Japan

Japan Corruption Report

(Want to receive more corruption report updates? Subscribe here!)

Snapshot

Japan_250x174.pngJapan ranks among the least corrupt countries in the world. Companies face very low risks of corruption in Japan. However, there is a traditional practice (known as amakudari) of assigning retired government officials to top positions within Japanese companies. Amakudari employees are particularly common in the financial, construction, transportation and pharmaceutical industries. Key Japanese anti-corruption legislation includes the Penal Code and the Unfair Competition Prevention Act. The Penal Code forbids facilitation payments. The Ethics Act sets limitations for gifts, which need to be registered and require mid- and senior-level public officials to disclose them if exceeding JPY 5,000. Gifts and facilitation payments are not common in practice. Japan has signed but has not yet ratified the United Nations Convention against Corruption

Last updated: December 2015
GAN Integrity

Judicial System

There is a very low risk of corruption in the Japanese judicial system. Judicial independence is respected in practice (HRR 2014), courts operate fairly, and the rule of law is well-established (FitW 2015). Companies report that informal payments to obtain favourable judgements in court rarely occur (GCR 2015-2016). Businesses find that the legal system is efficient in settling disputes and challenging regulations (GCR 2015-2016). Enforcing a contract takes 360 days on average, which is less than in other OECD countries (DB 2015).

Police

There are no reported cases of corruption in Japan's police force. The government has effective mechanisms to investigate and punish abuse and corruption, minimising risks of police impunity (HRR 2014). However, local public safety commissions allegedly suffer from a lack of independence or adequate authority over police agencies (HRR 2014). Surveyed companies find the police force is reliable in protecting business from crime (GCR 2015-2016).

Public Services

There is a very low risk of corruption and bribery for companies when acquiring licences and other public services in Japan. Japan is ranked among the countries where informal payments and bribes in connection with public utilities occur the least (GCR 2015-2016). Companies should note that Japan has many regulations out of which business costs can arise (ICS 2015). Starting a business in Japan takes slightly longer than in other OECD countries and includes more procedures and costs (DB 2016). Foreign and national investors can consult the government website for information on setting up a business in Japan.

Land Administration

There are no reported cases of corruption in Japan's land administration. Property rights are among most well protected in the world (GCR 2015-2016). Registering property takes on average 13 days, while dealing with construction permits takes slightly longer than the OECD average but is less costly (DB 2016).

Tax Administration

Corruption is a very low risk when dealing with the Japanese tax administration. Irregular payments and bribes very rarely occur when companies make tax payments (GCR 2015-2016). Business executives spend 330 hours per year on preparing, filing and paying taxes, almost twice the OECD average (DB 2016).

Customs Administration

There is a very low risk of corruption at Japan's border when importing and exporting goods (GETR 2014). The border administration is transparent and efficient; tariffs and non-tariff barriers and burdensome import procedures are the most problematic factors for importing goods (GETR 2014).

Public Procurement

Corruption, especially bid-rigging (known as kansei dango), is a risk in Japanese public procurement (ICS 2015). Japanese companies, politicians, government, organisations and universities are often closely connected, and preferential treatment between local stakeholders can be a disadvantage to foreign companies (ICS 2015). This phenomenon manifests itself most frequently and seriously in Japan through the rigging of bids on government public works projects (ICS 2015). A tradition of assigning retired government officials to top positions within Japanese companies (known as amakudari) is a further obstacle for foreign companies competing for government contracts (The Japan Times, Apr. 2015). Nevertheless, businesses do not report favouritism in the decisions of government officials being a major concern (GCR 2015-2016).

The Act on Elimination and Prevention of Involvement in Bid-Rigging aims to reduce official bid-rigging and authorises the Japan Fair Trade Commission (JFTC) to demand central and local commissioning agencies to take corrective measures to inhibit official complicity in bid-rigging (ICS 2015).

Natural Resources

There are no reported risks of corruption for companies operating in the Japanese natural resource sector.

Legislation

Japan's Penal Code and Unfair Competition Prevention Act are its principal pieces of anti-corruption legislation. The legislative framework is strong and generally well enforced. However, the OECD has expressed concerns of Japan not actively detecting and investigating foreign bribery cases (OECD, June 2014). The Penal Code applies to public sector offences and prohibits active and passive bribery of public officials, including facilitation payments (Herbert Smith Freehills, May 2015). The Unfair Competition Prevention Act criminalises bribery of foreign public officials and companies as well as individuals can be held liable (Clifford Chance, Nov. 2015). There are no explicit laws on private sector bribery, but special laws apply when a private company is closely linked to public interest (e.g., Act on Nippon Telegraph and Telephone Corporation) (HSF, May 2015). The Companies Act applies to the private sector and provides penalties for the active or passive bribery of a director or similar officers of stock corporations (NRF 2014). The Ethics Act applies only to individuals and serves as a reference for gifts and requires mid- and senior-level public officials to disclose and register gifts exceeding JPY 5,000. The maximum sanction is five years of imprisonment or a JPY 300 million fine, and up to 20 years for public officials demanding a bribe (HSF, May 2015). The Whistle-Blower Protection Act provides protection to private- and public-sector whistleblowers. The Act on Elimination and Prevention of Involvement in Bid-Riggingaddresses corruption in public procurement (ICS 2015). Japan is a party to the OECD Anti-Bribery Convention and has signed but not ratified the United Nations Convention against Corruption.

In 2015, investigation and litigation arising from a USD 2.5 billion corporate fraud at Olympus Corporation continued, and an out of court settlement of $92 million was agreed (Herbert Smith Freehills, Oct. 2015). Also in 2015, Toshiba launched an independent investigation which found accounting irregularties resulting in a lawsuit against three former senior executives (HSF, Oct. 2015). The Olympus and Toshiba Case are having an impact on corporate culture and have increased Japanese firms' focus on compliance (HSF, Oct. 2015).

Civil Society

Freedom of the press is guaranteed by Japanese law and is respected in practice (FotP 2015). However, recent events have highlighted weaknesses in the country's press environment: In December 2014, the restrictive Protection of Specially Designated Secrets Act went into effect, under which whistleblowers who leak vaguely defined “state secrets” can face up to ten years' imprisonment, while journalists who publish leaked information can face up to five years in prison (FotP 2015).

Civil society enjoys constitutionally protected freedoms of assembly and association, which are protected in practice; civil society groups play an active role in environmental, human rights and social welfare discussions (FitW 2015). NGOs highlight issues of corruption, especially in regards to the practice of retired senior public servants taking high-paying jobs with private firms that rely on government contracts (HRR 2014).

Sources

Topics: East Asia & The Pacific