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Investigations and ediscovery in Japan

Subsidiaries of Japanese companies that operate in the US and Europe are increasingly under regulatory scrutiny from the US Department of Justice and European regulators with investigations typically centered around anti-trust, anti-bribery and anti-corruption.

When faced with requests for information, a combination of cultural differences, technical barriers and legal misunderstandings can lead to mismanagement of these requests. A deeper understanding by in-house counsel of these issues will help reduce the potential consequences of mismanaging such a request. 

Cultural complications
In the US and Europe, price-fixing cartels are illegal and rigorously policed by the authorities because they reduce competition, a key tenet of the Western free market economy. The Western understanding of a cartel is that it involves an informal, and usually illegal, arrangement between companies to fix prices and curb competition. 

However, one man’s cartel is another man’s keiretsu. In Japan, a keiretsu is a business network composed of manufacturers, supply chain partners, distributors and financiers who remain financially independent but work closely together to ensure each other’s success. This is an established way of doing business in Japan and although the Japanese Office of Fair Trade is increasingly enforcing anti-trust legislation, these networks can also bring trouble for Japanese companies with US subsidiaries.

A recent spate of prosecutions by the Department of Justice against car manufacturing companies has raised awareness about anti-competitive behavior but because this is business as usual, some companies in Japan are still uninformed about risk from foreign regulators. 

The first step towards reducing regulatory risk for Japanese companies, is therefore to raise awareness amongst in-house counsel of the obligations placed on their company by trading in the US and EU.

Different legal expectations
The US is a very litigious society and mandates an adversarial and broad discovery process. By contrast, the Japanese legal sector is much smaller and unused to the wide scope of electronic evidence that US and EU regulators or law firms demand for investigations or litigation.

By operating in the US and EU, Japanese businesses subject themselves to unfamiliar jurisdictions and discovery obligations associated with US law. Many Japanese in-house counsels are surprised by the depth and rigor of the discovery process and may need to be persuaded of the necessity of a thorough approach. Others ignore subpoenas in the mistaken belief that they are not legally required to respond.

As a result, Japanese companies have paid the price for misunderstanding the implications of being subjected to a US or EU regulatory investigations; ignoring the subpoena completely is one of the most common mistakes often leading to raised penalties once the company begins co-operating. 
Providers of ediscovery working with Japanese companies may need to provide training on how to ensure that confidentiality, legal hold and forensics collection standards are upheld. Failure to meet these standards can result in penalties or harm a case if, for example, forensic evidence is not deemed to be admissible in court. 

Technical barriers
Japanese companies remain heavily dependent on paper documents resulting in a significantly slower evidence search and review process and evidence can frequently go missing. Although relying on paper documents may seem like a positive, it is also important to remember that the evidence which helps a company can often be misplaced.

Information governance is unpredictable in Japanese companies, and many companies do not fully understand their company’s data architecture. Without adequate data retention policies, data mapping, legal hold and other information governance systems, it can be difficult to find the required evidence in a case. Consequently, companies are faced with an increased cost of ediscovery and potentially large penalties for late submission of evidence. 

Consequences for mishandled requests for information

Fines - The DoJ and other authorities have the power to impose hefty fines for anti-competitive behavior and for not co-operating with requests for information. In recent years, Japanese car manufacturers have hit the headlines for receiving enormous fines for price-fixing activities. For example in 2013, nine Japanese automotive parts suppliers were fined a total of $740m for inflating prices.
 
Prison sentences - In February 2017, an executive working at a Japanese automotive parts company pled guilty to obstruction of justice during a Department of Justice anti-trust investigation. He received 14 months in a US prison, demonstrating the seriousness of not cooperating.

Reputational damage - Although less tangible than a prison sentence or a fine, companies who are found to be engaging in corrupt practices can suffer significant brand and reputational damage and find clients taking their business elsewhere. For listed companies, reputational damage and subsequent media interest can also significantly damage shares prices. 

Ediscovery for Japanese businesses 
Given that most business documents are now electronic, regulatory investigations and investigations or litigation commenced in the US and Europe involves identifying and producing Electronically Stored Information (ESI). Vast available quantities of information means that ediscovery technology can help ensure that requests for information are fulfilled accurately, efficiently and at the lowest cost to the company.

For investigations into Japanese companies there are some additional, yet vital, considerations. The recent amendment to the Act on Protection of Personal Information (APPI) means that processing personal data is now subject to more restrictions.

Like its European counterpart, the GDPR, the amended APPI takes a strict stance on consent and the transfer of data to other jurisdictions. Any company transferring personal records outside of Japan’s borders will need the user’s permission, and opting out will not be an option unless the foreign jurisdiction has similar privacy standards.

Sanctions for non-compliance can be harsh. A negligent violation will bring about an enforcement notice ordering the company to either correct the issue or halt data transfer operations. Failure to comply may result in imprisonment up to six months or a fine up to JPY 300,000. Intentionally stealing or providing personal information for a dishonest purpose may result in a direct penalty of up to one year in prison or a fine up to JPY 500,000. Non-compliance with the soon to be implemented GDPR also carries very hefty fines up to 10% of global turnover.

The Japanese language also brings obstacles. Most business is conducted in Japanese rather than English. Consequently, ediscovery technology must be able to cope with processing Japanese characters and Japanese-speaking forensics experts, ediscovery consultants and document reviewers should be on hand to oversee any projects.

Getting on the front foot
Japanese companies facing legal action domestically and abroad can rely on ediscovery technology not only to ensure that requests for information are handled quickly and effectively, but also to get their arms around the facts quickly and to formulate a sold legal strategy.

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