Long arm of Japanese antitrust enforcement keeps getting longer as JFTC targets misconduct abroad
5 April 2018. By Sachiko Sakamaki.
Apparently emboldened by a Japanese Supreme Court ruling in a cartel case several months back, the country's competition watchdog has shed more light on its stance on the international reach of Japan's antitrust law.
In its latest foray into extraterritoriality, the Japan Fair Trade Commission last week announced that Deutsche Bank and Merrill Lynch International had breached the nation's Antimonopoly Act when their traders in London engaged in cartel conduct in trading bonds for a Japanese client.
Even though that announcement fell short of meting out punishment, the regulator's increasingly clear view of the extraterritorial applicability of Japanese antitrust law in cases affecting domestic competition is a development that deserves attention.
The JFTC couldn’t fine the companies or issue corrective orders against the offenses, which took place in 2012, due to a five-year statute of limitations. But coupled with the Supreme Court decision last December, which backed JFTC fines of 3.3 billion yen ($30.8 million) for cathode-ray tube manufacturers — the first fines the regulator had levied on foreign companies — its finding against the banks may make businesses around the world sit up and take notice.
In its seven-decade history, the JFTC has not laid out a comprehensive policy detailing when and under what conditions the Antimonopoly Act might apply to transnational antitrust offenses. That has confounded antitrust specialists, especially as Japanese companies trade and invest globally to support the world’s third-biggest economy.
Instead, the JFTC has developed a gradually more assertive position on transnational antitrust interventions through weighing in on individual cases, such as one involving marine hoses in 2008; another being the cathode-ray tube cases, in which enforcement began in 2009. The CRT case was controversial, not least because the tubes and television sets at the center of the cartel conduct were sold mostly outside Japan.
Japan's top court brought some clarity to proceedings in its cathode-ray tube ruling last December, even though appellant Samsung SDI in Malaysia argued that Japanese antitrust law didn’t apply because the cartel was set up outside Japan and the buyers of the tubes were also outside Japan. The Supreme Court said the Antimonopoly Act applied and that the JFTC could impose fines because Japanese TV makers and their Asian subsidiaries had purchased the tubes and were therefore affected by the collusion. It said the cartel had harmed Japan’s free and competitive economic order.
MLex understands that the Supreme Court ruling in that case provided explicit and solid underpinnings for the JFTC’s decision in the bond-trading case.
The JFTC’s stance on extraterritorial enforcement is similar to that of the European Union, in that it examines where an illegal agreement was implemented, rather than where the collusive arrangement was set up, a Japanese official told MLex. Conversely, the US has adopted the so-called “effects doctrine,” although there is still debate over how to evaluate direct, substantial and foreseeable effects.
In the bond-trading case, the cartel was formed in the UK and implemented in Japan, affecting a Japanese client. It was a clearer case of harm to the Japanese market than the cathode-ray tube case, in which the main clients were Japanese subsidiaries in Southeast Asia, prompting some critics to warn of that approach potentially risking legal overreach.
Kazuhiro Tsuchida, a law professor specializing in antitrust law at Waseda University, said the JFTC’s decision against the banks was similar to the cathode-ray tube case insofar as the purchaser of cartelized product was a Japanese company. However, Tsuchida wondered why the JFTC had taken such a long time to announce its decision, when other regulators had dished out punishments for the traders’ transgressions a couple of years beforehand.
A JFTC official told reporters last week that the regulator had taken its time because it had looked at several foreign financial firms’ transactions involving dollar-denominated bonds issued by international agencies, and examined tens of thousands of chat messages to identify violations affecting Japanese jurisdiction.
As the JFTC has begun to pursue cross-border offenses more aggressively, it has deployed a new means of notifying enforcement against offenders abroad. It can now "deliver" orders by publishing them in front of its headquarters in Tokyo’s Kasumigaseki district, even if the companies to which they are sent refuse to receive them through normal channels. Six weeks after an order is published in this way, it takes effect. The JFTC used this method in the cathode-ray tube case and in its review of the tie-up between BHP Billiton and Rio Tinto in 2008.
Additionally, the JFTC has taken to issuing demands for information from foreign companies under investigation when its traditional practice of interviewing suspected offenders is not practical. It is understood that the regulator chose this route in the bond-trading case.
MLex also understands that the regulator is increasingly ready to go after anticompetitive conduct overseas not only targeting cartels but also unilateral antitrust violations such as monopolistic conduct.