While many people don’t know it, a bribery scandal in Japan in 1976 was part of the motivation for the Foreign Corrupt Practices Act (FCPA), which was signed into law on December 19, 1977.1 Almost exactly two decades later, Japan joined the fight against foreign corruption by signing the Convention on Combating Bribery of Foreign Public Officials in International Business Transactions (Anti-Bribery Convention) on December 17, 1997, and by joining the Working Group on Bribery (Working Group) of the Organisation for Economic Co-operation and Development (OECD). After signing the Anti-Bribery Convention, Japan enacted implementing legislation outlawing foreign bribery, which came into force on February 15, 1999. But this was just the beginning, not the end.
One of the hallmarks of the OECD Working Group on Bribery is its ongoing monitoring function, which Transparency International has described as the “gold standard.”2 This oversight function is rigorous, and many countries—including Japan recently—have felt the sting of pointed criticism in the Working Group’s monitoring reports. A recent Working Group report (released in February 2014) suggests Japan is undertaking new measures—and committing additional resources—to combat foreign corruption.3 As one of the world’s largest economies and as a response to such criticism, Japan may well be poised for a new phase of foreign bribery enforcement.
Japanese companies should begin preparing now for increased scrutiny by Japanese authorities as well as continuing close oversight by U.S. authorities. Such proactive measures should include (1) appropriate and rigorous risk assessments, (2) compliance program benchmarking, (3) enhanced foreign bribery training for board members, executives, and employees, (4) thorough third-party and transactional due diligence, and (5) a review of internal accounting controls. Besides preventing and detecting foreign corruption in the first instance, such measures may also enable a Japanese company to avoid criminal liability in Japan by demonstrating that the
company acted with due care designed to prevent such violations. These measures will also pay dividends, because, regardless of any enhanced Japanese enforcement, many Japanese companies remain subject to the FCPA, and thus the long reach and rigorous foreign bribery enforcement of U.S. authorities. These measures may prevent an FCPA violation, or at a minimum, put Japanese companies in a position to seek a more favorable resolution, including a declination to prosecute by U.S. authorities.
OECD WORKING GROUP ON BRIBERY MONITORING PROCESS
Once a country accedes to the Anti-Bribery Convention, it becomes subject to a rigorous review process. This is because, pursuant to Article 12 of the Anti-Bribery Convention, there is a program to “monitor and promote the full implementation of [the] Convention.” The idea behind this monitoring process is to ensure that countries that have signed the Anti-Bribery Convention actively enforce their foreign bribery laws to ensure that companies from all countries are playing by the same rules. To accomplish this goal, the Working Group, which is comprised of the countries that have signed the Anti-Bribery Convention (currently 40 countries), meets quarterly at the OECD in Paris. The Working Group oversees implementation of the Anti-Bribery Convention through a “peer review” system based on a set of agreed-upon principles and standards.4 This monitoring has occurred in three phases
in which two countries review a third country after which the reviewing countries submit a report to the entire Working Group for its review and approval:5
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(a) progress made by state parties on weaknesses identified in Phase 2; (b) enforcement efforts and results; (c) implementation of the 2009 Recommendation for further Combating Foreign Bribery; and (d) cross-cutting issues faced by all countries, such as corporate liability and mutual legal assistance.
Each report issued during each phase of the review contains various recommendations for improvements to be made by the country being reviewed. One year after the report, the reviewed country is expected to provide the Working Group with an oral follow-up report on the progress it has made in implementing the recommendations contained in the report. Two years after issuance of the report, the reviewed country is expected to provide a
written follow-up report delineating the progress it has made responding to the recommendations contained in the report, and the Working Group assesses that progress indicating whether a recommendation has been fully implemented, partially implemented, or not implemented.
In many instances, after a critical report by the Working Group, countries have responded to Working Group recommendations by dedicating more resources to combat foreign bribery, increasing investigations and prosecutions, and even amending their foreign bribery laws. For example, following severe criticism by the Working Group, the United Kingdom passed the landmark U.K. Bribery Act and brought a series of high-profile
foreign bribery cases.7 Canada is another example where, after a highly critical Working Group report, it began
investigating and prosecuting more foreign corruption cases, and just last year, Canada amended its law to eliminate an exception for facilitating payments and to increase possible prison sentences, among other things.8
JAPAN’S FOREIGN BRIBERY LAW
Since February 1999, Japan has outlawed the bribery of foreign public officials. 9 Article 18 of the Unfair Competition Prevention Law (UCPL) makes it illegal to give (kyoyo), offer (moshikomi), or promise (yakusoku) a bribe to a foreign public official (i.e., non-Japanese official):
No person shall give, offer, or promise any pecuniary or other advantage, to a foreign public official, in order that the official act or refrain from acting in relation to the performance of official duties, or in order that the official, using his position, exert upon another foreign official so as to cause him to act or refrain from acting in relation to the performance of official duties, in order to obtain or retain [an] improper business advantage in the conduct of international business.10
The UCPL defines a “foreign public official” broadly as:
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By comparison, while the FCPA does not contain such a detailed definition of “foreign official,” a number of district courts in the United States have found that many co-extensive factors like those contained in Japan’s foreign bribery law can be used by jurors to determine whether a particular entity qualifies as an “agency” or “instrumentality” of a foreign government.12
The UCPL applies to natural and legal persons alike.13 Unlike the United States, under Japanese law, criminal liability of a legal person is based on the principle that the company did not exercise due care in its supervision and selection, among other things, of an officer or employee to prevent the criminal act.14 The burden rests on the company to establish that it acted with due care by showing it took proactive and specific steps to prevent violations.15 While in the United States there is no “due care” defense, such proactive steps, like establishing an effective compliance program, are weighed heavily in favor of companies by the DOJ16 and SEC,17 as well as the
courts.18 As such, under either the Japanese or the U.S. system, establishing an effective compliance program and robust internal accounting controls will help insulate companies from liability or enforcement.
In terms of jurisdictional reach, the UCPL applies to Japanese citizens and Japanese legal persons anywhere in the world under the “principle of nationality jurisdiction” and applies to non-Japanese nationals and non-Japanese legal persons (for example, a foreign company or gaikoku gaisha) where an act of the offense, or a result of the
offense, occurs in the territory of Japan under the “principle of territorial jurisdiction.”19
With respect to facilitation payments, Japan’s foreign bribery law contains no exception for such payments. However, Japanese authorities have indicated that “[w]here a small facilitation payment is made in order to expedite a routine administrative service, this would be considered not to fall under ‘improper business advantage.’”20 Other countries, like Germany, have used a similar interpretation to permit a de facto exception for facilitation payments even though the law makes no explicit exception for them.21 Even though the Japanese authorities may not regard facilitation payments as prohibited, the law does not contain an explicit exception for them, and therefore the safest course for a company is simply not to permit them.
Under the UCPL, the punishment for bribery of a foreign public official is a maximum of five years in prison or a five million yen fine (approximately US$50,000) for natural persons, or both, and a maximum 300 million yen (approximately US$3 million) fine for legal persons.22
While the principal regulatory authority overseeing Article 18 of the UCPL is the Ministry of Economy, Trade and Industry (METI), the National Police Agency, Ministry of Justice, and public prosecutors’ offices are substantially involved in the investigation and prosecution of violations under the UCPL. To date, Japan has brought three prosecutions under its foreign bribery law, with its most recent prosecution occurring in September 2013.23
JAPAN RESPONDS TO OECD CRITICISM WITH INCREASED RESOURCES AND NEW RESOLVE
The Phase 1 report for Japan was issued in May 200224 and an initial Phase 2 report followed thereafter in March
2005.25 The Phase 2 report was highly critical of Japan for its lack of effort to enforce its foreign bribery. In fact, it
was so critical of Japan that the Working Group ordered that Japan undergo a second review, also known as a bis, to subject Japan to even more detailed scrutiny.26 As a result, an additional on-site visit took place in February 2006 and a subsequent Phase 2 bis report was then issued in June 2006 finding that “Japanese law enforcement authorities have still not made adequate efforts to investigate and prosecute foreign bribery cases.” 27
As with other member states, Japan underwent a Phase 3 review, and a report was issued in December 2011. 28 This report contained strongly worded criticism of Japan’s lack of enforcement effort and provided a lengthy list of recommendations for Japan to address in future follow-up reports.
In response to the pointed criticism contained in its December 2011 Phase 3 report, Japan submitted a written follow-up report in advance of the December 2013 plenary of the Working Group. This written follow-up report was required by the Working Group’s procedures. Japan’s two-year written follow-up report (and the Working Group’s assessment of that report) was released publicly by the Working Group in February 2014.29 That report provides an important and rare insight into the inner workings of Japanese enforcement authorities, and it also provides a glimpse into the mounting pressure on Japan to increase its foreign bribery enforcement.
In the lengthy report, Japan disclosed certain enhancements, increased resources, and additional steps it was taking to investigate and prosecute foreign bribery more effectively. What follows are some of the highlights of that report:
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•Strengthening Coordination Among Japanese Law Enforcement AuthoritiesIssdecnhwctsJnds sstfcrs”rcssgsfydssoe cksss”ossmwttweLdec,Jndak”rcngescl esssctscs]sdtcs,cgc,el xcy)d ecsdcecessnJnsdttssk”yssgecefcsec”dsgwctoe nyccens,,ecycnsefen ssnefssccssnsgcngwctcs, Jncdeacs,nchcecsdcsyhvtso vceel dctgsss
•Enhancing Use of Mutual Legal Assistance Requestsssscessnwctceefs”fnJndtn,esyfJscessdacl cenaJscesmraw”chssdfl scs,l sss,ds.gyros,ecl cecdssnJygss,ecl cecdsgwsvetcs” cgss,]scl tdyrcve
witness[es].” 41 But Japan cautioned that the Subcommittee’s work is ongoing and that its work is a part
of “greater and ongoing discussions on a new criminal justice system.”42
Including Foreign Bribery Enforcement Explicitly Within the Duties of Economic and Financial Crimes Prosecutors. Japan emphasized that the Ministry of Justice amended regulations “so as to expressly include the detection, investigation and prosecution of foreign bribery cases within the scope of [prosecutors’] duties.”43 These regulations took effect on June 1, 2012.44
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and agencies have been fully aware of the importance of suspicious transaction reports from JAFIC in detecting foreign bribery cases.” 46
•Increasing Awareness of Foreign Bribery Law Among Japanese CompaniessossesakytocsessfnywtJse cs,Jnsdttcdddcl s”dnsros-dszdssnroscessde Jnszdttcysesdnes”oces
•Utilizing Japanese Overseas Missions to Detect Foreign Bribery by Japanese Companiesscsdteyfns)cdgsrssncsn rocerccyotr”tJseczsdcsnn csegscvreDy,e,ny cssfJecs,dese3ssyfgnsssssesrnysssgnsdyedsdcsoenycss.
In the end, the substantial efforts outlined above by Japan appear to announce a new phase of Japanese enforcement, which is best captured by one of the telling statements by Japan itself:
To conclude, we believe Japan has been taking [the] necessary steps to further strengthen the framework of effective coordination between special investigative divisions in district prosecutors[’] offices and relevant agencies, and hope such framework will bring more investigation and prosecution of foreign bribery cases in [the] near future.52
OECD CONTINUES TO INCREASE THE PRESSURE ON JAPAN FOR MORE ACTIVE ENFORCEMENT
In spite of all of the steps taken by Japan in the past two years, it is clear that the Working Group is not yet satisfied. To the contrary, it appears that the Working Group is increasing the pressure brought to bear on Japan to increase its efforts at enforcement.
Japan is scheduled to report to the OECD this year regarding its “action-plan” to address these concerns and the “continuing lack of clarity in METI materials about the legality of facilitation payments and what comprises a facilitation payment versus a bribe.”53 This level of ongoing, relentless pressure on Japan to demonstrate its commitment to enforcement is both virtually unprecedented and almost certain to increase, at least incrementally, Japan’s foreign bribery enforcement.
CONTINUED LONG-ARM REACH OF FCPA ENFORCEMENT BY DOJ AND SEC
Regardless of the potential increased scrutiny by Japanese authorities, Japanese companies have long faced enforcement by DOJ and SEC in the United States. As an initial matter, any Japanese companies that qualify as “issuers” in the United States can be subject to U.S. jurisdiction.54 Moreover, even Japanese companies that are not “issuers” may be subject to U.S. jurisdiction based on conspiracy jurisdiction, aiding and abetting jurisdiction, as well as under the territorial jurisdiction of the FCPA if acts occur while in the territory of the United States.
Indeed, all of the FCPA cases brought against Japanese companies to date have been Japanese companies that were not issuers.55
Those prior enforcement actions against Japanese companies have resulted in penalties of nearly US$400 million in just the last three years, and there are media indications of ongoing U.S. investigations into other Japanese companies arising from allegations of foreign bribery.
WHAT CAN COMPANIES DO NOW?
Given the continued aggressive enforcement by U.S. law enforcement and the potential new era of enforcement by Japanese law enforcement, companies should begin addressing foreign bribery risk, if they have not already. Those steps should include:
In the end, the need for compliance with foreign bribery laws, both in Japan and elsewhere, is now a reality with serious consequences for failure. Companies should act now to avoid problems later.