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In Phase 2 (January 2005) the Working Group on Bribery found that Japan had not demonstrated sufficient efforts to enforce the offence of bribing a foreign public official, and recommended a Phase 2bis on-site visit to Japan within one year for the purpose of reviewing progress in this regard. The Phase 2bis Report provides the assessment of the Working Group based on the findings of the team of experts from Italy and the United States that performed the Phase 2bis on-site visit in February 2006. It describes important steps by Japan to strengthen its legislation for implementing the Convention on Combating Bribery of Foreign Public Officials in International Business Transactions. However, the overall finding of the Working Group is that the Japanese law enforcement authorities have still not made adequate efforts to investigate and prosecute foreign bribery cases.

The Working Group finds that the Japanese authorities have not made a serious effort to act on its Phase 2 Recommendation to assess as a priority the legal and procedural impediments to the effective investigation and prosecution of the offence of bribing a foreign public official, despite the continued absence of formal investigations and prosecutions and even under the circumstances of an impending Phase 2bis on-site visit. The Working Group therefore recommends that Japan urgently co-ordinate and undertake an assessment of such impediments, and present their findings in writing to the Working Group within six months of the Phase 2bis examination. The Working Group also recommends that Japan actively pursue evidence of foreign bribery allegations, including through the use of mutual legal assistance to obtain information and evidence from foreign jurisdictions at the earliest possible stage.

The Working Group recommends further action to ensure full implementation of its Phase 2 Recommendations, including that the Japanese authorities (i) delete from the 2006 METI Guidelines the interpretation of “international business”, which refers to “business repeatedly and continuously” conducted for the “purpose of profit”; (ii) clarify in the METI Guidelines that Japanese law does not permit an exception for facilitation payments; and (iii) revisit the standard of “materiality” for the application of the offence of making a false statement under the Securities and Exchange Law, and ensure that Japanese law fully complies with Article 8 of the Convention. In addition, the Working Group has serious concerns that the placement of the foreign bribery offence in the Unfair Competition Prevention Law (UCPL) has contributed to the absence of formal investigations and prosecutions. The Working Group recommends that Japan enhance the visibility and enforcement of the foreign bribery offence as a matter of priority, notably by moving the foreign bribery to the Penal Code, along with other corruption-related offences.
In April 2006, an amendment to the Corporation Tax Law and the Income Tax Law came into force for the purpose of expressly denying the tax deductibility of bribes to foreign public officials. Japan also extended the statute of limitations for prosecuting natural persons and corporate bodies from three to five years. Moreover, the Phase 2bis Report credits the Criminal Affairs Bureau of the Ministry of Justice for its significant effort to find an effective way to share information about non-filed foreign bribery investigations within the limits of Japanese laws on confidentiality. For this reason, the Working Group was able to adequately assess Japan’s enforcement of the offence.

The Working Group has several mechanisms to address inadequate enforcement of the Convention in Phase 2, including a Phase 2bis review. The Working Group also systematically follows-up all Phase 2 examinations with an oral report, within one year of the Phase 2 examination, and a further written report within two years. Through the normal follow-up reporting mechanisms and the Phase 2bis Recommendation that Japan report back to the Working Group within six months on its assessment of the impediments to the effective investigation and prosecution of the foreign bribery offence, the Working Group will monitor Japan’s progress in implementing its recommendations in Phase 2 and Phase 2bis, as well as address any continued failures.