Japan is one of the world's most advanced economies and a major player in trade, accounting for 4% of global exports. Yet, it has recently been found to have done little to eliminate bribery involving Japanese companies abroad.
Japan is a signatory to the Organization for Economic Cooperation and Development's 1997 Convention on Combating Bribery of Foreign Public Officials in International Business Transactions. Two years later, it passed its own law against the bribing of foreign public officials. But critics blame the government for paying lip service to the issue and say prosecutors rarely bring bribery charges against Japanese companies. In October, international anti-graft watchdog Transparency International released a progress report on fighting corruption. It found that Japanese enforcement of the OECD anti-bribery convention was minimal -- only four cases from 2010 through 2014.
One of them took place last year. In October, three executives of Japan Transportation Consultants pleaded guilty to paying $650,000 in bribes to Vietnamese officials to secure business in connection with a Japan-funded railway project in Hanoi. In addition, the executives were charged with bribing officials in Indonesia and Uzbekistan. The payments were reportedly discovered during a tax audit and referred to public prosecutors, which makes it unclear whether Japanese anti-bribery enforcement is increasing.
By contrast, more Japanese companies are being prosecuted abroad for bribery.
In 2011, Bridgestone, the Japanese company best known for its tires, pleaded guilty and paid a $28 million fine for conspiring to rig bids and fix prices in the U.S. as well as for paying bribes to employees of state-owned enterprises in Latin America. The Bridgestone case in the U.S. is noteworthy because while it initially began as an antitrust investigation, once evidence of improper payments in Latin America was discovered, the investigation was expanded to cover violations against the U.S. Foreign Corrupt Practices Act. Bridgestone reportedly could have been fined much more, but the Department of Justice agreed to a reduced fine because Bridgestone had cooperated with the investigation. The person in charge of the division that made the illegal payments, a Japanese citizen, was sentenced to two years in prison.
Marubeni also got into trouble in the U.S. It had acted as an agent for a joint venture company seeking to win contracts from the Nigerian government for the construction of liquefied natural gas plants. The joint venture had paid approximately $51 million to Marubeni, which Marubeni then used to bribe Nigerian officials. While the bribes took place outside of the U.S., members of the joint venture included U.S. companies; Marubeni was charged for acting as the agent of these companies. In 2012, Marubeni entered into a deferred prosecution agreement with the Department of Justice and agreed to pay a fine of $54.6 million. In addition, Marubeni agreed to enact new compliance procedures and cooperate with the department's investigations.
The increase in bribery charges against Japanese companies usually involves dealings in emerging economies. In general, these countries are becoming less tolerant and less likely to look the other way with respect to both bribes and anti-competitive actions taken by multinationals.
In October, Brazil's competition regulator found several manufacturers, including Japan's Mitsubishi Corp., guilty of inflating international prices of graphite electrodes, components for making steel, from 1992 to 1998. While the activities occurred some time ago, the Brazilian government reportedly started its investigation in 2009, after learning of the conduct from reports published by governments in North America, Europe and Asia. The case highlights how long companies can be liable for their antitrust actions. It also demonstrates that emerging economy regulators are increasingly looking at how other jurisdictions enforce anti-bribery and antitrust laws.
With that in mind, companies should be careful in making sure any disclosures or reports are consistent from jurisdiction to jurisdiction as regulators are known to share information across borders.
Compliance issues continue and can present significant potential liabilities for Japanese companies doing business in foreign jurisdictions. Earlier in the year, charges were, once again, filed in Brazil alleging that 18 companies, including Mitsui & Co., engaged in cartel activities and anti-competitive behavior in prearranging bids for the construction and maintenance of rail networks.
Given the risks and costs associated with being subject to regulatory investigations and enforcement actions, Japanese companies are becoming more proactive in providing staff with compliance training. Training is often conducted by the company's internal legal team or through bespoke seminars provided by experts or law firms with expertise on bribery laws in OECD countries. Some companies require employees who may have dealings with government officials to complete annual tests in order to demonstrate that they are well-informed of anti-bribery laws and the risks associated with engaging in unethical activities. Companies in Japan are also implementing best practice guidelines and conducting internal audits to make sure business activities are subject to appropriate internal controls and oversight.
With more countries getting serious about cleaning up the corporate landscape, it is high time Japanese executives took compliance more seriously.
Makiko Kawamura is a partner at global law firm DLA Piper. Based in Tokyo, she heads the Japan tax group. Her principal areas of practice are international and domestic Japanese tax. She also has experience in cross-border mergers and acquisitions.