Japan is one of the most important jurisdictions in Asia in relation to cartel enforcement, but not many written materials articulate the details of Japanese cartel regulation. As my first contribution to this blog, I would like to briefly provide an overview of Japanese cartel regulation, with a focus mainly on procedural and practical aspects.
- Prohibition on cartel activities
The Japanese Anti-Monopoly Act (“AMA”) prohibits, among other things, “unreasonable restraint of trade” which includes collusive activities such as cartels or bid-rigging. A cartel violation is not per se illegal in Japan because the AMA requires that the Japan Fair Trade Commission (“JFTC”), the Japanese antitrust enforcement body, must prove a “substantive restraint on competition in the relevant market” in order to find a violation.
Under the AMA, cartel activities can be both criminal and administrative violations. Regarding administrative violations, the JFTC itself investigates the case and imposes an administrative sanction. If the JFTC decides to pursue criminal sanctions after its own investigation, it would file a criminal accusation to the Public Prosecutor General. The Prosecutor’s Office is in charge of bringing a criminal indictment. The JFTC has sole discretion on whether it files a criminal accusation to the Public Prosecutor General, which cannot prosecute an antitrust violation without the JFTC’s accusation. While most cartel cases in Japan have ended up as an administrative violation, the JFTC expressed its willingness in its policy statement to pursue criminal sanction if the JFTC finds that (i) the cartel conduct at issue is vicious and a serious violation which has widespread impact on people’s life, or (ii) participant(s) in the cartel is recidivist and administrative sanction would not work as proper deterrence of future violation.
2. Sanctions on cartels
A. Cease-and-desist order
When the JFTC finds that cartel conduct violates the AMA, the JFTC will issue a cease-and-desist order to each participant of the cartel. This order typically includes, among others, an obligation that a recipient must establish or improve its compliance system to prevent future antitrust violation.
B. Administrative surcharge
In addition to a cease-and-desist order, the JFTC shall impose administrative surcharge (monetary fine) payment order on companies that involved in cartel activity. The percentage of surcharge depends on a type of business that the defendant conducts (manufacturer: 10%, retailer: 3%, wholesaler: 2%.). A reduced percentage would be applied to small-or-medium size corporations. The percentage of surcharge also varies based on various aggregating and mitigating factors. For example, a ringleader of cartel as well as a recidivist (defined as a company which committed cartel or certain type of antitrust violation within the past 10 years) will receive a 50% addition on the surcharge while a company that ceased a wrongdoing one month before the initiation of investigation will receive 50% reduction. The amount of surcharge is calculated as [applicable percentage] * [sales amount of products or services affected by cartel activity for three years from the termination of the cartel conduct].
It is important to note that the JFTC does not have discretion on the calculation of the surcharge. All the percentages of the surcharge as well as addition and reduction of the percentages above are fixed by the statute. There has been a policy discussion as to whether or not the JFTC should have discretion on the computation of surcharge.
C. Criminal sanctions
The AMA also provides for criminal sanctions to individuals who committed cartel activities as well as companies. Companies that commit a cartel violation are subject to a criminal fine of no more than 500 million JPY (approx. 5 million USD.). Individuals who committed cartel activities would be subject to imprisonment of up to 5 years and a criminal fine of up to 5 million JPY (approx. 50,000 USD.).
- Investigative method
In almost all cartel cases, the JFTC starts its investigation by dawn raid. While the initial information could be from many sources including a whistleblower, it is safe to say that a large portion of the cases are initiated by leniency application. In addition to the dawn raid, the JFTC typically conducts interviews of relevant employees and issues mandatory information requests to relevant companies in order to obtain necessary information to establish the violation of the AMA.
It is very important for foreign companies to be aware that attorney-client privilege is not recognized under the Japanese law, and therefore, documents showing communication between client and its attorney are subject to the submission to the JFTC if the content is relevant to the subject matter. Also, the JFTC does not allow an attorney to be present in its interview of employees. The lack of these two important procedural rights before the JFTC has been criticized. In response to the criticism the Japanese Government is now reviewing the appropriateness of the JFTC’s investigative procedures. I may revisit this issue in future blog post as the discussion is ongoing.
- Leniency program
Since its introduction in 2006, the Japanese leniency program has been a huge success and attracted a number of applications from both international and domestic cartels. The most recent data shows that the JFTC accepted 50 leniency applications in fiscal year 2013, amounting to the total of 775 leniency applications since its introduction.
The Japanese AMA provides detailed rules on leniency in order to provide predictability to potential leniency applicants. The first leniency applicant before initiation of investigation by the JFTC receives full immunity from any administrative surcharge as well as criminal prosecution. The first applicant’s employees who cooperated with the employer’s internal investigation to file leniency also receive immunity from personal criminal liability. Under Japanese leniency program, subsequent applicants would also benefit from leniency application. The second applicant before investigation receives 50% reduction of administrative surcharge, and the third to fifth applicant receives 30% reduction respectively, on condition that the fourth and fifth applicant must provide additional information that the JFTC does not know at the time of application. Moreover, leniency applicants after the initiation of investigation, up to three applicants (but not more than five applicants including those before the initiation of investigation), would receive 30% reduction if the applicant provides additional information that the JFTC does not know at the time of application. All of the reduction rates are fixed by the statute and JFTC does not have any discretion on the reduction rate. Except for the first applicant, there is no guarantee of immunity from criminal prosecution. In fact, in the bearing cartel case, the second and third leniency applicants and their employees were criminally indicted.
Very importantly, the JFTC apparently has not prosecuted all of the cases in which leniency was applied. The JFTC has selected cases which are to be formally investigated based on a number of factors such as affected market volume, the quality of evidence and information presented by leniency applicants.
- Recent trend in enforcement
The amount of surcharge that cartelists have paid to the JFTC has been dramatically increasing recently. In fiscal year 2013 (2013.4 – 2014.3), the total amount of the surcharge reached approx. JPY 30 billion (approx. USD 300 million.).
More importantly for readers of this blog, the JFTC has increasingly focused on enforcement against international cartels and imposed very high surcharges on them. For example, the JFTC has imposed surcharge payment orders on a number of auto-parts cartel members, as well as marine hose cartel (2008.2), air-cargo cartel (2009.3), CRT cartel (2009.10) and international shipping cartel (2014.3). In the international shipping cartel, the JFTC imposed record-high JPY 13 billion (approx. USD 130 million) surcharge on one of the participants of the cartel. It has also been reported that the JFTC has initiated an investigation against an alleged capacitor cartel.
In addition to administrative sanctions, the JFTC has aggressively pursued criminal accusations on cartel conduct that has widespread impact on Japanese economy. The most recent example is bearing cartel where three participants and their employees were criminally indicted and most of them were found guilty, while others are still pending. All of the convicted individuals in the bearing cartel have been given suspended sentences. In fact, in Japan, no individual has gone to jail because of an antitrust offence yet.