1. How would you describe the risk of business corruption in Japan?

Overall, Japan is a low-risk country for corruption. On the TRACE Matrix, a valuable tool that measures business bribery risk by country, Japan ranks 8th out of out of 197 countries – with an overall risk score of 26, where 1 indicates the lowest risk and 100 the highest.

Japan has ratified and implemented the OECD Anti-Bribery Convention and has signed the United Nations Convention Against Corruption. Under Japanese law – Article 22 of the Unfair Competition Prevention Act (“UCPA”), Act No. 47 of 1993 – corporate officers who accept bribes may be subject to fines of up to 300 million yen (approximately USD $2.4 million) or imprisonment. The UCPA also criminalizes bribes of foreign public officials made by Japanese nationals. Further, the Penal Code (Act No. 45 of 1907) criminalizes making bribes within Japan (Article 198) and penalizes government officials who accept bribes.

However, corruption still infiltrates the business sector via the traditional practice of amakudari – in which senior government officials take top positions in companies, upon retirement from public service. The private-sector companies that these former public servants join are usually tied to (or under the jurisdiction of) their previous ministries or agencies. Often, these former officials then use their government connections to influence the business of the private companies they have joined. In some cases, the former official joins a government-owned company, often earning a very high salary at the taxpayer’s expense.

2. How do these forms of corruption typically impact foreign businesses?

Since companies in Japan are so intertwined with the government through amakudari, the ability of foreign companies to compete is often hindered. In particular, studies show that companies with amakudari employees face a serious bid-rigging problem. Conversely, as recognition and awareness around these negative economic impacts grows, it is possible that companies wanting to conduct business ethically may look to foreign businesses operating in Japan.

3. Which business sectors in Japan are particularly risky in terms of corruption?

Bid-rigging is especially prevalent in bids for government public works projects, and conflicts of interest are particularly common in the financial, construction, transportation and pharmaceutical sectors, which are some of the most heavily-regulated industries in Japan. Public procurement can sometimes be closed to foreign firms in these industries, further contributing to bid-rigging, collusion and “pork-barrel” politics. Recent action by the Japanese government against Novartis for allegedly falsifying results of clinical studies shows that the pharmaceutical industry is beginning to be more closely monitored.

 4. What steps can foreign companies take to protect themselves?

Above all, foreign companies working in Japan need to vet their third parties, such as distributors and partners before contracts are signed. Through this due diligence, companies need to learn the full extent to which their prospective partners have government exposure or involvement, both past and current. Companies also need to have clear policies about government interactions and conflicts of interest.

Foreign companies can work with entities in Japan that have already completed a rigorous due diligence process based on international standards, such as TRACE certification, which includes training and continuous daily screening against international sanctions and enforcement lists. Companies can also work with organizations such as TRACE to have their Japanese business partners undergo the level of due diligence commensurate with the level of risk in that company’s industry.

5. What anti-bribery compliance support is available in Japan?

The National Public Service Ethics Act (Act No. 129 of 1999) gives clear guidance on providing gifts and entertainment to government officials in Japan; the Act also establishes a gifts register, in which mid-level and senior-level officials are required to disclose gifts valuing over 5,000 yen (approximately USD $40). Whistleblowers are protected under the Whistleblower Protection Act (Act No. 122 of 2004), which prohibits acts of retribution against whistleblowers, including dismissal, demotion and reduction in salary.

Companies may also refer to TRACEpublic, the first global register of beneficial ownership information, which allows companies to share and search for beneficial ownership information at no cost. The database supports the efforts of companies seeking to conduct business ethically.

This Q&A article was originally produced for ExportWise.ca, Export Development Canada’s online magazine.