Introduction
Mandatory establishment of internal systems
Designation of persons responsible
Comment
The importance of robust internal whistle-blower systems has been highlighted recently in Japan with a number of large-scale corporate misconduct incidents being identified through whistle-blowing reports. Since one of the most important aspects of corporate crisis management is to detect and rectify compliance incidents as soon as possible, establishing an effective whistle-blowing system is crucial for many, if not all, business operators.
Against this background, on 12 June 2020, a partial amendment (the amendment) to the Whistle-blower Protection Act (the amended Act) was promulgated. The objective of the amendment is to strengthen the protection of whistle-blowers and facilitate more proactive reporting. The amendment took effect on 1 June 2022.
While the amendment has a wide scope, two areas of particular importance are:
- the mandatory(1) establishment of internal systems to enable business operators to appropriately respond to public interest whistle-blowing reports;(2) and
- the designation of persons responsible for responding to public interest whistle-blowing reports.
Mandatory establishment of internal systems
Article 11 (2) of the amended Act requires business operators to establish internal systems and take other measures necessary to respond appropriately to public interest whistle-blowing reports. According to the guidelines issued for the appropriate and effective implementation of measures to be taken by business operators pursuant to article 11(1) and (2) of the Whistle-blower Protection Act (the guideline), those systems and measures are largely divided into three elements:
- systems to respond to whistle-blowing reports across divisions and departments;
- systems to protect whistle-blowers; and
- measures to ensure the effective functioning of whistle-blowing systems.
Systems to respond to whistle-blowing reports
A business operator shall:
- establish an internal whistle-blowing contact (the contact) and clearly specify the departments and persons in charge of:
- receiving whistle-blowing reports from the contact;
- conducting investigations; and
- taking the necessary measures to rectify the misconduct specified in the whistle-blowing report;
- take measures to ensure independence in cases where management is suspected of having involvement in the reported misconduct;
- conduct necessary investigations, unless there are justifiable grounds not to commence an investigation; and
- take measures not to involve persons who are related to the case and to eliminate any conflicts of interest.
Systems to protect whistle-blowers
A business operator shall take measures to prevent disadvantageous treatment against whistle-blowers, including, but not limited to, taking disciplinary action or other appropriate measures when disadvantageous treatment occurs. A business operator shall also develop systems to prevent employees and officers from sharing information contained in whistle-blowing reports beyond the necessary scope of the investigation and take appropriate remedial and restorative measures in the event of improper information sharing.
Measures to ensure effective functioning of whistle-blowing systems
A business operator shall:
- provide education and training regarding the amended Act and whistle-blowing systems to employees, officers and retirees;
- in cases where a whistle-blower report is received in writing, promptly notify the whistle-blower of the remedial measures implemented to address the reported facts, to the extent that doing so does not hinder the proper execution of business and the protection of the confidentiality, credibility, reputation and privacy of the parties involved; and
- take measures concerning the retention, review and improvement of whistle-blowing records, and the disclosure of the operating results of the whistle-blowing systems.
Additionally, the elements required to be taken by the guideline shall be reflected in a business operator's internal rules and the business operator shall operate in accordance with those rules.
Designation of persons responsible
Article 11(1) of the amended Act requires business operators to appoint designated persons to:
- receive whistle-blowing reports;
- conduct investigations into the reported facts; and
- engage in initiatives to implement remedial measures to address the results of the investigation.(3)
In the course of their work, if the designated persons become aware of certain information that would enable them to identify the whistle-blower, they become subject to a strict duty of confidentiality, which, if violated, would subject them to potential criminal penalties composed of a monetary fine of not more than 300,000 yen. The introduction of such a duty of confidentiality can be regarded as a major revision in Japanese practice and, thus, it is necessary to include in the internal rules that the business operator shall clearly notify the designated persons of their duties and obligations.
Notwithstanding the above, under article 12 of the amended Act, disclosure by the designated persons of the protected information does not constitute a violation of the duty of confidentiality if there is a "justifiable reason" for such disclosure. It can be reasonably assumed that there would be a justifiable reason in cases where the whistle-blower has given their consent, or where information is shared with persons who require such information for the purpose of conducting the investigation.
While many business operators may have already established an internal whistle-blowing system, the introduction of the amended Act and the guideline is a timely reminder for business operators to review their internal practices. As the whistle-blowing system constitutes an extremely important part of a company's compliance system, it is important for each business operator to examine its specific arrangements by referring to the amended Act and the guidelines to ensure its processes are compliant and in line with best practice.
For further information on this topic please contact Tomohiro Hen at Nagashima Ohno & Tsunematsu by telephone (+81 3 6889 7000) or email ([email protected]). The Nagashima Ohno & Tsunematsu website can be accessed at www.noandt.com.
Endnotes
(1) Business operators with 300 or fewer employees on a regular basis are only obligated to make an effort to meet those requirements.
(2) "Public interest whistle-blowing reports" are whistle-blowing reports that fall under the category of public interest whistle-blowing reports provided for in article 3(1) and article 6(1) of the amended Act.
(3) Business operators with 300 or fewer employees on a regular basis are only obligated to make an effort to appoint designated persons.