP, a person who has been sentenced to imprisonment or more may not leave Japan without court permission. The amended CCP also provides that if the court grants such permission, it may order the person to pay a bond. In such a case, if the person fails to return to Japan within a certain period of time after their departure, the court may revoke the permission and forfeit the bond.
Amendment of the Act against Unjustifiable Premiums and Misleading Representations
On 10 May 2023, the Act against Unjustifiable Premiums and Misleading Representations (AUPMR) was amended. The amended AUPMR will be in effect within one and a half years from 17 May 2023, which is the promulgation date thereof.
The AUPMR imposes certain restrictions on advertisements and other representations that may impede independent and rational choice by general consumers, in order to prevent customers from being induced by unjustifiable premiums and representations in connection with transactions of goods and services.
In 2022, the Consumer Affairs Agency, which is the enforcement authority for the AUPMA, established a study group to ensure that the AUPMA conforms to changes in the social environment (such as the progress of digitisation) which have occurred since the last amendment in 2014. The study group indicated that the investigative period for violations by the Consumer Affairs Agency has become longer, and that there are malicious businesses that make misleading representations while being aware that the content of the representations has no basis. The study group also reported on issues to be addressed, such as the promotion of voluntary efforts by businesses to correct misleading representations, and enhancing deterrents to violations.
Based on this report, the following amendments were made to the AUPMA.
Since the AUPMR regulates a wide range of advertisements and other representations to general consumers, it will be especially meaningful for companies engaged in B to C business to understand the amended AUPMR. From the viewpoint of white-collar crime and corporate malfeasance, the important points of the amendment are as follows.
Introduction of commitment procedures
The amended AUPMA has introduced commitment procedures. Under these procedures, businesses which have been investigated for a suspected violation of misleading representations will not receive orders for action or payment orders for surcharges if they:
This procedure provides an incentive for businesses to voluntarily take rectification measures, and consequently protects the interests of general consumers.
Expansion of penalties
Prior to the amendment, the AUPMA provided that executives or employees would be punished only if they failed to comply with an order for action. Also, there was no dual criminal liability provision in the AUPMA prior to the amendment.
However, in order to strengthen the prevention of violations, the amended AUPMA imposes a fine of up to JPY1 million on those who make certain misleading representations such as exaggerated quality representations or exaggerated trade term representations. Also, dual criminal liability for the aforementioned misleading representations is newly established under the amended AUPMA.
Conclusion
As can be seen from the recent legal amendments described above, there is a wide variety of laws and regulations related to white-collar crimes in Japan. From the perspective of prevention and detection of white-collar crimes, the WPA is one of the most important laws in Japan.
Regarding the content of white-collar crime, companies should properly understand not merely typical white-collar crimes such as fraud, embezzlement and bribery but also new types of crimes, such as certain misleading representations in the amended AUPMR. In addition, companies should understand amendments reflecting international trends and public opinions, such as stricter penalties for overseas bribery in the amended UCPA and new rules in the amended CCP. The excuse that they were unaware of the new rules is not acceptable, especially in light of the recent trend in Japan where companies are required to strictly comply with laws and regulations.
In recent years, amendments to laws and regulations related to white-collar crime have become more active in Japan. Companies need to update their knowledge to keep up with the rapidly changing rules. The authors believe that the best way for companies to protect themselves from white-collar crime is to acquire accurate knowledge and to practice it with integrity. This is simple but difficult. The authors hope this article will help in this regard.
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