On November 28, 2012, the Japan Fair Trade Commission (“JFTC”) published the findings of its 2012 survey of corporate compliance practices based on (i) responses from approximately 879 companies listed on the Tokyo Stock Exchange; (ii) interviews of six attorneys specializing in corporate or antitrust law; and (iii) interviews of 82 companies with informative examples of success or failure. The JFTC’s report, titled “Survey on Corporate Compliance Efforts with the Antimonopoly Act (Summary),” coincides with an unprecedented era of administrative and criminal enforcement against Japanese companies and executives by the JFTC and U.S. Department of Justice, Antitrust Division. Although the results pertained to compliance with Japan’s Antimonopoly Act (“AMA”), the principles can be applied to ensure compliance with virtually any competition law regime.
The JFTC report maintains that a program “aimed only at preventing conduct[ ] against the AMA is insufficient” to curtail antitrust violations within an enterprise. Instead, the JFTC advocates standards described as “the 3Ds” to control and avoid antitrust risk:
- Deterrence: Preventing violations of the AMA through training and other measures.
- Detection: Early discovery of AMA violations through audits.
- Damage control: Appropriate responses to violations of the AMA.
According to the survey, the perceptible support of upper management is “the most important element for ensuring the effectiveness of AMA compliance.” Upper management can demonstrate its commitment to upholding antitrust law through compliance programs and by charging departments and personnel not only with preventing AMA violations, but with helping the sales force achieve its goals in the bounds of the law.
However, the JFTC aptly observed that “[s]pecific risks of individual companies concerning AMA violations differ significantly according to the business content, market environment, and other factors.” To be effective, compliance programs must be tailored to the unique circumstances of the enterprise, such as “the business size, business content, and organizational climate, and external factors including the actual state of the industry, the market situation, and relevant legal systems.” In a similar vein, effective training should also take into account the different products (fungible versus specialized) that are sold and different roles (sales versus administrative) that employees have within the company.
The JFTC report cited two means of detecting violations of the AMA: (i) obtaining information directly from employees; and (ii) discovering conduct through “activities of the legal and compliance department”—specifically, audits. To encourage employees to disclose AMA violations, the JFTC recommended internal reporting systems and in-house leniency policies. However, “the mere introduction of an internal reporting system is not sufficient.” Upper management must ensure that the existence of the system—and how to use it—is clearly communicated to employees. The JFTC also suggested “creative measures” for conducting audits, such as scrutinizing winning bids or monitoring internal emails.
As with deterrence and detection, upper management plays a significant role in damage control. Eighty-five percent of the companies that responded to the survey place the decision of whether to open an investigation in the hands of their top executives. Upper management also “should show its initiative to secure the employees’ cooperation [during an] internal investigation,” including document collection and preservation efforts.
Recognizing that an internal investigation and, if appropriate, a leniency application may require expertise and resources beyond those encountered in the ordinary course of business, the JFTC favors compiling a “contingency manual” that describes “how to consult the JFTC, how to apply to the leniency program, staffers in charge of internal investigations, the reporting and instructing channels from the department responsible to senior management, and the outlines of the AMA.” However, only 3.2% of the responding companies have such a manual for AMA violations.
The JFTC report outlines best practices not only for Japanese companies seeking to comply with the AMA, but any company operating in a market that is at risk for antitrust misconduct. For more information, the report is available at http://www.jftc.go.jp/en/pressreleases/121128AMA_Compliance.pdf.