Over the past decade, the Japan Fair Trade Commission (JFTC) has increased its criminal enforcement of Japan’s antitrust law, the “Act on Prohibition of Private Monopoly and Maintenance of Fair Trade,” commonly known as the Anti-Monopoly Act. This trend is likely to continue because last month Japan’s Diet amended the Code of Criminal Procedure to introduce a plea bargaining system that creates an incentive to report antitrust violations committed by others. The new plea bargaining system, which applies to crimes such as antitrust, fraud, bribery and tax evasion, will be implemented in Japan within 2 years.

Consistent with the general international trend of providing leniency for those who report an antitrust violation, Japan introduced a leniency system over 10 years ago for those who do so. However, under this program, leniency is available only to those who were directly involved in the antitrust activity that is reported. With the new plea bargaining system, a prosecutor can negotiate to drop or reduce charges if an accused or a defendant provides testimony or evidence for certain types of crimes committed by another individual or company (Article 350-2 of the Code). In fact, Japan’s new plea bargain procedure can only be used for a crime committed by someone else (which includes accomplices), unlike, for example, the United States where an accused can bargain with a prosecutor over a crime he or she allegedly committed. The new plea bargaining procedure will provide an incentive for companies or individuals under investigation to provide information about antitrust violations committed by others.

So what does this mean for companies and executives in Japan?

Plea bargaining likely will provide investigators with new facts and evidence to open investigations into possible crimes committed by others, which means increased risk of prosecution against companies that have compliance issues. For example, an employee of a company who is charged with a crime may decide to bargain with a prosecutor to drop or reduce charges against him by confessing an antitrust related or other crimes committed by his company. Or a former business partner or an affiliate of a company who is aware of the company’s illegal activity may try to use that information for his own plea bargain. In sum, whereas companies and individuals previously had an incentive to self-report to obtain leniency, they now also have an incentive to report on others to negotiate lesser criminal penalties.

Many companies are already well aware of the importance of compliance and corporate governance, but the introduction of Japan’s plea bargaining system will impose additional risks to companies in Japan which lack adequate whistleblowing and crisis-management systems.