Ethics and anti-corruption rules for defence contractors in Japan

Ethics and anti-corruption

When and how may former government employees take up appointments in the private sector and vice versa?

There are no restrictions preventing former public officers from taking-up appointments in the private sector, or vice versa.

However, the following is a summary of appointments that are prohibited as a rule:

• a public officer currently in office, engaging in communications with an ‘interested enterprise’ (including enterprises defined by law), who has executed, offered or is obviously intending to offer to execute a contract for defence and security articles (excluding those where the total amount of the contract is less than ¥20 million) for the purpose of assuming a position in such enterprise or its subsidiary corporation (in summary, a corporation directly or indirectly holding a majority of voting rights);
• a public officer engaging in communications with an enterprise (not limited to the interested enterprises) for the purpose of having another public officer or former public officer assume a position in such enterprise or its subsidiary corporation; and
• a former public officer who currently holds a position in the enterprise demanding or requesting performance or non-performance of acts in the course of his or her duties in relation to a contract for such enterprise, or in relation to administrative measures against such enterprise (the scope of prohibited acts differs depending on the position the public officer had at the time of office) to the division within the government agency where said public officer had held a position while he or she served as a public officer. The prohibition period after departure from public office is unlimited with respect to the execution of contracts and administrative measures that said former public officer himself or herself handled, and is two years with respect to other cases.

Getting a position at an enterprise immediately after leaving public office will lead to suspicion of a breach of the foregoing restrictions on communications. In practice, there is a cooling-off period of at least three months before assuming a position in the private sector after leaving office as public officer.

The above-mentioned restrictions also apply to public officers with fixed terms of office, and public officers hired on a public-private personnel exchange.

Further, to ensure transparency, public officers or former public officers must file notices with certain prescribed persons including the Minister of Defence if:

1. they promise, while in office, to assume a position in an enterprise after leaving office; and
2. after having held a managerial position in public office, they assume a position in an enterprise within two years after retirement (except where a notice in relation to item (i) has already been filed).

Certain information, contained in notices filed as above, is also made public.

How is domestic and foreign corruption addressed and what requirements are placed on contractors?

There are no special restrictions related to bribery that specifically target government procurement. Such matters are generally covered under the offence of bribery under the Criminal Code. The main crimes under the Criminal Code regarding bribery and applicable to enterprises are the giving, offering or promising of bribes, as listed below:

• any bribe to a public officer in relation to the performance of his or her official duties;
• any bribe, upon request, to a potential public officer in relation to the performance of official duties for which he or she is expected to be responsible;
• any bribe, upon request from a public officer in relation to the performance of his or her official duties, to a person other than said public officer (who is not required to be a public officer);
• any bribe to a former public officer in relation to said former public officer having conducted an unlawful act or refraining from conducting a reasonable act upon request while in office; or
• any bribe to a public officer as a reward for said public officer arranging or having arranged for another public officer to conduct an unlawful act or refrain from conducting a reasonable act in the course of his or her duties upon request.

In the procurement of defence and security articles, the specifications thereof are generally very specific and there is no market price. In many cases, contracts are executed upon calculating an estimated price using cost accounting with a view to preventing overcharging by contractors. Contractual special clauses are generally required for cost accounting and management for the purpose of preventing overcharging by contractors, and cost audits are conducted. See question 16 for more details.

Other than the above, cartels (bid rigging) and other similar acts are prohibited under the Anti-Monopoly Act, obstruction of auctions is prohibited under the Criminal Code, the Unfair Competition Prevention Act and the Act on Elimination of Involvement in Bid Rigging, etc. There are also punishments for failure to act, and criminal penalties or administrative monetary penalties apply in the case of violation.

Any enterprise that has violated any of the restrictions or requirements stated above, or otherwise engaged in acts unfairly or in bad faith, making false statements in tendering documents, performing a contract negligently without due care, or breaching a contract will be denominated from procurements for defence and security articles for a certain period (one month to three years depending on the degree of seriousness of the violation, and in the case of refusal to comply with system research, until the same resumes) (www.mod.go.jp/j/procurement/kadaiseikyujian/pdf/20130801_1.pdf). In addition, enterprises that have capital ties or personal relationships with an enterprise that was de-nominated may barred from participation in open and selective tendering procedures for agreements for similar types of defence and security articles (www.mod.go.jp/j/procurement/chotatsu/naikyoku/nyuusatu_seifu/2016/09/01a.html).

Public officers are subject to the National Public Service Ethics Code to ensure public trust in the fairness with which public officers execute their duties. Pursuant to this Code:

• the following acts with interested parties, as defined in the Code, including enterprises with which a public officer has executed, offered to execute or obviously intends to offer to execute a contract for defence and security articles in relation to which such public officer is involved in administering. Any interested parties to a post that a public officer served within the past three years shall continue to be regarded as interested parties for at least three years after the transfer. In addition, where any interested party of a public officer contacts another public officer, such interested party will also be regarded as an interested party of the other public officer depending on the expectation of influence asserted by such interested party, and as such prohibited as a rule from:
• receiving a gift of money, goods or real estate;
• borrowing money;
• receiving services free of charge;
• receiving assignment of private equity;
• receiving entertainment and paid dining;
• going on a trip, playing golf and other entertainment (such as mah-jong) together (including in the case of splitting the bill); and
• demanding any interested party have a third party conduct any of the above; and
• it is not prohibited to dine together if the public officer pays his or her own costs, but where the cost of their respective payments exceeds ¥10,000, notice needs to be filed with the Ethics Supervisory Officer, except in certain specific cases such as buffet parties.

Any public officer who has violated the foregoing is subject to disciplinary action. There are no provisions on sanctions that would be directly applicable on the interested party side.

What are the registration requirements for lobbyists or commercial agents?

There are none.

Are there limitations on the use of agents or representatives that earn a commission on the transaction?

No.