As Japanese Authorities Charge Three MHPS Executives in Foreign-Bribery Case, MHPS Issues Statement of Facts, Remedial Measures, and Disciplinary Action

In mid-July, multiple English-language Japanese news sites reported on the guilty plea by Mitsubishi Hitachi Power Systems (MHPS) to violating the Unfair Competition Prevention Act (Act), in connection with a foreign-bribery case relating to transport work under a power plant contract awarded to Mitsubishi Heavy Industries Ltd. in 2013 (and later taken over by MHPS).  Those reports focused primarily on the fact that the plea was the first of its kind under new law allowing plea bargains in cases involving organized crime and bribery, and that there previously had been only four cases in Japan in which companies or individuals have been prosecuted on bribery charges involving foreign public officials since 1998.

Initial reports, however, offered conflicting information about the scope of the alleged bribery.  The Japan Times cited unnamed “sources” in reporting that the case  involved “one of its employees and a civil servant in Thailand,” and further stated that prosecutors won’t indict Mitsubishi Hitachi Power Systems “in exchange for information on the employee involved.”  In contrast, the Asahi Shimbun reported that according to the Special Investigation Unit of the Tokyo District Public Prosecutors Office, MHPS employees overseeing the project “gave Thai public servants a large bribe in connection with the project.”

Although MHPS initially declined to comment on the case or the plea, less than a week later, on July 20 it issued a detailed public statement about both issues.  In particular, it stated that it had been notified that two former MHPS officers – one a Director, Executive Vice President, and Head of MHPS Engineering Headquarters, the other a Senior Vice President and Senior General Manager of MHPS’s Procurement & Sourcing Division — and the former General Manager of the then-existing MHPS Logistics Division had been charged on suspicion of violating the Act, specifically for offering a bribe to a foreign public officer.

The MHPS statement is noteworthy in three respects.  First, it included the most detailed statement of facts yet available concerning the nature and scope of the bribery.  Presumably based on the results of its own internal investigation, MHPS reported that the charges are related

to the construction of a thermal power plant undertaken by MHPS in the Khanom District of Nakhon Si Thammarat Province, Thailand. In February 2015, an employee of MHPS in charge of material transport received word that, when subcontractor carriers of the transport services provider entrusted by MHPS with the marine transport of plant parts attempted to unload the parts at the jetty constructed near the plant construction site, local residents, including what was believed to be a public officer of the local port authority, blocked off the jetty and demanded payment of 20 million Thai baht.

The jetty was blocked off due to the unexpected failure by the transport services provider in undertaking the necessary procedures to acquire authorization to use the jetty. It was expected that any delay in unloading the parts as a result of this blockade would cause delay to the plant construction schedule, and thereby obligate MHPS to incur significant costs and expenses, such as the payment of delay damages. In order to avoid such circumstances, relevant MHPS individuals provided the abovementioned subcontractor carriers with funds in the amount of 20 million Thai baht in response to the demand that had been made, as a result of which the blockade of the jetty was resolved.

MHPS was not able to confirm whether the subcontractor carriers did indeed deliver the 20 million Thai baht to the public official.

The 20 million Thai baht was generated by individuals affiliated with MHPS at that time by way of issuing an additional order to a local contractor for fictitious work.”

Second, it publicly reported that to prevent recurrence of such conduct by MHPS employees, MHPS was currently implementing the following measures:

  1. Issuance of top management messages concerning prevention of bribery;
  2. Diversification of methods for reporting compliance incidents, including new online and toll-free telephone access points;
  3. Requiring more thorough checks to detect bribery risk both before and after the receiving of an order;
  4. Strengthening of audits on expenditures made from overseas construction sites;
  5. Renewed acquisition of compliance pledges from all managerial personnel; and
  6. Training, including those conducted by external instructors concerning prevention of bribery.

Third, it made a public declaration unusual for companies resolving foreign-bribery charges with prosecutors in other countries.  It stated not only that MHPS had taken internal disciplinary action against the individuals involved in making the bribe, but that “in order to clarify responsibility at the managerial level, the [MHPS] President and officers overseeing sales and compliance as of February 2015” returned a portion of their compensation as follows: (1) the President and CEO – 30% of remuneration for 3 months; (2) the Senior Executive Vice President (officer in charge of sales) – 20% of remuneration for 3 months; (3) the Head of Business & Strategic Planning Headquarters (officer in charge of sales) – 20% of remuneration for 3 months; and (4) the Senior General Manager of Management & Administration Division (officer in charge of compliance) – 10% of remuneration, for 3 months.

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