April 30, 2015ICN Annual Conference in SydneyBreakout session : Fighting Corruption and Promoting Competition

Toshiyuki NAMBUDeputy Secretary General

Japan Fair Trade Commission

Fighting bid rigging in public procurement and corruption in Japan

Bid rigging in public procurement has been observed nationwide both at central and local levels in Japan. Some of them are assisted, facilitated or even instructed by the officials of procurement agencies.

Motives of the procurement officials to be involved in the bid rigging (corruption as a broader meaning) Receiving a bribe Expecting golden parachutes React to lobbying Ensure reliable companies to win orders to secure the

quality Protect and nurture the industry and local business etc.2

Bid rigging in public procurement and corruption in Japan

Vigorous enforcement against violations by multiple agencies

Reforming the procurement system to reduce the risk of bid rigging

Active outreach to the officials of the relevant procurement agencies

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Measures for fighting bid rigging in public procurement and corruption

Activities that fall under involvement in bid rigging in the IPA

- Explicit instructions on bid rigging- Indication of wishes of successful bidder- Leakage of confidential information

concerning procurement- Aiding specific bid rigging 4

Overview of the current enforcement mechanism against bid rigging in public procurement and corruption

JFTC (Administrative measure and criminal accusation)Toward violating companies and target individualsCriminal investigation (Criminal investigation (AMA (Anti-Monopoly Act); AMA (Anti-Monopoly Act); CartelCartel) Toward violating companiesCease-and-desist order and surcharge payment order (AMA; Cartel)

(If procurement officials’ involvement in the bid rigging is recognized)

Toward the head of procurement agencies Demand to take necessary improvement

measures (IPA (The Government Involvement Bid Rigging Prevention Act), enacted in 2002)

Public prosecutor and the police (Criminal measure)Toward violating companies and /or target individualsFine for the company and fine/imprisonment for Fine for the company and fine/imprisonment for the individuals (the individuals (AMA; CartelAMA; Cartel))Fine/imprisonment for the individuals (Penal Code; Obstruction of Auctions, Giving a bribe)

Toward officials of procurement agenciesFine/imprisonment for the officials of Fine/imprisonment for the officials of procurement agencies procurement agencies (AMA; Cartel(AMA; Cartel ））Fine/imprisonment for the officials of procurement agencies (Penal Code; Obstruction of Auctions, Receiving a bribe, Breach of trust or IPA ; Act of involvement) 　

Criminal accusation from the JFTC to the Prosecutor General

Act of involvement that fall under criminal punishment by the IPA If a procurement official instigates bid rigging, divulges the target price or other secret concerning the bidding, etc. or otherwise impairs the fairness of the bidding in violation of his or her duties→ 　 imprisonment of not exceeding five years or a fine of not exceeding 2.5 million yen

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Actual cases of bid rigging and corruption in Japan Bid rigging case on the construction of the superstructure of a steel

bridge ordered by the Japan Highway Public Corporation(JHPC) The vice president and the executive director of JHPC was involved in the bid rigging and the JFTC

filed criminal accusations against the vice president and the executive director as well as violating companies and its target individuals for a criminal violation of the Antimonopoly Act in August 2005.

In response to the JFTC’s accusation, the prosecutor’s office prosecuted the vice president and the executive director at the Tokyo High Court for criminal violation of the Antimonopoly Act (co-principles) and breach of trust under the Penal Code, respectively.

The JFTC issued cease and desist orders and surcharge payment orders to the violating companies and demanded the president of JHPC to take necessary improvement measures in September 2005.

Bid rigging case on snow-melting equipment engineering works for Hokuriku Shinkansen(bullet train) ordered by Japan Railway Construction, Transport and Technology Agency (JRCTTA)

Criminal accusation against 8 companies and 8 employees in March 2014. JRCTTA employees provided particular bid participants with planned upper prices that were not to

be disclosed before biddings and the JFTC demanded the head of JRCTTA to take necessary improvement measures (investigate the facts on its own, implement improvement measures deemed necessary, publish the findings and improvement measures, consider claim for damage and disciplinary action against the officer in charge,etc.)according to the IPA.

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Reforming the procurement system to reduce the risks of bid rigging

Historically, main tender system was “Designated tender system” Restrict the number of bidders and designate those that are permitted to

participate in the bidding process. Municipal governments generally designate the local companies to

participate, in order to invigorate local economy. Bidders may easily rig bids and officials may easily involve in the bidding

process.

Since mid-1990s, the Government of Japan has been promoting the use of “Open tender systems”.

Other efforts to reform public procurement system to eliminate bid rigging;

Promotion of transparency in bidding process and result Promotion of electronic bidding system Introduction of comprehensive evaluation method Ensuring competition in case of supporting local companies Increase of penalties on violators

Strengthening relationship with procurement agencies Liaison officers appointed in each central governmental agency and

its local branches Set up annual meetings with liaison officers for deeper channel and

information exchange, since1993　 (FY2013: 9 place in Japan, 10 times)

Training seminars for procurement officials The JFTC hosts training seminars and dispatches its staff to

seminars held by each procurement agency. The staff members of the JFTC HQ office and 8 local offices assigned as lecturers No fees and expenses needed All materials (e.g. textbooks) provided by the JFTC(FY2013: almost 300 seminars held, 21,000 officials participated 26,000

copies distributed)7

JFTC’s outreach activities toward procurement agencies

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Thank you for your kind attention !!

Japan Fair Trade Commission (http://www.jftc.go.jp/en/index.html)