BACKGROUND
1. What is the relevant legislation containing the leniency policy and what is the enforcing body?
The leniency policy is contained in the Anti-monopoly Act (AMA) at paragraphs 7 to 13, Article 7-2 in addition to the Rules on Reporting and Submission of Materials Regarding Immunity From or Reduction of Surcharges (Leniency Guidelines). This leniency policy became effective from 4 January 2006, following an amendment to the AMA.
The Fair Trade Commission of Japan (JFTC) is responsible for enforcing the AMA.
2. What are the basic tenets of a leniency/immunity programme?
Under the leniency programme, a maximum of three companies may declare their illegal actions (including their participation in a cartel) to the JFTC. Following their compliance with certain other conditions, these companies may receive immunity or a reduction in the applicable administrative surcharges which may apply to the participants due to their illegal behaviour.
3. How many cartels have been unveiled and punished since the adoption of the leniency policy?
According to the JFTC, as of 31 March 2007, 105 applications for leniency had been filed under the new programme. As of 12 July 2007, the identities of successful leniency applicants in ten cartel cases have been publicly disclosed.
4. What is needed to be a successful leniency applicant? Is documentary evidence required or is testimonial evidence sufficient?
The applicant, among other things, must ‘independently’ submit reports (Forms 1, 2 or 3) as well as documentary and other evidence of anti-competitive conduct to the JFTC. Documentary evidence is required, solely testimonial evidence is insufficient. For further requirements, see questions 8 and 10.
TIMING
5. What are the benefits of being ‘first in’ to cooperate?
The first qualifying applicant, who comes forward before the start of the JFTC’s investigation, will be entitled to total immunity from administrative surcharges. In principle, the leniency programme in Japan only purports to offer leniency with respect to administrative surcharges and, strictly speaking, does not offer express immunity from criminal prosecution. However, the JFTC has stated that it would not request the indictment of the first leniency applicant (including its officers and employees, provided that they fully cooperate with the company in regard to its internal investigation and subsequently with the JFTC) and would consider subsequent applicants on a case by case basis. In this regard, the Japanese Ministry of Justice has also issued a statement stating that the Public Prosecutor will give due consideration to the policy of the JFTC.
For further details, see questions 10 and 14.
6. What are the consequences of being ‘second’? Is there an ‘immunity plus’ or ‘amnesty plus’ option?
The second qualifying applicant who comes forward before the start of the JFTC’s investigation will only be entitled to a fixed 50 per cent reduction. The programme also offers a guaranteed 30 per cent reduction in surcharge to the third qualifying applicant, who comes forward before the start of the JFTC’s investigation. Application for leniency after the start of JFTC’s investigation can be still filed, however, those applicants who seek leniency after the commencement of the JFTC’s investigation may only seek a 30 per cent reduction in surcharges, providing that the number of applicants (including the applicant itself and all the prior applicants, irrespective of before or after the start of JFTC’s investigation) is three or less and certain other conditions are met (see question 10). ‘Immunity plus’ or ‘amnesty plus’ option is not available under the AMA.
For further details, see questions 10 and 14.
7. Are subsequent firms given any beneficial treatment if they make a useful contribution? How are ‘useful contributions’ defined?
The JFTC has no discretion to offer any kind of leniency to parties that cooperate after the third qualifying applicant whether or not they make a useful contribution. Therefore, ‘useful contributions’ are not defined in the AMA. This is somewhat novel in that other jurisdictions tend to treat applicants after the second on a case-by-case basis, and the amount of leniency granted will usually depend on the circumstances, such as how much extra useful contributions they have made.
SCOPE/FULL LENIENCY
8. Is it possible to receive full leniency? And, if so, what are the conditions required to receive full leniency?
Full immunity from surcharges is available to the first applicant provided that all of the following conditions are met:
conduct or prevented it from ceasing such conduct.
For further details, see question 10.
9. How many companies have received full immunity from fines to date?
As of 12 July 2007, four companies have received full immunity from fines in eight cases.
On 8 September 2006, the JFTC released its policy concerning public announcement of the results of the leniency applications. The policy states that, if the successful applicant requests a public announcement be made, the JFTC will publicly announce the name, address, name of representative and grant of immunity or reductions in terms of percentage. It is unlikely that an applicant would not request public announcement of its name, etc, as without the public announcement the company will not have access to a shorter period of suspension of nomination by various governments (a ‘de facto punishment’ against cartel participants under Japanese law, see question 15).
PROCEDURE/CONFIDENTIALITY
10. What are the practical steps required to apply for leniency?
The practical steps which must be taken to apply for leniency will depend on whether the application is made before or after the JFTC has commenced its investigation (ie, the JFTC’s dawn raid or criminal inspection). However, regardless of the time at which the application is made, the following principles are applicable to an application for leniency:
Before the start of JFTC’s investigation
An application for leniency which is made before the start of the JFTC’s investigation can result in full immunity (first applicant only) or reduction in surcharges (50 per cent for second applicant and 30 per cent for third applicant).
Practically, the following summarises typical steps for making an application prior to the JFTC’s commencement of an investigation.
Step 1: Internal investigation and informal consultation/guidance
After detecting a cartel or activities whose legality is in doubt, the company should conduct an internal investigation to determine whether it should file an application. The company may hold prior consultation with the Senior Officer for the Leniency Programme to seek informal guidance, this consultation and guidance can be on an anonymous basis.
Step 2: Submission of Form 1
Form 1 should be sent to the JFTC using a specified facsimile number. Roughly speaking, Form 1 requires the products or services involved to be listed in addition to a brief description of the relevant violation, and the period of violation. There is no need for any evidence to be attached to Form 1.
Step 3: Submission of Form 2 and the JFTC’s notice of acceptance
The applicant must submit Form 2 to the JFTC within the period specified by the JFTC (normally two weeks). Form 2 requires more detailed information than Form 1, including specific details of the conduct, applicant’s executives or employees involved, co-violators, etc. Evidence including witness statements signed by relevant employees must be attached to Form 2 in compliance with the required evidentiary standards.
A few weeks or months after receiving Form 2, the JFTC will issue a notice of acceptance of Form 2. The notice of acceptance of Form 2 acts as a confirmation by the JFTC that the application has been accepted and is complete.
Step 4: Investigation of the co-violators and applicant(s) by the JFTC
Typically, the JFTC investigates the co-violators as well as applicant(s) about six months following the submission of Form 2.
Step 5: Continued cooperation with additional requests by JFTC
The applicant must continue to cooperate with the JFTC in response to requests for additional information. In our experience, the JFTC makes repeated requests for substantial amounts of reports and evidence.
Step 6: Grant of immunity/ reduction of surcharge
The JFTC grants immunity or reduction of surcharges to applicants about 6 to 12 months after the start of the JFTC’s investigation. Upon finding infringement, the JFTC issues a cease and desist order and a surcharge payment order against each of the undertakings that are the subject of its investigation. Successful immunity applicants receive a notice of immunity from surcharges instead of a surcharge payment order.
After the start of JFTC’s investigation
Even after the start of the JFTC’s investigation, applications for leniency can be still filed to seek a 30 per cent reduction in surcharges as long as the number of applicants (including the applicant itself and all the prior applicants, irrespective of before or after the start of JFTC’s investigation) is three or less.
11. Is there an optimal time to approach the regulatory authority?
Because the JFTC has no discretion in determining the order of application and percentage of reduction, the JFTC should be approached as soon as possible. Spending substantial time on the collection of detailed information makes little sense under the leniency programme in Japan.
This early approach is especially relevant in case of Form 1, because a company (‘company X’), who submits a small amount of information in Form 1, followed by Form 2 containing the minimum amount of sufficient information, would beat another company (‘company Y’), which submitted a large amount of information (of value greater than value of all the information submitted by company X in Forms 1 and 2) in Form 1 after thorough internal investigation. In that sense, Form 1 can work as a ‘marker’.
12. What guarantees of leniency exist if a party cooperates?
Where leniency applications are submitted both before and after the commencement of the JFTC’s investigation, the JFTC should issue a notice of acceptance of Form 2 or 3 to leniency applicants promptly after receipt of the reports and evidence (Article 7-2, paragraph 10 of the AMA). This notice should be issued in a few weeks or a few months. While this notice of acceptance does not legally guarantee the grant of immunity or leniency, practically speaking this would mean that leniency is granted.
As a final step, a successful immunity applicant will receive a notice of immunity from surcharges from the JFTC when the JFTC issues surcharge payment orders against all other violators in the same case (Article 7-2, paragraph 13 of the AMA). Other successful leniency applicants (which can receive a 50 or 30 per cent reduction) will be able to confirm the grant of leniency and the result of their leniency application once they receive a surcharge payment order from the JFTC.
13. Is confidentiality afforded to the leniency applicant and other cooperating parties? If so, to what extent?
Neither the AMA nor the Leniency Guidelines explicitly state whether and to what extent the JFTC may or may not disclose the information submitted by leniency applicants to third parties. However, in practice, the JFTC has its policy not to disclose the information to any third parties.
After consideration of the US comments on the draft version, the Leniency Guidelines specifically provide for oral statements from the applicant’s employees and executives instead of written evidence required under Form 2 or 3, to reduce the risk of discovery in foreign courts.
On the other hand, Article 8 of the Leniency Guidelines explicitly states that leniency applicants (those which have submitted Forms under the Leniency Guidelines to the JFTC) shall not disclose the facts of such a submission to third parties unless a justifiable reason exists. Disclosure to a foreign competition authority for the purpose of an application for leniency in the relevant jurisdiction is considered to constitute justifiable reason.
CONSEQUENCES
14. What effects does leniency granted to a corporate defendant have on the defendant’s employees?
In principle, the leniency programme in Japan only purports to offer leniency with respect to administrative surcharges. Administrative surcharges are payable by the violator only (practically speaking this would only be the company, not individuals).
A defendant’s officer or employee may avoid criminal liability if a company is successful in its application for immunity, as long as he/she fully cooperates with the company in regard to its internal investigation and subsequently cooperate with the JFTC (see question 15).
Some critics suggest that the JFTC should also refrain from filing criminal charges nominating cooperative individuals of other successful leniency applicants, because second or third leniency applicants could face difficulties in asking its officers and employees for cooperation if the JFTC could file criminal charges nominating them. The JFTC will make its decision on this matter on a case-by-case basis.
15. Does leniency bar further criminal or private enforcement?
Again, in principle, the leniency programme in Japan only purports to offer leniency with respect to administrative surcharges.
Criminal enforcement
See question 5. Recently, of the 15–20 cartel cases the JFTC detects per year (on average), the JFTC has only filed criminal charges in one to two cases per year.
Private enforcement
No favourable treatment exists, at least from the legal viewpoint. In theory, companies that apply for leniency expose themselves to the risk of subsequent private actions. Nonetheless, the risk might not be a significant disincentive to apply for leniency, because Japan does not allow for class actions or treble damages.
Suspension of nomination
There is a unique ‘de facto punishment’ against cartel participants under Japanese law. While ‘open tendering procedure’ is the default method of public procurement, in fact, ‘selective tendering procedure’ (where only candidates previously nominated by the procuring authority can tender) have been commonly employed. Procuring authorities’ ‘suspension of nomination’ for up to 24 months in case of detection of a cartel worked as one of the harshest penalties against violators of the AMA due to the fact that many of the cartel cases in Japan are related to public procurement of construction services. Many of the procuring authorities have decided to shorten the period of suspension by 50 per cent to violators on whom the JFTC has made public announcements where immunity and/or leniency had been granted (see question 9).
REFORM/LATEST DEVELOPMENTS
16. Is there a reform underway to revisit the leniency policy? What are the latest developments?
The reform of the AMA has been discussed at the special council of the Cabinet Office, who published a report proposing certain amendments on 26 June 2007. The report suggests that cooperation with the JFTC should be able to be considered as a mitigating factor for the purpose of calculation of surcharges (which is not the case unless the offender has qualified for leniency), but leaves open the details of this suggested change and the coordination with the current leniency programme. At this stage it is unclear if this reform will actually be introduced. The Chairman of the JFTC noted that it would prepare a broad outline of the amendment proposals based upon the said report by the end of September 2007.
The Japanese leniency programme has been harshly criticised on the basis that it does not appear to anticipate a situation where a group of companies (eg, parent and its subsidiary) apply for leniency. This criticism is based on the requirement of ‘independence’ (see question 9), and where a group of companies that record turnover in a single market face difficulties in applying for leniency. Other aspects of the programme which have been the subject of lobbying for reform include the insufficient guarantee of confidentiality by the JFTC to leniency applicants (see question 13), and lack of opportunity for unsuccessful applicants to file objections against the JFTC’s decision not to grant leniency until receipt of a surcharge payment order.
