Daf/Wgb(2014)68

Confidential DAF/WGB(2014)68

Organisation de Coopération et de Développement Économiques Organisation for Economic Co-operation and Development 20-Nov-2014

______English - Or. English DIRECTORATE FOR FINANCIAL AND ENTERPRISE AFFAIRS WORKING GROUP ON BRIBERY IN INTERNATIONAL BUSINESS TRANSACTIONS Confidential DAF/WGB(2014)68

JAPAN: PHASE 3 FOLLOW-UP - ADDITIONAL WRITTEN REPORT

Updated Report on Action Plan and Progress on Implementing Phase 3 Recommendations

Paris, 9-12 December 2014

This document is for discussion under Agenda item 7.h.

For further information, please contact Christine Uriarte [Tel: +(33-1) 45 24 97 91; E-mail: [email protected]] or Lynn Robertson [Tel: +(33-1) 45 24 18 77; E-mail: [email protected]].

English English JT03366774

Complete document available on OLIS in its original format -

This document and any map included herein are without prejudice to the status of or sovereignty over any territory, to the delimitation of English Or. international frontiers and boundaries and to the name of any territory, city or area.

CONFIDENTIAL DAF/WGB(2014)68

TABLE OF CONTENTS

PHASE 3 EVALUATION OF JAPAN: UPDATED REPORT ON ACTION PLAN AND PROGRESS ON IMPLEMENTING PHASE 3 RECOMMENDATION ...... 3 PART 1: UPDATE ON ACTION PLAN ...... 3 PART 2: PROGRESS ON FURTHER OUTSTANDING RECOMMENDATIONS FROM PHASE 3 ...... 9 ANNEX 1: MAJOR CASES REGARDING THE PROTECTION OF WHISTLE-BLOWERS IN JAPAN ...... 17

2 CONFIDENTIAL DAF/WGB(2014)68

PHASE 3 EVALUATION OF JAPAN: UPDATED REPORT ON ACTION PLAN AND PROGRESS ON IMPLEMENTING PHASE 3 RECOMMENDATION

Updated for December 2014 Plenary of Working Group on Bribery

PART 1: UPDATE ON ACTION PLAN

1. Introduction

In the December meeting of the Working Group on Bribery (WGB) in 2013, it was recommended that Japan establishes the Action Plan to fully address concrete issues regarding the Phase 3 examination, and reports on it orally in March and submit written reports in June and in December 2014.

Following the above-mentioned recommendation, Japan hereby shows the progress of the Action Plan and developments in its implementation.

2. Human Resources of Prosecution and Police

(1) Prosecutor for Foreign Bribery and Prosecutor's Assistant Officer for Foreign Bribery

The Ministry of Justice (MOJ), after having several consultations with the Supreme Public Prosecutor’s Office (SPO), the highest prosecutorial office in Japan responsible for supervising all national prosecutors, and accelerating the plan presented orally in the March meeting, has reached a conclusion. In accordance with this conclusion, prosecutor for foreign bribery and prosecutor's assistant officer for foreign bribery have been designated at each special investigative division in Tokyo, Osaka and Nagoya district prosecutors’ offices in April 2014.

During several consultations with the SPO, it was necessary and inevitable to take into consideration some important factors such as the very limited human resources in prosecutors’ offices. The MOJ also took into consideration the different roles of prosecutors’ offices and police offices (the police office is the primary investigative authority in Japan) in order to examine what would be the most effective resource allocation for foreign bribery investigations.

Following serious consideration and examination, it has been decided to designate prosecutor for foreign bribery and prosecutor's assistant officer for foreign bribery at each special investigative division in district prosecutors’ offices in the three major metropolitan areas, i.e. Tokyo, Osaka and Nagoya where most major companies have their head offices.

In addition, as reported previously, the role of prosecutors assigned to financial and economic crimes in other district will not be affected by the designation of these new types of prosecutor and its assistant. Therefore they will continue to engage in the detection, investigation and prosecution of foreign bribery cases.

Furthermore, a "flexible approach" will continue to be adopted, after determining the case lead of foreign bribery. Depending on the development of the investigation, ordinary prosecutors except prosecutors for foreign bribery would join the investigation and establish the investigation team.

3 CONFIDENTIAL DAF/WGB(2014)68

(2) Attorneys in charge of MLA

Attorneys in charge of Mutual Legal Assistance (MLA) in the MOJ, who accumulated abundant experiences through attending various international conferences including the OECD WGB, share useful information and good practices about foreign bribery which they obtained at the conferences with prosecutors and officers for foreign bribery.

(3) Police Officials for Anti-bribery on Foreign Public Officials and Inspectors

The National Police Agency (NPA) has appointed officials in charge of anti-bribery of foreign public officials. They are senior officers in the Second Investigative Division of NPA, which handles white-collar crimes and public corruption investigations of every local police department. Each senior officer will acquire the necessary knowledge and skills regarding foreign bribery cases, and is expected to play a leading role in detecting and investigating foreign official bribery cases.

NPA improved the method of information sharing with prefectural police authorities following the establishment of the Action Plan. In April 2014 NPA assigned Chief Inspector or Inspector in every prefectural police to supervise and coordinate investigation of foreign bribery cases in each prefecture. Beyond controversy, NPA keeps supervising and coordinating in regional investigations, if necessary.

In National Police Academy and relevant official meetings, NPA provides a variety of opportunities such as lectures and seminars concerning combating bribery of foreign public official to prefectural investigators and senior officers for the purpose of sharing best practices in detecting crimes and important points in investigation. In addition to the educational occasions above, each prefectural police authority is also taking such good training measures.

3. Measures to Detect Foreign Bribery

(1) Cooperation between prosecutors and police

Public Prosecutors’ Offices and Police Offices are independent investigative authorities, but in practice they cooperate and coordinate in every crime investigation including foreign bribery.

Generally speaking, police is mainly responsible for investigation of foreign bribery cases acknowledged by police officers until they are referred to prosecutors’ offices. However, when police investigates cases with larger impact on the society, police may consult with prosecutors before referral in order for prosecutors to be well-prepared for prosecution. Furthermore, police may also collaborate investigation with prosecutors from the beginning when it is appropriate. In the case senior specialist police officers assigned for foreign bribery found case lead of foreign bribery and investigation goes further, they will share information of the case with prosecutor and seek advice from them.

Prosecutors initiate investigation by themselves when they grasp case leads of foreign bribery cases. Even if prosecutors grasp investigative leads, local police may initiate investigation after consultation between prosecutors and police depending on the case. As described above, when police officers grasped investigative leads, they investigate a case and refer it to a prosecutor while consulting with the prosecutor. In this way, it is well coordinated between police and prosecutors.

(2) Gathering information to detect foreign bribery

As described above, prosecutors and prosecutor’s assistant officers for foreign bribery have been designated at Tokyo, Osaka, Nagoya district public prosecutors’ offices.

4 CONFIDENTIAL DAF/WGB(2014)68

Prosecutors and prosecutor’s assistant officers for foreign bribery are supposed to gather information and materials about foreign bribery and to coordinate among concerned organisations. They will provide prosecutors assigned to economic and financial crimes in other prosecutors’ offices with information if necessary. One of the most important roles for prosecutors and prosecutor’s assistant officers for foreign bribery is grasping investigative leads of foreign bribery.

Prosecutors and prosecutor’s assistant officers for foreign bribery are experienced in the field of prosecution and are proficient in foreign languages. They are endeavouring to grasp investigative leads through receiving accusations and gathering information from internet, newspaper article, FIU, METI reporting desk and so on.

(3) Using diplomatic measures

Since December 2006, Ministry Of Foreign Affairs (MOFA) is dispatching directives several times that instruct Japan’s overseas Diplomatic Missions to inform Tokyo of reported cases in local media regarding foreign bribery which Japanese people or companies may be involved in, from the point of view of grasping the various investigative leads and to enhance the effective investigation and prosecution of the foreign bribery offence. Gathered information based upon these directives is immediately shared with law enforcement authorities. We anticipate that the information would be useful for law enforcement authorities to grasp investigative leads.

4. Actual Case

In July and August 2014, the prosecutor for foreign bribery at the Tokyo District Public Prosecutors’ Office (“lead prosecutor”) indicted the railway consulting firm and three former executives in charge of paying bribes to foreign public officials in Vietnam, Indonesia and Uzbekistan. The three former executives, in order to receive favorable treatment regarding the conclusion of the contract, conspired with one another, and 1) bribed three public officials in Vietnam by paying them in cash on more than ten different occasions, 2) bribed three public officials in Uzbekistan by paying cash and wire transferring money on four occasions, 3) bribed five public officials in Indonesia by paying cash on more than twenty occasions. The total amount of bribe indicted accumulated to more than 1,300,000 US dollars. The case is currently pending at the Tokyo District Court.

We believe the investigation and prosecution of this case is a great example that demonstrates Japan’s eagerness to satisfy the Phase 3 recommendations.

(1) Allocation of adequate resources (recommendation 4(b))

In relation to the allocation of adequate resource, Japan reported previously that Prosecutors take the “flexible approach” by allocating additional prosecutors from different prosecutors’ offices to join the investigation as the case develops and when necessary. In the case above, 5 prosecutors from prosecutors’ office outside of Tokyo and 4 prosecutors from different divisions within in the Tokyo District Prosecutors’ Office were selected to work for the lead prosecutor in the special investigative division. These prosecutors were handpicked for their investigative skill and also specifically for their proficiency in foreign languages since many of the evidential materials were in English. All nine prosecutors including the lead prosecutor dedicated themselves to the investigation of this single case which lasted for nearly four months. After the indictment, the supporting prosecutors returned to their regular duties in their respective offices.

(2) Non-compulsory investigative measures (recommendation 4(a))

With regard to the usage of non-compulsory investigative measures, the lead prosecutor intentionally conducted interviews of defendants in a voluntary way without making any arrests. So the use of non-

5 CONFIDENTIAL DAF/WGB(2014)68 compulsory measures was utilized intentionally by the lead prosecutor in order to set a leading example for future cases and display that those who cooperate will be rewarded. The lead prosecutor negotiated with the attorneys of the alleged company and since the company agreed to cooperate in expectation of leniency, there was no need for any compulsory measures. The lead prosecutor also had the company submit any necessary documents and data including more than one million e-mails by the members of the alleged company including their oversea branch offices. Because there were no arrests made, the prosecutor was free from the time limit if the suspect were to be detained. Taking advantage of such situation, the lead prosecutor was able to carefully analyse all the evidential data and he believes that there was no stone left unturned and the prosecution was made in the largest extent possible.

We believe by treating cooperating companies with more lenient measures of non-compulsory nature will provide an incentive to others to report future allegations concerning foreign bribery.

(3) Seeking MLA (recommendation 4(a))

The lead prosecutor dispatched prosecutors and officers to the three countries where the bribe recipients resided (Vietnam, Uzbekistan and Indonesia) and sent five MLA requests to five different countries including above three countries and also to Scotland and Latvia during May and June 2014, only a month after the investigation commenced. Dispatched prosecutors met with the Central Authority of the respective country to discuss of any impediment in executing the MLA requests and asked for their quick actions. With the favourable responses during these consultations, the official MLA requests were sent out to each country immediately upon their return. The MLA requests were also sent to Scotland and Latvia to obtain bank records and to ask for information about the shell companies used by the foreign public officials. Not all responses came back from the requested countries but for those that did, it came back in a very timely manner (Latvia took only two month for their responses). We have assessed that such success in receiving concrete results was largely due to the fact the prosecutors asked the requested country in person urging for their assistance.

In accordance with the Action Plan, prosecutors for foreign bribery will continue to take a leading role in detecting, investigating and prosecuting foreign bribery cases as described above.

5. Provision of Training Opportunities for Prosecutors

The MOJ has been providing training opportunities for prosecutors on the investigation of financial and economic crimes, including foreign bribery cases. However, the MOJ also notes the necessity for additional specific training programmes focusing on matters related to the investigation of foreign bribery cases, including ways to obtain information and evidence from overseas through MLA or other channels.

In October 2013, the SPO designated several prosecutors from its office as international affairs prosecutors (SPO/IA prosecutors) to deal with various matters with international elements, including the collection and analysis of information, knowledge and experience on legal and practical aspects of MLA and other international cooperation, as well as the provision of information, assistance and training to prosecutors throughout Japan on these matters. In addition to organising national or international meetings or seminars in Japan, SPO/IA prosecutors engage in various activities such as coordination and making arrangements for accepting overseas guests and experts to the Japanese prosecution, or dispatching Japanese prosecutors abroad to attend meetings/seminars or conduct research with a view to enhancing their capacity to effectively cope with transnational crime.

In view of the functions and responsibilities above, SPO/IA prosecutors would be best fit to provide additional training opportunities to nationwide prosecutors focusing on the investigative techniques for foreign bribery cases, including MLA, and thus the SPO/IA prosecutors will contribute to the provision of training

6 CONFIDENTIAL DAF/WGB(2014)68 opportunities for prosecutors for foreign bribery through the organisation of training courses/seminars/meetings on these issues.

(1) Update on educational measures and international cooperation

MOJ is conducting the training seminars on various topics on practical/technical aspects of investigation and prosecution for public prosecutors. As one of the lectures being offered in July 2014 training programmes, an attorney in charge of MLA of MOJ provided a lecture on international cooperation and introduced the OECD Anti-Bribery Convention as well as the foreign bribery offence in the UCPL.

MOJ is continuing to stress the importance of implementation of the Phase 3 recommendations in several assemblies.

In September 2014, MOJ convened an assembly of the Chief Prosecutors of Public Prosecutors Offices and recommended them, with reference to the recommendations from the OECD WGB, to steadily carry out measures to deal with foreign bribery at each public prosecutors’ office.

In October 2014, MOJ also convened an assembly of the Deputy Chief Prosecutors and recommended them, with reference to the recommendations from the OECD WGB, to more actively utilize MLA for transnational crimes including foreign bribery. The Deputy Chief Prosecutor at the Tokyo District Public Prosecutors Office made a presentation about the foreign bribery case mentioned above in the assembly.

Japan actively participated in international seminars and workshops to cooperate effectively with other countries. MOJ allowed the prosecutor for foreign bribery at the Tokyo Public Prosecutors Office and an attorney at the Ministry to attend the seminar in Cambodia hosted by UNODC and the Kingdom of Cambodia in September 2014. At the seminar, the prosecutor made a presentation about how to investigate the foreign bribery case and lessons from the MLAs of the case.

Furthermore, 5 prosecutors and 3 prosecutor’s assistant officers participated in “Foreign Bribery and Corruption Conference” hosted by DOJ, SEC and FBI of United States in Washington D.C. in October 2014, where challenges in detecting foreign bribery violations was one of the main themes. The prosecutors accumulated more expertise at the conference, which they have already shared with other prosecutors in their offices.

6. Proactive Detection by Tax Inspectors

In order to implement the Recommendation which requires the proactive detection of bribe payments by tax inspectors concealed as “miscellaneous” expenses, the National Tax Agency (NTA) has taken the following measures in accordance with our action plan:

 Had regular discussions regarding the best way to implement the action plan among senior officials of the relevant departments in the NTA.

 Held a workshop on “Guidelines to Prevent Bribery of Foreign Public Officials” (hereafter, “Guidelines”) with officials of the Ministry of Economy, Trade and Industry (METI).

 Translated the 2013 version of the “OECD Bribery and Corruption Awareness Handbook for Tax Examiners and Tax Auditors” (hereafter, “Handbook”) into Japanese.

 Held intensive training for tax inspectors with the aim of enhancing their awareness and capacity to detect bribe payments. The NTA conducted training programmes for tax inspectors to better

7 CONFIDENTIAL DAF/WGB(2014)68

understand and specifically recognize what comprises bribe payments that are against the UCPL and the Convention on Combatting Bribery of Foreign Public Officials in International Business Transaction, including by distributing and using such materials as the Handbook and briefing documents issued by the METI concerning the UCPL and the Convention.

 Issued administrative instructions with practical guidelines to tax inspectors, which urge them to identify and report any transaction involving possible foreign bribery to headquarters. These instructions have been thoroughly disseminated at various staff meetings.

 Put the Handbook and the Guidelines on the NTA’s intranet and official website in order to improve tax inspectors’ accessibility to these materials and to ensure each inspector is fully familiar with and makes the most of them. (All materials are available in Japanese.)

(1) Update on further actions

 Had some meetings among general manager and manager of examination departments to promote better understanding of the Convention and related anti-bribery law, and to ensure reporting any suspicious transaction for foreign bribery. (Held in September and November 2014, participated 77 executives.)

 Conducted training programmes for international tax inspectors in relevant authorities to thoroughly understand the Convention and report suspicious transaction in consideration of foreign bribery. (Held in September and October 2014, participated 212 inspectors)

 Held intensive training programmes for the new tax inspectors with the aim of enhancing their awareness and reporting any transaction that is suspicious of foreign bribery to the Headquarter. “OECD Bribery and Corruption Awareness Handbook for Tax Examiners and Tax Auditors” (translated into Japanese) and “Guidelines to Prevent Bribery of Foreign Public Officials” were used as training materials. (Held in July 2014, participated 270 inspectors)

7. METI Materials on the treatment of Facilitation Payments

Also after the establishment of the Action Plan, METI is actively organizing meetings and interview with related companies in order to review and clarify their opinion and understandings regarding SFP. In consequence it became apparent that there is some confusion among the companies in relation to the definition of SFP, which may be a risk against bribery of foreign officials in international business conduct.

Taking the situation above into consideration, METI is taking steps for completely deleting the ambiguous terms “SFP” and “FP” from METI guidance materials, such as its Guideline or leaflet, so that METI can dispel any confusions or concerns. On that basis, METI plans to show companies which acts would constitute payment “to obtain improper business advantage in international business” under the UCPL by posting some helpful reference examples for legal interpretation on METI materials.

Furthermore, according to the clear guidelines which METI previously reported in WGB, METI refers all allegations, including ones with the slightest semblance of a suspicion, to the law enforcement authorities, namely NPA and MOJ, when METI receives it through its foreign bribery reporting desk. METI doesn’t have any discretion in referring allegations sent through the reporting desk to the law enforcement authorities.

8 CONFIDENTIAL DAF/WGB(2014)68

PART 2: PROGRESS ON FURTHER OUTSTANDING RECOMMENDATIONS FROM PHASE 3

(recommendations assessed as not/partially implemented in December WGB 2013)

Text of recommendation 1:

1. The Working Group recommends that Japan take appropriate steps according to its legal system to ensure that sanctions imposed on natural and legal persons in practice are sufficiently effective, proportionate and dissuasive, in accordance with Article 3 of the Convention.

Japan’s actions regarding recommendation 1 are included on recommendation 5.

Text of recommendation 2:

2. The Working Group recommends that Japan take appropriate steps within its legal system to urgently establish the necessary legal basis for confiscating the proceeds of bribing foreign public officials upon conviction of foreign bribery, to ensure that Japan is in compliance with Article 3.3 of the Convention. (Convention, Article 3.3)

Japan’s actions regarding recommendation 2 are included on recommendation 5.

Text of recommendation 3:

3. The Working Group recommends that Japan find an appropriate way to balance the emphasis on prevention with facilitating enforcement of the foreign bribery offence by the Ministry of Economy, Trade and Industry (METI), or alternatively, that METI increase coordination with relevant ministries and agencies, such as the Ministry of Justice, to achieve this balance. (Convention, Article 5; Commentary 27; 2009 Recommendation, Annex I, para. D)

After the Action Plan was established, METI is conducting periodical consultations with relevant authorities including MOJ, NPA and MOFA and keeping discussion to find an appropriate way to balance the emphasis on prevention with facilitating enforcement of the foreign bribery offence. According to the clear guidelines which METI previously reported in WGB, METI refers all allegations, including ones with the slightest semblance of a suspicion, to the law enforcement authorities, namely the NPA and the MOJ, when METI receives it through its foreign bribery reporting desk. Furthermore, METI doesn’t have any discretion in referring allegations sent through the reporting desk to the law enforcement authorities. Incidentally, under the Code of Criminal Procedure, all government officials or local government officials have a duty to file an accusation with the law enforcement authorities when they believe a criminal offense has been committed.

9 CONFIDENTIAL DAF/WGB(2014)68

Text of recommendation 4(a):

1. Regarding the investigation and prosecution of foreign bribery cases, the Working Group recommends that Japan immediately take appropriate steps to actively detect and investigate foreign bribery cases, and the Working Group further recommends that Japan: a) Continue to use non-compulsory investigative measures and seek MLA at the earliest possible stage where appropriate, and provide a progress report to the Working Group in 24 months on consideration by Japan of the use of new investigative techniques for foreign bribery, such as wire-tapping and grants of immunity from prosecution, including through the special advisory body established by the Ministry of Justice to review Japan’s criminal justice system;

The use of non-compulsory investigative measures and MLA at the earliest possible stage is written in the part 1 of this report p.3.

In relation to considering of the use of new investigative techniques, including through the special advisory body established by MOJ, on 6 June 2011, MOJ announced the establishment of "the Special Subcommittee on a Criminal Justice System for a New Era," with a view to discussing the new criminal justice system to meet the need of present day time including interrogation recordings as well as new investigative techniques. The subcommittee has 40 members consisting of criminal law scholars, legal professions and intellectuals and met 30 times from June 2011 to July 2014 and actively discussed among other topics the introduction of new investigative techniques such as “prosecutional agreement and immunity for cooperative witness/ suspect”. These discussions included the examination of the legal system of other countries (Italy, United States and Korea). As a result, the Legislative Council of MOJ submitted the reform proposals on criminal proceedings on 18 September 2014, which include recommendations to introduce “prosecutional agreement and immunity for cooperative witness/ suspect”. Based on the reform proposals, MOJ is preparing to submit revisions to the Criminal Procedure Law and other legislation to the Diet. We anticipate that these new investigative techniques, when introduced, will make the investigation of foreign bribery much easier than before.

Text of recommendation 4(b):

2. Regarding the investigation and prosecution of foreign bribery cases, the Working Group recommends that Japan immediately take appropriate steps to actively detect and investigate foreign bribery cases, and the Working Group further recommends that Japan: b) Further strengthen the framework for investigating foreign bribery cases by ensuring that special investigative divisions in district prosecutors’ offices with special responsibility for economic and financial crimes: i) expressly include foreign bribery within the crimes they cover; ii) are adequately resourced and equipped to detect, investigate and prosecute foreign bribery cases; and iii) coordinate effectively with police and other relevant agencies, including the National Tax Agency and the Securities and Exchange Surveillance Commission; and

In addition to that senior officers (Chief Inspector or Inspector) were assigned at every prefectural police to

10 CONFIDENTIAL DAF/WGB(2014)68 supervise and coordinate investigation of foreign bribery cases in April 2014, it was decided to designate prosecutors and prosecutor’s assistant officers for foreign bribery to gather information and materials about foreign bribery and to coordinate among concerned organisations. They will provide prosecutors assigned to economic and financial crimes in other prosecutors’ offices with information if necessary. One of the most important roles for prosecutors and prosecutor’s assistant officers for foreign bribery is grasping investigative leads of foreign bribery. Japan reported previously that we take a “flexible approach” in allocating resources by having additional prosecutors joining the investigation as the case develops as necessary. In the case described above, 5 prosecutors from prosecutors’ office outside of Tokyo and 4 prosecutors from different divisions within in the Tokyo District Prosecutors’ Office were selected to work for the lead prosecutor in the special investigative division. These prosecutors were handpicked for their investigative skill and also specifically for their proficiency in foreign languages since many of the evidential materials were in English. All nine prosecutors including the lead prosecutor dedicated themselves to the investigation of this single case which lasted for nearly four months. After the indictment, the supporting prosecutors returned to their regular duties in their respective offices.

Text of recommendation 4(c):

3. Regarding the investigation and prosecution of foreign bribery cases, the Working Group recommends that Japan immediately take appropriate steps to actively detect and investigate foreign bribery cases, and the Working Group further recommends that Japan: c) Take appropriate steps to ensure that the law enforcement authorities systematically follow-up with JAFIC, Japan’s financial intelligence unit, on how they are utilising information from JAFIC in their foreign bribery investigations. (Convention, Article 5; Commentary 27; 2009 Recommendation V and Annex I, para. D)

The meeting hosted by JAFIC was held with relevant ministries and agencies, including MOJ, SPO and SESC in September 2014. The purpose of the meeting is to follow-up on how law enforcement officials are utilizing suspicious transaction reports from JAFIC. In Police, JAFIC disseminates suspicious transaction reports to relevant prefectural police authorities. Receiving the information above, the assigned officials in charge of anti-bribery of foreign public officials in prefectural authorities seek to detect foreign bribery case in the reports. NPA provides lectures to the assigned officials at National Police Academy to share the best practices in information gathering and utilization of transaction report. Although there is unfortunately no prosecutions of foreign bribery cases detected and established by suspicious transaction reports, investigators have been aware of the importance of suspicious transaction reports from JAFIC in detecting foreign bribery cases, and continued to raise their awareness on utilization of suspicious transaction reports.

Text of recommendation 5:

5. The Working Group recommends that Japan take urgent steps to adopt the necessary amendments to the Act on Punishment of Organized Crimes and Control of Crime Proceeds (AOCL) to make it an offence to

11 CONFIDENTIAL DAF/WGB(2014)68 launder the proceeds of bribing a foreign public official. (Convention, Article 7; Commentary 28)

As for the natural person, UCPL has been revised in June 2005 to increase the term of imprisonment and the amount of monetary fine for the foreign bribery offence from maximum 3 years sentence of imprisonment or maximum 3 million Yen fine to maximum 5 years sentence of imprisonment and/or maximum 5 million Yen fine. Compared to the sanction of domestic bribery which is imprisonment of maximum 3 years or (not and/or) 2.5 million Yen fine, criminal punishment of the foreign bribery offence is more severe. As for the legal persons, UCPL provides a maximum fine of 3 hundred million Yen, which is also more severe than domestic bribery which provides no criminal punishment for legal person. Having said above, in order to evaluate whether or not the sanctions imposed on natural and legal persons are sufficiently effective, proportionate and dissuasive, in accordance with Article 3 of the Convention, not only the term of imprisonment and the amount of monetary fine but amount of confiscation of proceeds should also be considered (Thus, we put the recommendation 1, 2 and 5 together to explain the actions taken). Currently, the Act on Punishment of Organized Crime and Control of Crime Proceeds (AOCL) prescribe in a list format the crimes for which proceeds can be confiscated and the laundering of the proceed is punishable as money laundering. Currently this list does not include foreign bribery (nor domestic bribery). We have tried to amend the AOCL by stipulating all crimes for which the maximum sentence of imprisonment is 4 years or more, including foreign bribery offence, as those crimes for which proceeds can be confiscated and the laundering of the proceed can be punishable as the offence of money laundering. This approach of listing all serious crimes as predicate offences of money laundering has been consistent with the obligation of the UN Convention against Transnational Organized Crime, which defines serious crime as ”maximum sentence of imprisonment of at least four years.” In this manner, once the foreign bribery offence becomes predicate offence of AOCL, AOCL will provide legal framework not only to make it an offence to launder the proceeds of bribing a foreign public official but will make it possible to confiscate its proceeds of bribing foreign public official upon conviction of the offence. As stated previously, the abovementioned amendment of AOCL has been submitted three times by the Cabinet since 2003 until it eventually fell through in July 2009. We will continue to make efforts with a view to submitting the bill at the earliest possible timing. In Japan, new Minister of Justice has just been appointed in October 2014 and we would like to continue to consider the timing under new Minister.

Text of recommendation 6:

6. The Working Group recommends that Japan continue to conclude MLA treaties, particularly with its trade partners.

Since Phase 3 evaluation in December 2011, Japan has not concluded any MLA treaties, though Croatia has joined Japan-EU MLAA as the consequence of the affiliation of Croatia with EU in June 2013. Japan has been keeping dialogue with some countries for the possible conclusion of MLA treaties.

12 CONFIDENTIAL DAF/WGB(2014)68

Text of recommendation 8:

8. The Working Group recommends that Japan periodically review its policies and approach on small facilitation payments and urgently take steps to encourage companies to prohibit the use of such payments in their internal company controls, ethics and compliance programmes or measures. (2009 Recommendation, para. VI)

Unfair Competition Prevention Law (UCPL) is silent on SFP which is excluded from the foreign bribery offence within the meaning of Commentary 9. The UCPL doesn’t have a clear provision such as the one of the Foreign Corrupt Practices Act in the US which says that routine government actions are excluded from the foreign bribery offense.

After the establishment of the Action Plan, METI is actively organizing meetings and interview with related companies in order to review and clarify their opinion and understandings regarding SFP. In consequence it became apparent that there is some confusion among the companies in relation to the definition of SFP, which may be a risk against bribery of foreign officials in international business conduct.

Text of recommendation 9:

9. The Working Group recommends that Japan strengthen the role of METI in preventing and detecting foreign bribery, by: i) increasing visibility of information on the foreign bribery offence on METI’s website, including the METI Guidelines to Prevent the Bribery of Foreign Public Officials, and the foreign bribery ‘reporting desk’; ii) more proactively engaging with small- and medium-size enterprises (SMEs), including by more actively promoting the METI Guidelines; iii) clarifying METI’s role in providing informal advice on foreign bribery; iv) more actively engaging with companies of all sizes on effective compliance programmes, based on international developments in this area; and (v) assessing the reasons why so far no reports of foreign bribery allegations have been received by the METI ‘reporting desk’, and establishing clear guidelines on how such reports should be processed and referred to the law enforcement authorities when received. [2009 Recommendation, para. II i), IX i), and X C i)]

i) For the purpose of enhancing visibility of information and materials concerning foreign bribery, METI is taking drastic measures to revise its website page, including changing the tree structures of its websites. ii-iv) In order to more actively inform METI’s role and promote its Guideline for preventing foreign bribery, METI has already organized seminars more than 10 times per year and is continuing to organize it all over Japan mainly for SMEs. Along with the series of seminars, METI spreads information materials about foreign bribery. As a result of the action, METI receives 20-30 inquiries per year from SMEs about the Guideline. It is apparent that such actions surely lead good conclusion against bribery.

13 CONFIDENTIAL DAF/WGB(2014)68 v) As METI previously reported and mentioned above item No.3, METI has already established the clear guideline on May 31 2012 on how all allegations should be processed and referred to the NPA and the MOJ when METI receives them. In fact, METI refers all allegations to them according to the Guideline.

Text of recommendation 11:

10. The Working Group recommends that Japan take appropriate measures to ensure the detection by the tax authorities of bribes to foreign public officials concealed under various tax deductible expenses, including ‘miscellaneous expenses’, and exercise particular care in this respect when auditing tax returns of companies that are not subject to the FIEA. (2009 Recommendation on Tax Measures for Further Combating Foreign Bribery)

- Had some meetings among managerial officials to better understand related international and domestic laws to ensure of reporting any suspicious transaction. (8 meetings from July to November, participated more than 200 executives)

- Held training programmes for international tax inspectors in relevant authorities to thoroughly understand the Convention and report suspicious transaction. (14 meetings from August to October, participated about 1,000 inspectors)

- Held intensive training programmes for the new tax investigators with the aim of enhancing their awareness about reporting any suspicious transactions. (in July, participated more than 200 investigators)

Text of recommendation 13:

10. The Working Group recommends that Japan update the Working Group on any progress, on which it can publicly report, regarding research by the Consumer Affairs Agency on the effectiveness of the Whistleblower Protection Act and the number of cases brought to court under the Act and, where possible, the outcomes of these cases. Japan could consider including in this research an analysis of the possible application of the Act to Japanese private-sector employees overseas. [2009 Recommendation, para. IX iii)]

1. Research on the effectiveness of the Whistleblower Protection Act (1) Research on the implementation status targeting administrative organs The researches on the implementation status of the Whistleblower Protection Act, targeting approximately 1,800 national and local administrative organs, were carried out in 2011, 2012, 2013 and 2014. The latest research was completed in September 2014. The research found that the percentage of national and prefectural governments that had set up a reporting desk remained at 100 % and that of municipalities rose from 47.3% to 52.1%. It was also found that there were around 3,000 to 4,000 cases per year in which the administrative organs carried out investigations or rectification measures after receiving whistleblowing. Therefore, the system can be evaluated as being effectively functioning.

14 CONFIDENTIAL DAF/WGB(2014)68

(2) Research on the implementation status targeting private business operators The research on the implementation status of the Whistleblower Protection Act, targeting approximately 3,000 private business operators, was completed June 2013. The result shows that the awareness about the Whistleblower Protection Act of large enterprises maintained a very high level (more than 95%) and the awareness of small-to-medium-sized enterprises has been upwards trend (it rose to 64.0% from 61.4% during 2008 to 2012). It was also found that the percentage of large enterprises that had set up a reporting desk maintained a very high level (more than 96%) and that of small-to-medium-sized enterprises has been upwards trend (it rose to 58.9% from 54.7% during 2008 to 2012). In addition, according to the findings of the research, many private business operators showed a positive attitude about the effectiveness of installation of a reporting desk as follows (multiple answers). For example, 57.6% of them responded “The environment where employees could report about injustice in comfort was improved” and 48.2% of them responded "It is functioning as a deterrent against an illegal act".

2. Other relevant information (1) Efforts for the purpose of enhancing the effectiveness of the act (Revision of the guidelines for processing whistleblowing at national administrative organizations) In June 2014, in order to enhance the effectiveness of the act, the guideline was revised; which defines fundamental items which should be addressed by national administrative organizations to aim at realizing appropriate processing of whistleblowing. By this amendment, prohibition of "personal information protection of whistleblowers" and "conflicts of interest" in the processing of whistleblowing are strengthened. Officials who offence the prohibition are to be subject to disciplinary action.

(2)Efforts for the purpose of enhancing the awareness regarding Whistleblower Protection Responding to the reference to the public awareness level of the Whistleblower Protection Act in the Japan Phase 3 Report, the Consumer Affairs Agency has been implementing the following public relations actions concerning the Act.

•In 2012 and 2013, the Consumer Affairs Agency organized explanatory meetings to raise the awareness of the Act in seven locations nation-wide (Tokyo, Hokkaido, Yamagata, Fukui, Wakayama, Kouchi and Okinawa) for the private business operators and employees. These locations were chosen as the study by the Consumer Affairs Agency had found that the rates of the existence of the reporting desk were at a low level. •In 2014, the Consumer Affairs Agency held the symposium in seven locations nation-wide, where enterprises' concrete and good practices will be presented to emphasize that addressing whistleblowing appropriately could obviate the management risks and be beneficial to enterprises themselves. •In 2012, 2013 and 2014, in order to enhance the knowledge of the officials who are in charge of dealing with the whistleblowing at the national and local governments, the Consumer Affairs Agency organized trainings workshop in 13 locations throughout Japan and introduced the information on the Act and the guidelines. •In 2012, 2013 and 2014, the Consumer Affairs Agency introduced the information on the purposes of the Act and the guidelines in various meetings, where senior officials of the national and local governments attended. These meetings include the convention of ministries and agencies responsible for the Whistleblower Protection Act, and the conference of division heads who are responsible for consumer policies in the national and the local government. •In 2012, in the symposium concerning the Whistleblower Protection Act, organized by the Japan Federation of Bar Associations, the Consumer Affairs Agency exchanged views with lawyers and experts. On that occasion, the Consumer Affairs agency also disseminated information of the Act to the public in order to raise awareness. •In 2012, the Consumer Affairs Agency cosponsored the free telephone consultation service for whistleblowers hosted by the Tokyo Bar Associations etc. and supported the Association’s activities for the whistleblower protection.

15 CONFIDENTIAL DAF/WGB(2014)68

•In 2012 and 2014, the Consumer Affairs Agency revised the handbook so as to make the summary of the Act easier to understand. The agency distributed approximately 30,000 copies of the handbook to the national and local administrative organs, economic associations, various consumer groups, and private business operators. The Consumer Affairs Agency provides a telephone consultation service concerning the Whistleblower Protection Act every week from Monday to Friday, from 9:30 to 17:30. In the consultation, the experts who have the specialized knowledge of the Act respond to questions and consultations (e.g. contact information of reporting desk and requirements for protection) from private business operators and employees and administrative organs, etc. They receive about 900 questions and consultations on average per year. •Furthermore, as part of the effort to disseminate information regarding the Act, the Consumer Affairs Agency has set up a web-site for Whistleblower Protection to provide various types of information that may assist the whistleblowers as well as the organizations. Such information includes explanations of the Act, various guidelines, various information materials, materials used in the meetings and trainings, various researches’ results, Q&A.

The Consumer Affairs Agency will continue disseminating information vigorously to enhance the awareness of the importance of the Whistleblower Protection Act. Then, through analyzing the results of the research on whistleblower protection, the Consumer Affairs Agency will consider measures to increase the effectiveness of the system.

3. Number of cases brought to court under the Act and the outcomes of these cases Though not all the cases are published, the Consumer Affairs Agency is aware that more than ten cases regarding the whistleblower protection have been brought to court to date; the major cases are attached in Annex. In this connection, the protection of whistleblowers is provided not only through the Whistleblower Protection Act but also through, for example, the Labor Contract Act or Civil Code. Therefore, as to which law should be applied as legal basis depends on the trial strategy of the plaintiffs and, not all the cases invoked only the clauses of Whistleblower Protection Act.

4. Analysis of the possible application of the Act to Japanese private sector employees overseas. As a general rule, the objective of Japanese laws related to whistleblower protection is to protect the workers located in Japan. However, if the predetermined requirements of the international jurisdiction and the applicable laws are met, the workers of Japanese corporations overseas can be protected in the Japanese law courts by the Whistleblower Protection Act or other acts.

16 CONFIDENTIAL DAF/WGB(2014)68

ANNEX 1: MAJOR CASES REGARDING THE PROTECTION OF WHISTLE-BLOWERS IN JAPAN

1 Shizuoka District Court Claim for position confirmation, etc. March 28, 2013 The plaintiff (worker) partially won the case. (1) The plaintiff (worker) reported the illegal act of the defendant (employer) to the prefectural government. (2) The defendant (employer) was demoted the plaintiff and then dismissed the plaintiff (3) The plaintiff filed a lawsuit for confirming the position in the contract of employment and demanding unpaied wages and compensation for damage, etc. (4) The claim for position confirmation was approved, 6 million yen as the unpaid wage was approved, and the claim for damage was rejected. 2 Osaka District Court Claim for cancellation of the disciplinary dismissal August 29, 2012 The plaintiff (local public officer) won the case. (1) The plaintiff (local public officer) reported the illegal act of the colleague staff to the city council member and the press. (2) The defendant (employer) dismissed the plaintiff. (3) The plaintiff filed a lawsuit for demanding the cancellation of disciplinary dismissal. (4) The cancellation of disciplinary dismissal disposal was approved. 3 Tokyo High Court Claim for the rescission of the order for transfer, etc. August 31, 2011 The appellant (worker) won the case. (1) The appellant (worker) reported the suspected violation of law to the employee’s compliance desk. (2) The appellee (employee) transferred the appellant. (3) The appellant filed a lawsuit for demanding the confirmation of the fact that the appellant is not obliged to work at a new designated workplace in accordance with the contract of employment and compensation for damage. (4) It was confirmed that the appellant is not obliged to work at a new designated workplace in accordance with the contract of employment, and 2.2 million yen was approved as the compensation for damage.

17 CONFIDENTIAL DAF/WGB(2014)68

4 Osaka High Court Claim for position confirmation, etc. October 16, 2009 The appellee (worker) partially won the case. (1) The appellee (worker) reported the illegal act of the employer to the administrative agency. (2) The appellant (employer) did not offer any jobs, and then cancelled the contract of employment based on an agreement. (3) The appellee (plaintiff of the first trial) filed a lawsuit for confirming the position in the contract of employment and demanding unpaied wages and compensation for damage, etc. (4) The claim for position confirmation and wage payment was rejected. 1.7 million yen as the compensation for damage was approved. 5 Takamatsu High Court Claim for damage September 30, 2008 The plaintiff (worker) won the case. (1) The appellee (worker) unveiled the illegal act of the appellant (employer) by holding a press conference. (2) The appellant (employer) transferred the appellee (worker) and reduced the salary of the appellee. (3) The appellee filed a lawsuit for demanding the compensation for damage from the appellant. (4) 1 million yen as the compensation for damage was approved. 6 Nagoya District Court Claim for damage, etc. July 16, 2008 The plaintiff (worker) partially won the case. (1) The plaintiff (worker) reported the illegal act of the defendant (employer) to the administrative agency. (2) The defendant (employer) dismissed the plaintiff. (3) The plaintiff filed a lawsuit for demanding the compensation for damage and unpaid wages. (4) 2.17 million yen as the compensation for damage and reparation was approved. 7 Tokyo District Court Claim for position confirmation, etc. September 30, 2008 The plaintiff (worker) partially won the case. (1) The plaintiff (worker) reported the violation of law of the defendant to the defendant (employer). (2) The defendant dismissed the plaintiff. (3) The plaintiff filed a lawsuit against the defendant for confirming the position in the contract of employment and demanding unpaid wages and compensation for damage. (4) The claim for position confirmation was approved, 6.75 million yen as the unpaid wage was approved, and the claim for damage was rejected.

18 CONFIDENTIAL DAF/WGB(2014)68

8 Fukuoka High Court Claim for damage April 27, 2007 Appeal was turned down. (The worker won the case.) (1) The appellee (worker) unveiled the suspected illegal act of the appellant (employer) to a weekly magazine publisher after retirement. (2) The appellant filed a lawsuit against the appellee for claiming damages. (3) The appeal was rejected. (The worker won the case.) 9 Kyoto District Court Claim for the provision disposition for position maintenance, etc. October 30, 2007 The plaintiff (worker) won the case. (1) The plaintiff (worker) disclosed the violation of law by the defendant (employer) to the police, etc. (2) The defendant did not update the contract of employment with the plaintiff. (3) The plaintiff filed a lawsuit for maintaining the position with rights in the contract of employment and demanding the provisional disposition of provisional wage payment. (4) The court granted that the plaintiff has the position in the contract of employment, and ordered the provisional payment of a monthly wage of 200,000 yen. 10 Tokyo District Court Claim for damage November 21, 2007 The defendant (worker) won the case. (1) The defendant (worker) reported the illegal act of the plaintiff (former employer) to a client of the former employer. (2) The client cancelled the transactions with the plaintiff. (3) The plaintiff claimed damages due to the cancellation of transactions, against the defendant. (4) The plaintiff’s claim was rejected. 11 Tokyo District Court Claim for position confirmation, etc. August 30, 2006 The plaintiff (worker) partially won the case. (1) The plaintiff (worker) divulged the suspected violation of law by the defendant (employer) to a journalist, etc. (2) The defendant dismissed the plaintiff. (3) The plaintiff filed a lawsuit for confirming the position in the contract of employment and demanding the payment of unpaid salary. (4) 1.72 million yen as the unpaid wage was approved, and the claim for the confirmation of the position in the contract of employment was turned down.