Nagashima Ohno & Tsunematsu | View firm profile
I. Introduction
The importance of robust internal whistleblower systems has been highlighted recently in Japan with a number of large-scale corporate misconduct being identified through whistleblowing reports. Since one of the most important aspects of corporate crisis management is to detect and rectify compliance incidents as soon as possible, establishing an effective whistleblowing system is crucial for many, if not all, business operators. Against this background, on June 12, 2020, a partial amendment (the “Amendment”) to the Whistleblower Protection Act (the “Amended Act”) was promulgated. The objective of the Amendment is to strengthen the protection of whistleblowers and facilitate more proactive reporting. The Amendment will take effect on June 1, 2022. While the Amendment has a wide scope, two areas of particularly importance are (i) the mandatory[1] establishment of internal systems to enable business operators to appropriately respond to public interest whistleblowing reports[2], and (ii) the designation of persons responsible for responding to public interest whistleblowing reports.
II. Mandatory Establishment of Internal Systems to Enable Business Operators to Appropriately Respond to Public Interest Whistleblowing Reports
Article 11 (2) of the Amended Act requires business operators to establish internal systems and take other measures necessary to respond appropriately to public interest whistleblowing reports. According to the guidelines issued for the appropriate and effective implementation of measures to be taken by business operators pursuant to Article 11, Paragraphs 1 and 2 of the Whistleblower Protection Act (the “Guideline”), those systems and measures are largely divided into three elements (i) systems to respond to whistleblowing reports across divisions and departments, (ii) systems to protect whistleblowers, and (iii) measures to ensure the effective function of the whistleblowing systems.
(i) Systems to Respond to Whistleblowing Reports Across Divisions and Departments
A business operator shall (i) establish an internal whistleblowing contact (the “Contact”) and clearly specify the departments and persons in charge of receiving whistleblowing reports from the Contact, conducting investigations, and taking the necessary measures to rectify the misconduct specified in the whistleblowing report; (ii) take measures to ensure independence in cases where management is suspected of having involvement in the reported misconduct; (iii) conduct necessary investigations unless there are justifiable grounds not to commence an investigation; and (iv) take measures not to involve persons who are related to the case and to eliminate any conflicts of interest.
(ii) Systems to Protect Whistleblowers
A business operator shall take measures to prevent disadvantageous treatment against whistleblowers, including, but not limited to, taking disciplinary action or other appropriate measures when disadvantageous treatment occurs. A business operator shall also develop systems to prevent employees and officers from sharing information contained in whistleblowing reports outside of the necessary scope and shall take appropriate remedial and restorative measures in the event of improper information sharing.
(iii) Measures to Ensure the Effective Function of the Whistleblowing Systems
A business operator shall (i) provide education and training regarding the Amended Act and whistleblowing systems to employees, officers and retirees, (ii) in cases where a whistleblower report is received in writing, promptly notify the whistleblower of the remedial measures implemented to address the reported facts, to the extent that doing so does not hinder the proper execution of business and the protection of the confidentiality, credibility, reputation and privacy of the parties involved, (iii) take measures concerning the retention, review and improvement of whistleblowing records, and the disclosure of the operating results of the whistleblowing systems. Additionally, the elements required to be taken by the Guideline shall be reflected in a business operator’s internal rules and the business operator shall operate in accordance with those rules.
III. Designation of Persons Responsible for Responding to Public Interest Whistleblowing Reports
Article 11 (1) of the Amended Act requires business operators to designate a person (the “Designated Person”) to receive whistleblowing reports, conduct investigations into the reported facts, and engage in initiatives to implement remedial measures to address the results of the investigations[3]. If in the course of their work, the Designated Person becomes aware of certain information that would allow them to identify the whistleblower, the Designated Person becomes subject to a strict duty of confidentiality, which, if violated, would subject the Designated Person to potential criminal penalties composed of a monetary fine of not more than JPY 300,000. The introduction of such a duty of confidentiality can be regarded as a major revision in Japanese practice and, thus, it is necessary to include in the internal rules that the business operator shall clearly notify the Designated Person of their duties and obligations.
Notwithstanding the above, under Article 12 of the Amended Act, disclosure by the Designated Person of the protected information does not constitute a violation of the duty of confidentiality if there is a “justifiable reason” for such disclosure. It can be reasonably assumed that there would be a “justifiable reason” in cases where the whistleblower has given his or her consent, or where information is shared with persons who require such information for the purpose of conducting the investigation.
IV. Comments
While many business operators may have already established an internal whistleblowing system, the introduction of the Amended Act and the Guideline is a timely reminder for business operators to review their internal practices. As the whistleblowing system constitutes an extremely important part of a company’s compliance system, it is important for each business operator to examine its specific arrangements by referring to the Amended Act and the Guidelines to ensure its processes are compliant and in line with best practice.
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[1] Business operators with 300 or less employees on a regular basis are only obligated to make an effort to meet those requirements.
[2] Public interest whistleblowing reports mean whistleblowing reports that fall under the category of Public Interest Whistleblowing Report provided for in Article 3, Item 1 and Article 6, Item 1 of the Amended Act.
[3] Business operators with 300 or less employees on a regular basis are only obligated to make an effort to appoint a Designated Person.