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East Asia & The Pacific

Japan risk report

Updated:

Corruption risks in Japan are generally low. 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, education, transportation and pharmaceutical industries. Key Japanese anti-corruption legislation includes the Penal Code and the Unfair Competition Prevention Act and is adequately enforced by the authorities. The Penal Code forbids facilitation payments. The Ethics Act stipulates that gifts need to be registered and requires mid- and senior-level public officials to disclose them if exceeding JPY 5,000. Gifts and facilitation payments are not common in practice.

Judicial system Very low risk

There is a low risk of corruption in the Japanese judicial system. Judicial independence is respected in practice (HRR 2017). businesses report confidence in the judiciary's independence (GCR 2017-2018). Companies report that bribes and irregular payments in return for favorable judicial judgments are rare (GCR 2015-2016). Less than one in twenty citizens perceive judges as corrupt (GCB 2017). Companies express general satisfaction with the efficiency of the legal framework pertaining to their ability to challenge regulations and settle disputes (GCR 2017-2018). The process of appointing Supreme Court judges lacks transparency (SGI 2017) and the general view is that the Supreme Court is often lenient on the government (SGI 2017). Enforcing a contract takes 360 days on average, which is significantly faster than in other OECD high-income countries (DB 2018).

Japan is a signatory to the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards and a member state to the International Centre for the Settlement of Investment Disputes (ICSID).

Police Very low risk

There is a low risk of corruption when dealing with Japan's police. Businesses report satisfaction with the reliability of the police services (GCR 2017-2018). Less than one in ten citizens perceive most or all police officers as corrupt (GCB 2017). The government has effective mechanisms to investigate and punish abuse and corruption, minimizing risks of police impunity (HRR 2017). However, local public safety commissions allegedly suffer from a lack of independence or adequate authority over police agencies (HRR 2017).

Public services Very low risk

There is a low risk of corruption and bribery for companies when acquiring licenses and other public services. Japan is ranked among the countries where informal payments and bribes in connection with public utilities occur the least (GCR 2015-2016). Nonetheless, a third of citizens think most or all local government councilors are corrupt (GCB 2017). Japan's regulatory system has increased its level of transparency and new regulations in line with international norms are being developed (ICS 2017). Laws and regulations are normally executed and enforced in a predictable manner (SGI 2017). Regulators are sophisticated and there is no explicit discrimination against foreign investors (ICS 2017). Notwithstanding, foreign firms express concerns that regulators do not solicit sufficient feedback from industry stakeholders when making regulatory decisions, but rather rely on informal connections with domestic firms, which may leave foreign firms with no such connections at a disadvantage (ICS 2017). Regulations in Japan are often formulated in a manner which gives individual bureaucrats a considerable degree of discretion (SGI 2017).

Starting a business in Japan takes slightly longer than in other OECD countries and involves significantly more procedures and costs (DB 2018). Dealing with construction permits takes more time than in other OECD countries (DB 2018). Foreign and national investors can consult the government website for information on setting up a business in Japan.

A tradition of assigning retired government officials to top positions within Japanese companies (known as amakudari) remains a problem in Japan (The Japan Times, Apr. 2017). A recent report by the Education Ministry into amakudari practices found 62 cases in which current and former bureaucrats acted in an illegal manner in an attempt to find jobs for retiring officials at universities and schools; 43 officials were disciplined (The Japan Times, Apr. 2017).

Land administration Low risk

Companies contend with moderately low risks of corruption when dealing with the land administration. Property rights are among the most well protected in the world (GCR 2017-2018). The property recording system is reliable (ICS 2017). However, dealing with the documentation required to purchase property can be burdensome (ICS 2017). Foreign property and investments have not been nationalized or expropriated in Japan since the second world war (ICS 2017). Registering property takes significantly less time than in other OECD high-income countries, but the costs involved are higher (DB 2018).

In one case, an educator named Yasunori Kagoike, representing the Moritomo Gakuen group which runs schools in Japan, testified that the group was able to obtain land from the government at just a seventh of the plot's assessed value (CNN, Mar. 2017). It is alleged that Kagoike received 'help' from people in the Ministry of Finance, and Prime Minister Shinzo Abe has also been rumored to have had a hand in the deal (CNN, Mar. 2017).In 2018 it emerged that the documents related to the land sale had been altered to remove references to Shinzo Abe, his wife Akie, and Finance Minister Taro Aso (The Guardian, Mar. 2018). Abe has denied that he ordered changes to the document, instead blaming staffers (The Guardian, Mar. 2018).

Tax administration Very low risk

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). Only one in twenty households perceive most or all tax officials as corrupt (GCB 2017). Companies cite tax rates as the second most problematic factor for doing business in Japan (GCR 2017-2018). In the fiscal year of 2016, tax evasion in Japan was calculated to amount to JPY 16.1 billion (The Japan Times, Jun. 2017). 132 cases of tax evasion were sent to public prosecutors, amounting to a total of JPY 12.3 billion (The Japan Times, Jun. 2017).

Companies, on average, spend slightly less time on filing taxes, but payments have to be made more frequently than in other OECD high-income countries (DB 2018). Japan reduced the corporate tax rate in 2017 (DB 2018).

Customs administration Very low risk

There is a low risk of corruption when dealing with Japan's customs administration. Bribes and irregular payments are rare during customs procedures (GETR 2016). Companies express satisfaction with the transparency, efficiency, and time-predictability of customs procedures (GETR 2016). The time and costs involved in complying with import and export procedures takes nearly double the time and costs companies nearly twice as much compared to the average among OECD high-income countries (DB 2018).

Public procurement Moderate risk

There is a moderate risk of corruption in Japan's public procurement sector. Companies indicate that diversion of public funds is uncommon and favoritism in the decisions of procurement officials is seen as fairly rare (GCR 2017-2018). Bribes and irregular payments in the process of awarding tenders are uncommon (GCR 2015-2016). Corruption, especially bid-rigging (known as kansei dango), is a risk in public procurement due to tight patronage networks, especially on a local level: Japanese companies, politicians, government organizations, and universities are reportedly closely connected fostering an environment in which contracts are awarded within a tight circle of local stakeholders, to the disadvantage of foreign companies (ICS 2017). However, instances of bid-rigging appear to have decreased in the last decade (ICS 2017).

The Act on Elimination and Prevention of Involvement in Bid-Rigging aims to reduce official bid-rigging and authorizes 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 2017). However, questions remain whether the provisions in the Act are strong enough to effectively ensure officials involved in bid-rigging are held accountable (ICS 2017).

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 the principal pieces of anti-corruption legislation. The legislative framework is strong and generally well enforced. However, the OECD has expressed severe concerns of Japan not actively detecting and investigating foreign bribery cases (OECD 2014). Japan has only prosecuted four foreign bribery cases since 1999 (OECD 2014). The Penal Code applies to public sector offenses and prohibits active and passive bribery of public officials, including facilitation payments (GTDT 2017). The Unfair Competition Prevention Act criminalizes bribery of foreign public officials and companies, as well as individuals, can be held liable (GTDT 2017). 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). 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 2016). 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 2.5 million fine, and up to 7 years for public officials demanding a bribe (GTDT 2017). Companies are not liable to prosecution for an employee's bribery (GTDT 2017). The Whistle-Blower Protection Act provides protection to private- and public-sector whistleblowers. Japan is a party to the OECD Anti-Bribery Convention and 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 (HSF 2015). Also in 2015, Toshiba launched an independent investigation which found accounting irregularities resulting in a lawsuit against three former senior executives (HSF 2015). The Olympus and Toshiba cases are having an impact on corporate culture and have increased Japanese firms' focus on compliance (HSF 2015). Half of the firms indicate they have changed or are considering changing their bookkeeping practices in the wake of the corruption cases (Reuters, Nov. 2016).

Civil society

Freedom of the press is guaranteed by Japanese law and is respected in practice (HRR 2017). 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). Since the implementation of the law, the number of documents being classified as 'state secrets' has increased significantly (SGI 2017). Japan's press is classified as 'free' (FotP 2017).

Civil society enjoys constitutionally protected freedoms of assembly and association, which are protected in practice (HRR 2017). However, NGOs with a public policy focus are rare and they face significant financial and bureaucratic obstacles (SGI 2017). 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 2017).

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