Japan Legal Update Vol. 52 I Summer 2020
Investigations & White Collar Defense
Amendment to Whistleblower Protection Act
On June 8, 2020, the Japanese Diet passed a bill to amend the Whistleblower Protection Act ("Act"). The bill was introduced amid a series of corporate scandals in recent years, and its purpose is to address corporate wrongdoing by enhancing internal whistleblowing procedures and protecting the interests of the public. A summary of the amendment is as follows:
(i) Measures to Be Taken by Business Operators
As a way to promote self-policing by businesses, business operators are obligated to develop certain internal systems to respond to whistleblowing claims. Details of the required systems will be provided in the relevant guidelines to be introduced at a later date. Further, business operators are obligated to appoint a person responsible for investigating and addressing reported whistleblowing ("Whistleblowing Coordinator"). It should be noted that the above-mentioned requirements are reduced to an "effort obligation" for small- and medium-sized enterprises with 300 or less employees.
In addition, a Whistleblowing Coordinator is under an obligation of confidentiality and is subject to criminal penalties for disclosing information which may identify a whistleblower.
(ii) Easing Whistleblowing to Administrative Authorities
In order to protect whistleblowing reported to the relevant administrative authority, the amendment relaxes the requirements to nullify the dismissal of a whistleblower who was dismissed from employment by reason of his or her whistleblowing. For instance, the current Act provides that such dismissal is null and void only if there are reasonable grounds to believe that the reportable fact has occurred, is occurring, or is about to occur. Under the amendment, however, the whistleblower is protected even where there is no such ground as long as he or she submits documents setting forth his or her name, address, and certain other items to the relevant administrative authority.
(iii) Further Protection of Whistleblowers
The definition of "whistleblowers" to be protected under the Act is broadened to include, not only "workers" as is currently provided, but also those who have retired within the previous 12 months and certain officers. Also, the protection is enhanced to add immunity for whistleblowers from liabilities for damages in association with their whistleblowing.
The amendment will come into force within two years starting from its promulgation date, June 12, 2020. Business operators should develop a precise understanding of the purpose and contents of the amendment and take actions to comply.
Amendment to the Financial Instruments Sales Act
The Act on Sales, Etc. of Financial Instruments (now entitled the "Act on Provision of Financial Services," as a result of the Amendment) were amended on June 5, 2020 (the "Amendment"). The main objective of the Amendment is to enhance the convenience of using and providing financial services, as well as the protections afforded to users of those services. The Amendment was introduced in response to the development of information and telecommunication technologies, including Fintech, as well as the diversified needs of the coming cashless society. The Amendment will come into force on or before December 12, 2021, the exact date to be specified by a Cabinet Order. The Amendment provides for the following:
- Introduction of "Financial Service Intermediary Business"
As financial services are now able to be provided online as a result of the development of information and telecommunication technologies, there is a growing desire to provide intermediary services to users for banking, securities, and insurance products on a one-stop-shop basis. However, the current regulations are on an industry-by-industry basis and thus, in order to provide such an all-in-one service, the financial service operator is required to obtain each intermediary license under all the relevant laws, respectively. The Amendment introduces an industry-wide intermediary service called "Financial Service Intermediary Business" whereby the operator is able to provide the intermediary services for all of its banking, securities, and insurance products by obtaining a single license for such Business.
- Streamlined Rules on Fund Transfer Business
Under the current regulations, the licensed operator of a "Fund Transfer Business", other than banks, may only remit JPY 1 million or less per transaction. While there is a need for remittances of larger amounts (such as overseas remittances), in fact, approximately 90% of the remittances handled by licensed operators in Japan are for remittances of less than JPY50,000. Thus, appropriate regulations based on the amount of remittance as well as the risks associated with remitting such amounts have been desired for some time. The Amendment divides the licenses for the Fund Transfer Business into the following three categories, to which different regulations apply: (i) a new category which may remit larger amounts (with stricter regulations); (ii) the existing category; and (iii) a new category which may only remit smaller amounts (with lighter regulations). The actual monetary thresholds are to be subsequently provided in a Cabinet Order.
As Fintech and cashless payments continue to grow, the impact of the Amendment should be considered not only by already-licensed operators but also by other companies whose future business may potentially be impacted.
Amendment to Copyright Act
Both the Copyright Act and the Act on Special Provisions on the Registration of Works of Computer Programming were amended on June 5, 2020 (collectively, the "Amended Copyright Act"). Under the Amended Copyright Act, the management of a website that consolidates links to unauthorized content (a so-called "leech site") is subject to criminal penalties, the act of uploading a link to unauthorized content onto a leech site is deemed to infringe copyright, and the downloading of unauthorized content under certain circumstances is illegalized. In addition, the Amended Copyright Act includes a number of other institutional and procedural reforms aimed at proper protection of copyrights and facilitating the use of copyrightable works, including without limitation improving evidence collection procedures in copyright infringement lawsuits and making copyright licenses assertable against third parties, which are expected to have a significant impact on the practice of copyrights. Most provisions of the Amended Copyright Act will come into force on January 1, 2021.
Cybersecurity, Privacy & Data Protection
Amendment to the Personal Information Protection Act
The Personal Information Protection Act of Japan was amended on June 5, 2020 (the "Amended Act"). The Amended Act strengthens the rights of individuals, including the relaxation of conditions for the right to request erasure of personal information and to have its use cease. On the other hand, the Amended Act creates new obligations on business operators handling personal information, such as a data breach reporting obligation and the obligation not to utilize personal information in improper ways, and increases the amount of fines for violations of the Act. In addition, from the perspective of promoting data utilization, the rules concerning "pseudonymously processed information," which deletes a person's name, etc., from personal information, is introduced. Further, the rules concerning extraterritorial application and cross-border transfer of personal information are also amended. Most parts of the Amended Act will come into force on or before June 12, 2021 (the exact date to be specified by a Cabinet Order). Prior to the effective date of the Amended Act, various rules and guidelines issued by the Personal Information Protection Commission will be amended based on the Amended Act. Companies that operate businesses in Japan will need to establish internal systems based on the Amended Act before the Amended Act comes into force.
Labor & Employment
Power Harassment Prevention Act Comes Into Force
Amendments to the Act on Comprehensive Promotion of Labor Measures and Stabilization of Employment of Employees and Enrichment of Their Working Lives, Etc. (the amended provisions of which are hereinafter referred to as the "Power Harassment Prevention Act") requiring employers to take measures to prevent workplace power harassment came into force on June 1, 2020.
The Power Harassment Prevention Act defines workplace power harassment as behavior that: (i) is backed by a superior position; (ii) exceeds the scope of what is necessary and reasonable in the course of business; and (iii) harms the working environment of employees. The Power Harassment Prevention Act requires employers to take employment management measures that are necessary to prevent workplace power harassment and prohibits employers from giving disadvantageous treatment to employees who complain of workplace power harassment.
The required employment management measures are provided in guidelines established by the Minister of Health, Labor and Welfare, and include: (a) clarification, notification, and raising employee awareness of the employer's policy; (b) establishment of a system to receive and respond appropriately to consultations, including complaints; (c) swift and appropriate response to workplace power harassment complaints; and (d) other necessary measures in addition to (a)-(c) above, such as protection of privacy and prohibition of disadvantageous treatment.
Under the Power Harassment Prevention Act, the Ministry of Health, Labor and Welfare may from time to time provide employers with advice, guidance, and recommendations, and if employers fail to follow the Ministry's advice, guidance, or recommendations, the Ministry may disclose such failure to the public. In addition, the Ministry may request employers to submit reports on the status of implementing the required employment management measures, and failure to submit a report or submitting a false report may subject the employer to a penalty.
Large enterprises were required to implement the employment management measures starting on June 1, 2020, and small- and medium-sized enterprises will be subject to the same requirement on and after June 1, 2022 (but those enterprises have an obligation to make "efforts" to implement such measures until then). With consideration for when a company's implementation obligations start, companies should improve their internal systems and respond promptly to power harassment complaints as necessary.
Tightened Foreign Direct Investment Regulations Under Amended Foreign Exchange and Foreign Trade Act
Amendments to the Foreign Exchange and Foreign Trade Act (the "Amendments") came into force on May 8, 2020, and, after the expiration of a 30-day grace period, became fully applicable to transactions closed on or after June 7, 2020. Following the global trend (including the United States) to strengthen the screening of foreign direct investments from a national security viewpoint, the Amendments tighten the Japanese foreign direct investment regulations with the view to appropriately monitor investments that may pose risks to the national security of Japan. In particular, the Amendments reduce the prior notification requirement threshold for an acquisition of listed shares from 10% to 1% of total shares. The Amendments also expand the scope of foreign investor actions subject to prior notification requirements, such as selecting or nominating an employee or officer of the foreign investor or its affiliates as a director of the target company and the transfer or disposition of the target company's businesses belonging to a "designated business" (for details on what constitutes a "foreign investor," please see the November–December 2019 issue of this newsletter).
Further, on June 15, 2020, an additional amendment to the prior notification requirements was introduced whereby the manufacture of pharmaceuticals for infectious diseases and the manufacture of highly controlled medical devices are included in the "designated businesses" subject to the prior notification requirements. Such amendment was adopted in light of the COVID-19 pandemic, with the Japanese government increasingly focused on maintaining domestic production capabilities in key life science industries to protect national security and the health and safety of its people. As a result of the amendment, foreign investments in those companies may be newly subject to prior notification requirements (for more details, please see the Jones Day Alert, "Japan Tightens Foreign Direct Investment Regulations on Life Science Companies").
It is important for foreign investors to review and comply with these regulations in connection with their intended investments in Japan as well as the management of the target company thereafter.
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