Japan: JFTC Refers Bridge Construction Bid-Rigging Case to Public Prosecutors Office for Criminal Indictment

On May 23rd, the Japan Fair Trade Commission ("JFTC") requested that the Public Prosecutors Office ("PPO") initiate criminal investigations of eight leading Japanese bridge construction companies, which the JFTC believes have committed bid-rigging in bridge constructions ordered by the Ministry of Land, Infrastructure and Transport ("Ministry"). These investigations may result in criminal indictments. In addition, there are media reports that 14 individuals that work for these companies and other companies were arrested on May 26th.

This bid-rigging investigation will provide an interesting case study of the criminal investigation process for antitrust violations in Japan, as well as the potential impact of recent amendments to the Anti Monopoly Act ("AMA").

Under current law, the JFTC may request that the PPO issue an indictment of companies and individuals who commit criminal violations of the antitrust laws. The JFTC published its policy regarding referrals to the PPO in 1990; this policy covers cases involving:

(1) blatant violations, including price fixing, market allocation, bid-rigging, etc., with a significant impact on national life; and/or

(2) repeated violations, including repeated violations by a single firm, repeated violations in an industry, or violations by a firm that does not implement a JFTC administrative order.

In recent years the JFTC has referred approximately one case every two years to the PPO under this policy. In fact, the JFTC’s request in this matter is the first referral since 2003.

The media have reported that the affected market size is approximately 350 Billion Yen, the allegations involve bid-rigging in national procurements (not local government procurements), and the conduct has been on-going for approximately 40 years. Based on these factors, the JFTC determined that the case involves a blatant violation with a significant impact on national life. The JFTC’s decision also may have been affected by the fact that one of the companies involved was criminally convicted in the past and was subject to a cease and desist order from the JFTC.

The JFTC’s criminal investigation and referral practice is likely to be much more active once the recently enacted amendments to the AMA come into effect early next year.¹ One of the four key elements of the amendments is the expansion of the JFTC’s criminal investigation power.

Under the current system, the JFTC’s administrative investigation power, such as the power to collect documents, is literally subject to the consent of the target company. The JFTC is also prohibited from using its administrative investigation power for criminal investigations. Thus, in practice, if a matter is referred to the PPO, it must conduct an independent investigation in order to prepare a criminal indictment. Once the JFTC obtains the power to initiate criminal investigations pursuant to the recent AMA amendments, however, the JFTC staff may, with a court issued warrant, search the premises of the target companies and seize documents.

Another important element of the amendments is the power to exempt companies from, or reduce, administrative fines (the so-called leniency program). Under the new law, the first three companies to report to the JFTC are either exempted from fines or will have them reduced by 30% to 50%. The JFTC also announced that it will not refer the first reporting company, or its individual officers and employees, to the PPO. This program is designed to encourage early reporting and to provide the JFTC with valuable information that can be used in investigating other companies, and thereby enable the JFTC more easily to prove the violation and refer it to the PPO.

In sum, the JFTC’s enhanced ability to identify violations and collect evidence of those violations make it more likely that it will refer cases to the PPO under the new law.

The amendments will also have an effect on how penalties are assessed. For example, the media have reported that the aggregate amount of bridge construction orders from three branches of the Ministry in 2003 and 2004 (the scope of the reference to the PPO) is approximately 72 Billion Yen. This would result in a potential administrative fine of 7 Billion Yen under the new law. The JFTC, however, is not bound by the scope of the reference if it finds a violation of in its own administrative procedures.² Assuming that the JFTC finds the participants in the alleged bid-rigging have violated the AMA for 40 years as reported in the media, the amount of administrative fine could be as much as 105 Billion Yen.³ If this violation were reported to the JFTC under the new law, the first reporting company could be exempted from billions (or even tens of billions) of Yen of administrative fine and from criminal indictment while the other participant companies, including the second reporting company, could pay large fines and also be subject to the criminal indictment.

Footnotes

Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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