Financial Crime World

Japan’s Compliance Landscape: Risk Management Obligations and Digital Transformation

Overview

In recent years, Japan has witnessed several high-profile cases of non-compliance, including falsification and fabrication of inspection data by Kobe Steel, which led to a global investigation. The root cause of these misconducts was often attributed to inadequate corporate governance and lack of effective compliance programs.

Risk Management Obligations

While there is no specific law requiring companies to have a compliance program in place, Japan has implemented various regulations and guidelines to ensure risk management obligations are met. These include:

  • National Public Service Ethics Act and Code: Applying to national public officials, these rules provide guidance on conduct and reporting obligations.
  • Special acts for state-owned enterprises: Deeming their officials as public officials, these acts prohibit bribery and other misconduct.
  • Risk management obligations for private companies: Operating in Japan, private companies must identify and mitigate risks associated with digital transformation.

Digital Transformation: A Framework

Japan recognizes the importance of digital transformation, including artificial intelligence (AI), blockchain, and machine learning. While there is no specific framework covering these technologies under Japanese law, various regulations and guidelines have been issued to address their use:

  • Guidelines on AI research and development: Published by the Ministry of Internal Affairs and Communications, these guidelines cover fair use, privacy, and accountability.
  • Blockchain technology regulation: Not regulated in itself, businesses using blockchain must comply with relevant laws and regulations, such as registration under the Payment Services Act.
  • Antitrust laws and regulations for digital platform operators: Aimed at ensuring transparency, fairness, and free competition.

Key Developments of the Past Year

The past year has seen significant developments in Japan’s compliance landscape:

  • Plea bargaining system: Introduced on June 1, 2018, this system allows suspects and criminal defendants to avoid indictment or obtain lighter sentences by providing information about others’ criminal acts.
  • Notable case: A company avoided prosecution by using the plea bargaining system to provide information on bribery committed by its officers and employees.

Conclusion

As Japan continues to navigate the complexities of digital transformation, it is essential for companies operating in the country to prioritize risk management and compliance. A comprehensive approach to compliance will help mitigate risks associated with AI, blockchain, and other emerging technologies.