Bad governance behind Japan’s bribery problems

The OECD has just issued a scathing report on Japan’s efforts to fight bribery and corruption. This is striking in many respects ― most notably the stark contrast with the recent glowing report for Korea.

The OECD Anti-Bribery Convention is perhaps the OECD’s crowning achievement. It establishes legally binding standards to criminalize bribery of foreign public officials in international business transactions and provides for a host of related measures that make this effective. It is the first and only international anti-corruption instrument focused on the ‘supply side’ of the bribery transaction. The 34 OECD member countries and four non-member countries ― Argentina, Brazil, Bulgaria, and South Africa ― have adopted this convention.

Signatories to the convention agree to implement these standards into national legislation, and to then enforce the legislation. Herein lies the problem. There can be many a slip twixt cup and lip. To guard against this, OECD member countries hold each other’s feet to the fire through a “peer review” process. They are now at the stage of the “Phase 3 Report on Implementing the OECD Anti-Bribery Convention.”

The usually diplomatic OECD now has serious concerns over Japan’s enforcement of foreign bribery law. Japan is still not actively detecting and investigating foreign bribery cases and, as a result, the enforcement of Japan’s anti-bribery law remains low. To date, the OECD’s second-largest economy has concluded only two cases since Japan’s foreign bribery offence entered into force in 1999.

This is not the first time that Japan has received a “yellow card.” Way back in 2006, Japan was told that it should do more to investigate and prosecute foreign bribery cases as part of its obligations as a signatory of the OECD Anti-Bribery Convention.

The OECD Working Group has a list of recommendations for Japan, including: (i) step up efforts to detect, investigate and prosecute foreign bribery cases; (ii) urgently establish a legal basis for confiscating the proceeds of bribing foreign public officials; (iii) amend legislation so that it is a crime to launder the proceeds of foreign bribery; (iv) ensure that the Ministry of Economy, Trade and Industry ― which has responsibility for Japan’s foreign bribery offence ― takes a stronger role in ensuring the effective implementation of the Anti-Bribery Convention by Japan; and (v) review its whistleblower protection legislation.

Further, the Working Group has a clear expectation that, to strengthen enforcement, Japan will give serious consideration to using new investigative techniques, such as wire-tapping and grants of immunity from prosecution. The Working Group’s observations of positive aspects of Japan’s implementation of the Convention seem almost trivial, such as raising awareness of Japan’s foreign bribery offence ― the Unfair Competition Prevention Law (UCPL) ― among the legal profession and providing clearer information on the UCPL to business.

In sharp contrast, the OECD’s recent report on Korea was almost glowing in its compliments, as Korea was assessed to be making notable progress on fighting foreign bribery. Korea has improved its information and intelligence gathering capacity in foreign bribery cases, although it should be more proactive in investigating allegations.

Korea has successfully prosecuted nine foreign bribery cases since 2002; most of them involved the bribery of foreign military staff on Korean soil. Korea is currently prosecuting a new case and working on three new allegations ― all of which took place abroad.

Every OECD report includes recommendations to do better. So the Working Group recommends that Korea: (i) preserve transnational bribery case records for a reasonable period to allow for full reporting on those cases to the Working Group; (ii) ensure that sanctions imposed on individuals and companies for foreign bribery are effective, proportionate and dissuasive, and that the bribe and the proceeds of foreign bribery are confiscated where possible; (iii) facilitate reporting by tax authorities of suspicions of foreign bribery uncovered during tax audits; and (iv) enhance the prevention and detection of foreign bribery by encouraging all Korean companies, including SMEs, to adopt adequate internal controls, ethics and compliance programmes.

The OECD’s report on Japan’s anti-bribery efforts is deeply troubling. As economies climb the development ladder, the quality of their governance usually improves. Cleaner governance is necessary to realize a country’s development potential. And as societies become more prosperous and sophisticated, their populations insist on better governance.

Japan’s anti-bribery problems are symptomatic of a country whose governance and society have not really modernized sufficiently in tandem with its economy. And ultimately this bad governance is holding back the country from realizing its potential. Japan has been stuck in a high-middle income trap for some two decades.

Many things are necessary to correct this situation such as a more active civil society, and a more independent media. What is ultimately necessary is a citizenry that believes that it is in control of its country, and that its elite is not immune to accountability.

Many things are also at stake for Japan in this area. Fighting bribery and corruption is perhaps the biggest problem in Asia, and Japan’s moral and ethical leadership of the region is at stake when it appears corrupt like the rest of the region. 

By John West

John West is an economist who had worked for 22 years at the OECD and 3 years at the Asian Development Bank Institute. He is now editor-in-chief of www.mrglobalization.com, a website focused on globalization. ― Ed.