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Japan: The requirement for whistleblowing systems under the Amended Whistleblower Protection Act

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In brief

In June 2022, amendments to the Whistleblower Protection Act (“Amended WPA“), a law that protects employees who have reported violations of certain laws specified in the WPA, are expected to come into force. Amongst other items, the Amended WPA includes a mandatory obligation for companies of a certain size to establish a whistleblowing system with the aim of ensuring the protection of whistleblowers. With the object of providing detailed guidance on how business operators should establish whistleblowing systems, the Consumer Affairs Agency (CAA) issued Guidelines for Appropriate and Effective Implementation of the Whistleblowing System (“Guidelines“) and commentary on the Guidelines (“Commentary“).

This client alert summarizes the Guidelines and Commentary, together with shedding light on key issues relevant to multinational companies with a subsidiary in Japan.

Background

1. Overview of the mandatory obligations when establishing a whistleblowing system under the Amended WPA

There are two obligations with respect to whistleblowing systems to be established under the Amended WPA.

  • Companies must designate personnel who are to be engaged in receiving whistleblowing reports, investigating allegations and taking corrective measures (“Personnel Responding to Whistleblowing Reports“).
    Personnel Responding to Whistleblowing Reports: (i) shall be subject to a confidentiality obligation with respect to information obtained in dealing with whistleblowing reports that identifies the whistleblower; and (ii) in the event such personnel divulge the aforementioned information without justifiable grounds, shall be subject to a criminal fine not exceeding JPY 300,000.
  • Companies are required to establish an internal system to properly respond to whistleblowing reports.

Notably, the mandatory obligation to establish a whistleblowing system mentioned above is reduced to an obligation to “make efforts” for business operators who hire 300 or less regular employees.

In order to ensure effective enforcement of the obligation to establish a required whistleblowing system, the Consumer Affairs Agency (CAA) will be granted the authority to take certain administrative measures, including: (i) making inquiries; (ii) giving guidance or recommendations to business operators failing to meet the requirements; and (iii) publishing the name of business operators should they fail to follow the CAA’s recommendations. Moreover, should a business operator fail to report following an inquiry made by the CAA, or should they make a false statement in such regard, the business operator may be subject to an administrative fine not exceeding JPY 200,000.

2. The Guidelines and the Commentary

With a view to providing guidance on several fundamental areas that companies must bear in mind when establishing whistleblowing systems under the Amended WPA, the CAA created the Guidelines and the Commentary. The areas covered in the Guidelines and the Commentary include:

  • Designation of Personnel Responding to Whistleblowing Reports, including the scope of personnel covered and the manner of designation.
  • Establishment of internal systems, including a consideration of the practicalities of formation of systems, the requirement for independence and elimination of conflict of interest, and steps to be taken when responding to whistleblowing reports.
  • Measures to protect whistleblowers, including methods to prevent adverse treatment and avoid out-of-scope information sharing.
  • Ensuring whistleblowing systems function effectively, including employee education, feedback to whistleblowers, retention of records, and establishment of internal rules.

The inherent nature of whistleblowing systems is that they may differ depending on factors such as the size of the business operator, its organizational structure, the type of business, the likelihood of potential violation of laws, the number of stakeholders, the current situation of use of the internal whistleblowing system by employees, directors and retirees, and present societal expectations. Accordingly, the Commentary clearly mentions that the Guidelines provide only an outline of the whistleblowing system to be established under the Amended WPA.

Taking the above into account, each business operator should consider independently the specific measures to be taken with reference to factors such as those noted above. Indeed, the Commentary provides views and specific examples of implementation to be used as a reference when ensuring compliance with the Guidelines, together with ideas and specific examples and recommendations that are expected to be undertaken by business operators beyond the minimum measures required to comply with the Guidelines at an operator’s own behest.

3. International transfers of information contained in whistleblowing reports

As the operation of responding to whistleblowing reports usually involves handling personal data, business operators are also required to comply with relevant requirements stipulated in the Act on Protect of Personal Information (APPI).

These requirements include:

  • Notification of the purpose of information utilization;
  • Taking security measures; and
  • Restrictions on data transfer to third parties.

In addition, particular care should be taken in cases involving a Japanese subsidiary of a foreign multinational company where responding to whistleblowing reports involves an international transfer of personal data.

Examples of situations in which personal data contained in whistleblowing reports may be transferred to a parent company outside of Japan are: (i) where the parent administers the whistleblowing system; or (ii) when a whistleblowing report is made to the contact point administered by the Japanese subsidiary and the Japanese subsidiary then shares certain content of the whistleblowing report with its parent company.

Recommended actions

Through the Amended WPA, Japan is following in the footsteps of several jurisdictions globally by creating or updating legislation aimed at increasing the protection of whistleblowers.

Given the expanded scope of the Amended WPA, business operators in Japan would be best served by ensuring that their existing whistleblowing systems comply with the requirements of the Amended WPA, in particular with reference to the Guidelines and the Commentary. Further, should business operators not have a whistleblowing system in place, they should consider the extent to which they may be required to, or wish to, establish such system.

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Author

Dr. Inoue is a partner at Baker McKenzie's Tokyo office, and has been handling cross-border antitrust cases for more than 20 years. He is highly respected for his knowledge of antitrust and competition law, giving presentations at numerous events and having authored 10 books and more than 102 articles on the subject. The government frequently seeks his opinions on competition policy and government reports often cite his articles. Dr. Inoue has been serving Japanese companies as lead defense counsel since becoming involved in the international vitamin cartel case. Most recently, he successfully secured compliance credit for only the second time in the history of antitrust practice and won a 40% fine reduction. He is further distinguished as the sole member of the steering committee of Baker McKenzie's Global Antitrust & Competition Group from the Asia Pacific region. Dr. Inoue has been recognized as a “Leading Individual” by Chambers Asia-Pacific (2010-2022), Legal 500 (2019-2022), Who’s Who Legal (2016-2021), Asia Business Law Journal List of Japan's Top 100 Lawyers (2020) and Best Lawyers in Japan (2017-2020). He is recognized at the lawyer ranking published by Nikkei News Paper (2018).

Author

Toshio Ibaraki is a member of Baker McKenzie’s Compliance & Misconduct Investigation Group and Dispute Resolution Group in Tokyo. Prior to joining the Firm, he worked at a major international accounting firm, where he gained experience in accounting audits at listed companies. From 2005 to 2007, Mr. Ibaraki was seconded to the principal investment department of a major Japanese securities company where he advised on a wide range of investment matters, including corporate restructuring investment and private equity investment. He was seconded to Baker & McKenzie.Wong & Leow in Singapore from June 2011 to August 2012, where he assisted Japanese companies with compliance and investigation matters in Southeast Asia.

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Dominic Sharman is a member of the Dispute Resolution group at Baker McKenzie's Tokyo office. Having trained and qualified in the UK, Dominic moved to Japan to practice law in 2014, working for a prominent law firm in Tokyo before moving to Baker McKenzie in 2017. Dominic is a member of Baker McKenzie's Healthcare & Life Sciences, Technology, Media & Telecoms and Energy, Mining & Infrastructure Industry Groups.

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Takumi Hasegawa is a member of the Dispute Resolution Practice Group in the Firm's Tokyo office. Prior to joining Baker McKenzie, he worked for a maritime law firm with an emphasis on litigation and arbitration cases.

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Rieko Yamauchi is an associate of the Dispute Resolution group at Baker McKenzie’s Tokyo office. Before joining this law firm as an associate, she also worked as a paralegal of our Dispute Resolution group from 2014 to 2017. She is a native speaker in Japanese and fluent in English.

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