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.

Financial Markets

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.

Intellectual Property

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.

Government Regulation

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.

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.