Over the past decade, a number of significant regulatory and compliance issues have affected large multinationals based in Japan. As such, the Consumer Affairs Agency recently created a certification regime for corporate whistleblowing systems, which is designed to incentivise businesses to voluntarily enhance their own whistleblowing systems and thereby gain the trust of various stakeholders, including shareholders, counterparties and consumers.
In 2017, following consultations with representatives of the virtual currency (VC) industry, the Act on Payment and Settlement and the Act on the Prevention of Transfer of Criminal Proceeds were amended to require operators of VC exchange businesses to register with the Japanese Financial Services Agency (JFSA). Notably, the amendments reflect the JFSA's desire to implement a risk-based approach with respect to anti-money laundering and terrorist financing.
A recent Tokyo District Court decision was reported to be the first to hold an underwriter liable to investors that purchased shares in a company based on material misstatements in the financial information contained in the statutory disclosure document for a public offering in Japan. However, the Tokyo High Court overturned the district court decision in this regard and concluded that the lead manager was not liable to investors.
In response to the significant corporate scandals that have come to light in recent years, Japanese authorities and regulators have been working to improve compliance awareness within corporate Japan. The Japan Exchange Regulation (JPX-R) recently published the Principles for Preventing Corporate Scandals, which provide valuable insight into the views of the JPX-R and, by extension, other Japanese regulators.
The absence of attorney-client privilege protections in Japan means that regulatory investigations must be handled with particular care. Various industry parties have argued that the absence of such protections unfairly damages the interests of companies active in Japan. However, the government has refused to introduce such protections out of concern that they could limit the regulators' broad investigative powers or otherwise adversely affect the Japanese regulatory environment.
Japan's spirit of omotenashi (ie, hospitality) encompasses many aspects of Japanese culture and etiquette, including the practice of gift giving. Many Japanese companies invest heavily in nurturing long-term business partners and, as such, the practice of giving gifts to business partners is relatively common. However, a number of risks may arise in this regard under international anti-corruption legislation, particularly the US Foreign Corrupt Practices Act.
Various initiatives in recent years have set in motion a number of reforms to the Japanese criminal justice system. Of most interest to businesses operating in Japan is undoubtedly the introduction of Japan's first plea bargaining system, which will likely incentivise both Japanese and global companies in Japan to take meaningful steps to bolster corporate compliance in order to avoid the sometimes devastating consequences of serious corporate malfeasance.
In early 2016 the Japan Exchange Regulation released its Principles for Listed Companies Dealing with Corporate Malfeasance. The principles appear to be the first example of a national stock exchange setting out specific guidelines on how a corporation should behave when faced with a corporate scandal and, as such, are an example of Japan leading the way in this increasingly important area of corporate governance.
Attorney-client privilege is a well-established principle in many jurisdictions. The effective absence of this form of protection in Japan is notable for a number of reasons, but one of the most important is that it means that Japanese regulators are permitted to compel the production of or seize sensitive communications, materials and advice received from legal counsel. This is of particular concern in the context of regulatory investigations.
The Olympus accounting scandal and Toshiba's recent accounting irregularities have highlighted issues over corporate governance in Japan, including whether the country's whistleblower law regime could do more to uncover corporate malfeasance. To address these concerns, Japan has amended its Companies Act and introduced the Corporate Governance Code to bolster the integrity of the whistleblower law regime.