June 01, 2009
We’ve been hearing that pressure by the OECD on Japanese prosecutors to pick up the pace of anti-bribery enforcement in that country may be beginning to bear fruit. Yas Fuke and Ted Paradise of Davis Polk & Wardwell’s Tokyo office describe recent enforcement activity there.
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“In a major shift, Japanese prosecutors are now proactively enforcing the Japanese Unfair Competition Prevention Law (“UCPL”), which criminalizes the bribery of foreign public officials. Japan has seen a dramatic rise in enforcement activity, although the scale and scope of enforcement remain modest in comparison to FCPA enforcement actions. Japanese prosecutors have overcome significant logistical challenges to conduct overseas corruption investigations that resulted in convictions.
In a ground-breaking case in January 2009, Japanese prosecutors obtained convictions in the Pacific Consultants International (“PCI”) bribery scandal in Vietnam. PCI had paid $820,000 in bribes to the public management unit director of Ho Chi Minh City to win road construction contracts worth more than $25 million. PCI executives were sentenced to suspended prison terms of between 1.5 to 2 years and PCI was fined approximately $700,000. For the first time, Japanese prosecutors relied extensively on a foreign government for assistance with gathering evidence in a foreign bribery case.
In addition to the PCI bribery prosecution, the Japanese Government pressed the Vietnamese Government to act to curb bribery. The Japanese Government suspended all Japanese Overseas Development Assistance to Vietnam until the completion of a joint report on anti-corruption measures and the launch by the Vietnamese government of a criminal investigation and detention of former government officials involved in the PCI bribery scandal.
Japanese prosecutors also appear to be pursuing a similar investigation into alleged bribery by Nishimatsu Construction of a high-ranking Bangkok government official. According to news reports, Nishimatsu and its Thai joint venture partner each paid approximately $2 million to secure a $58 million contract for construction of a Bangkok drainage tunnel for flood prevention. Press reports say that Tokyo prosecutors have provided information to and are seeking cooperation from Thai officials. In April 2009, the Thai National Anti-Corruption Commission launched an inquiry into the alleged corruption.
This recent flurry of Japanese foreign anti-bribery enforcement comes after nearly 8 years of non-enforcement following the 1999 revision of the UCPL that made it a crime to bribe foreign public officials. International political pressure may have motivated Japanese prosecutors to begin actively enforcing the UCPL. In particular, two OECD extraordinary review reports singled out Japan for poor enforcement. In 2006 the OECD prodded Japan to urgently reduce the impediments to effective investigation and prosecution of foreign bribery. In 2007, the OECD criticized Japan for failing to be “sufficiently proactive in investigating and prosecuting foreign bribery cases”. In response to these reports, the Japanese government has strongly encouraged the Ministry of Justice, Ministry of Foreign Affairs and the Supreme Public Prosecutors Office to increase their efforts to combat foreign bribery. In addition, recent high profile FCPA enforcement actions relating to Siemens and Halliburton/KBR may have inspired Japanese prosecutors to more actively investigate and prosecute foreign bribery offenses.
Japanese companies probably did not expect a dramatic increase in enforcement when the first UCPL case was prosecuted in March 2007. Japanese prosecutors obtained convictions of two employees of a subsidiary of Kyushu Electric Company for bribing Philippines officials with gifts of expensive golf bags to promote sales of a fingerprint identification system. The employees were punished with fines of approximately $7,000 in total.
Under the UCPL, it is illegal to give, offer or promise money or other benefits to a foreign public official in connection with an international commercial transaction in order to obtain an unfair advantage in business. “Foreign public official” is broadly defined to include direct government employees, employees of an entity directly or indirectly controlled by a government and employees of public international organizations. There must also be an intent to influence the foreign public official to take a certain action or refrain from performing his or her duties.
Like the FCPA, the UCPL has expansive jurisdictional reach. The UCPL covers actions by Japanese citizens and entities anywhere in the world, actions in Japan and actions that affect Japan. A foreign company may also be punished if it employs a Japanese citizen who is punishable under the UCPL.
In contrast to the FCPA, the UCPL does not explicitly provide for an affirmative defense for “reasonable bona fide expenditures” such as travel and meal expenses. As a result, any payments to foreign public officials may potentially result in criminal charges.
Although the scope of the UCPL is quite broad, several features make it challenging for Japanese prosecutors to pursue enforcement. Unlike the FCPA, the UCPL does not explicitly prohibit knowingly giving money to a third-party agent in order to facilitate payment to a foreign official. Furthermore, the mere “authorization” of a bribe is not prohibited under the UCPL. Although a person can be charged for bribes through intermediaries, if the person conspires with, or solicits or aids the intermediary in giving, offering or promising a bribe to a foreign public official, Japanese prosecutors must also prove that a bribe has been given, offered or promised to a foreign public official. This often requires gathering specific evidence with the cooperation of foreign authorities.
After years of non-enforcement, Japanese prosecutors appear to have overcome at least to some extent these challenges to active enforcement of Japanese foreign bribery laws. If these trends in bribery enforcement continue, Japanese prosecutors may emerge as a force for change, particularly in Asian countries where Japanese companies and Japanese government funds exert considerable influence.”