Corporate Liability in Japan

By Kengo Nishigaki and Yoshiaki Muto (Baker McKenzie Japan)

I.              Corporate liability deriving from criminal activity

1.             What it is the nature of corporate liability deriving from criminal activity? What is its legal basis?

The mentions of “person” in each provision on prohibited crimes under the Penal Code only refer to a natural person and do not include a corporate entity. Corporations may be held liable only when there are specific provisions for punishment in codified laws.

Under Japanese law, provisions that make corporate entities criminally liable are generally prescribed in the form of “dual liability clause.”

In a dual liability clause, a judicial person, including a corporate entity, is punished together with the natural person who actually committed the crime for the organization. Some provisions set a higher fine for the judicial person than the natural person.

2.             Type of crimes/administrative offenses from which, according to the legislature, corporate liability may arise

Dual liability clauses are normally found in Japanese laws relating to commercial, labor, regulatory, privacy, antitrust and foreign anti-bribery matters, whose violation is often committed on behalf of corporations. Examples of dual liability clauses are as follows:

Labor Law — The Labor Standards Act, which provides for the basic standards of working conditions of workers, such as wages, working hours and annual paid leave, has a dual liability provision in its Article 121.

Privacy Law — The Act on the Protection of Personal Information (Act No. 57 of 2003, Enforced on 1 January 2016, Amendment: Act No. 65 of 2015) provides for dual liability clauses when a legal person committed inappropriate handling of personal information.

Commercial Law — The Companies Act has a dual liability clause for failure to comply with the said act.

Anti-Corruption Law — In terms of domestic bribery, the Criminal Law does not provide any dual liability clause as opposed to the Unfair Competition Prevention Act, which prohibits foreign bribery.

3.             Identification of companies and entities to which liability may apply

It depends on how each provision prescribes the subject of liability. However, in cases where dual liability clauses apply, a “judicial person,” including all types of corporations, is generally held liable. Having said that, foreign companies are usually not subject to criminal liabilities except under the following provision of the Companies Act:

“Article 823 With regard to application of other Acts, a Foreign Company shall be deemed to be the same kind of Company or the most similar kind of Company in Japan; provided, however, that this shall not apply when it is otherwise provided by other Acts.”

4.             Corporate liability for crimes committed abroad by representatives or subsidiaries

As a general rule, criminal acts committed outside Japan are not subject to criminal punishment under Japanese law, unless there is a specific provision punishing such acts committed overseas. One of the examples of such provision is Article 21 (2) (vii) of the Unfair Competition Prevention Act, which explicitly punishes foreign bribery conducted outside Japan.

Having said that, please note that if part of the criminal conduct is conducted within Japan, Japanese law is applicable even without such special provisions.

5.             Corporate liability in the case of transactions taking place after the commission of a crime (acquisitions, mergers, demergers, etc.)

II.            Applicable sanctions

1.             Type of sanctions applicable to the company

Criminal penalty against corporations is limited to criminal fine.

2.             Interim measures, cease and desist orders, bans and confiscatory measures

Many regulatory laws, such as the Pharmaceutical and Medical Devices Act, provide administrative penalties, such as business improvement orders where the government may order cease and desist actions and ban specific actions. In addition, the court may order confiscatory measures against corporations.

3.             Liability of directors or managers for not having adopted (intentionally or negligently) measures for the prevention of the crime

According to a Supreme Court Decision on 26 March 1965, representative directors may be held liable under a dual liability clause, unless it is proven that the business operator paid necessary attention to selecting or supervising its agents or employees in order to prevent unlawful activities committed by them.

III.           Measures and “models” of prevention and effects of the same on corporate liability and applicable sanctions

1.             Consequences of the adoption of a compliance “model” and effects on corporate liability for crimes committed by the company’s managers, directors or representatives (cases in which it is possible to obtain an exemption from liability or a mitigation of the sanction)

There is no provision under Japanese law that specifically values the effect of compliance programs. However, the Foreign Bribery Prevention Guidelines recommend that the company implement an anti-bribery compliance program and suggest a possibility that such implementation negate corporate liabilities.

2.             Modality according to which a compliance “model” must be adopted in order to benefit from exemption from responsibility or mitigated punishment (codes of ethics, procedures, etc.)

Please see 1) above. No fixed notion states that a compliance model be adopted to negate or mitigate compliance risks.

3.             Monitoring: independent person or body to control/supervise, with the purpose of verifying the correct application of the “model.” Model of operation of such person or body

There is no monitoring system by an independent person or body in Japan. To our knowledge, the government does not order companies to appoint an independent monitor.

IV.          Judicial proceedings to determine corporate liability

1.             Court competent to decide the liability of and penalties applicable to the company

There is no special court to decide corporate liabilities in Japan. Such cases are judged under the common three-tier court procedure by the District Court, the Appeal Court and the Supreme Court.

2.             Possibility of the application of interim measures

The court may issue a cease and desist order against corporations.

3.             Plea bargains and related effects on corporate liability

The amendments to the Criminal Procedure Law in May 2016 have introduced plea bargains for economic crimes. These amendments will be enforced in two years.

4.             Persistence of corporate liability if the crime is extinguished

Corporate criminal liabilities may last until the lapse of statutory periods.

V.           Corporate liability in multinational groups

1.             Liability of parent companies located abroad in the case of offenses committed by directors, managers or representatives of the local company

Foreign entities are generally not subject to Japanese criminal laws. Please see I.4) above.

2.             Basis of liability and applicable sanctions

Japanese law does not have a concept of liability of group companies. Thus, for example, if the conduct is made in Japan by an employee of a Japanese subsidiary of a multinational group, the employee and the Japanese subsidiary may be held liable, but the holding company or the headquarters of the group will not be held liable under Japanese law.

VI.          Significant case law concerning corporate liability arising from crimes and draft laws under discussion

1.             Significant case law, if any

Supreme Court Decision on 26 March 1965 (case law about presumption of negligence). Please see II.3) above for details.

2.             Proposed or contemplated new legislation

As discussed above, the amendments to the Criminal Procedure Law in May 2016 have introduced plea bargains for economic crimes, which include corporate criminal liabilities. These amendments will be enforced in two years.