- 1 Employee Misconduct
- 2 Embezzlement
- 3 Breach of Trust
- 4 Circular Transactions
- 5 Bribery
- 6 Investigation of crimes committed by employees
- 7 Establishment of a third-party committee
- 8 Employee Interviews and Digital Forensics
- 9 Retention Hold
- 10 Pursuit of Liability under Labor Legislation
- 11 Pursuit of civil liability
- 12 Pursuit of criminal responsibility
- 13 Response as crisis management
The word “crime” usually brings to mind murder, theft, robbery, rape, etc. Crimes that are not violent crimes, but are more like intelligent crimes, are called white-collar crimes. Crime is the word for crime. White collar literally refers to white-collar workers at a company’s headquarters. White-collar crime refers to crimes committed by employees of a company who work at their desks (e.g., managers and section heads) in connection with the company’s business, rather than by those who work in the field. Examples include embezzlement and breach of trust.
Embezzlement is committed by transferring control of company money or other property by taking possession of it to oneself. In legal terms, it is called possession. For example, a typical example would be to sneak 100,000 yen that you received when you went to collect money from a business partner into and keep it for yourself (put it in your own wallet). In reality, large sums of money are rarely moved in cash, so many criminal acts are committed by moving bank deposits. Normally, if a bank deposit is transferred, a record of the transfer is kept in a bank book, so the company would immediately find out about it and the crime would not be committed. However, for example, if an embezzler issues an invoice for 1.2million yen when he should have originally charged 1 million yen to a business partner, and after receiving a transfer of 1.2 million yen from the business partner in a fictitious account in the company’s name, the embezzler transfers 1 million yen to the company’s legitimate account in the business partner’s name, the company may remain unaware that it has been embezzled because the company has received the 1 million yen it should have claimed. The business partner may not even realize that the amount was a fake because the company just received an invoice for 1.2 million yen and transferred the 1.2 million yen. This is a classic example, which is often discovered during a tax audit by the tax office.
Breach of Trust
Another common white-collar crime besides embezzlement is breach of trust. A breach of trust is defined as an act to benefit oneself or a third party at the expense of the company’s interests. The difference from embezzlement is that there is no transfer of possession with respect to money. For example, a sales manager of a company receives excessive business entertainment from a client and purchases materials for 1,300,000 yen when he should have purchased them for 1,000,000 yen. In this case, the company paid 300,000 yen more than it should have paid, resulting in a loss of 300,000 yen. Breach of trust is quite difficult to prove. In the above example, the company must prove why the materials purchased by the company were 1,000,000 yen instead of 1,300,000 yen. When a company purchases materials, even if it has multiple suppliers compete for the materials, the decision on the supplier is not necessarily based on price, but rather on reliability, experience, quality, and a variety of other factors. Therefore, purchasing materials that are more expensive than those of other companies does not immediately constitute a breach of trust. However, if the company received extremely excessive business entertainment or received money from Company B in return for purchasing materials from Company B, the transaction is likely to be regarded as fraudulent, and it is not appropriate to leave such transactions unattended.
Another common example of breach of trust is a fictitious transaction. Fictitious transactions are those that make it look like a transaction has taken place even though there is no actual transaction, and include fictitious posting of sales, overstatement of expenses, fictitious contracts, and circular transactions. Circular transactions are transactions in which goods are not actually moved, but are bought and sold only on vouchers and resold by multiple companies, with the goods eventually returning to the first company. In many cases, the explanation given by the person in charge of the fictitious transactions, including circular transactions, is that the pressure to increase sales uniformly caused him to repeat fictitious transactions, but in the process of such transactions, profits may be passed on to the counterparty or the person in charge of the transaction may have gained personal However, it is also necessary to confirm whether or not such a fact really does not exist.
If a public official arbitrarily selects a vendor to receive money, the public official is guilty of offering bribes, and the vendor who sent the money is guilty of accepting bribes. In the case of public officials, bribery is considered a classic example of white collar crime. Bribery is considered a status crime under the Penal Code, which means that the person receiving the money must be a public official in order to commit the crime. Therefore, even if an employee of a private company receives entertainment or money from a business partner, he or she may be guilty of breach of trust as described above, but not of bribery under the Penal Code. However, if a director, accounting counselor, corporate auditor, or executive officer of a company receives, requests or promises to receive a financial benefit in connection with his/her duties under an improper commission, he/she is guilty of bribery of directors, etc. under the Companies Act (Article 967, Paragraph 1 of the Companies Act). In addition, since post office employees and NTT employees are considered public officials to a certain extent, accepting money from business partners just because the company has been privatized would be considered bribery under the Penal Code. A lawyer or accountant may also be considered a public official in connection with his/her duties, for example, when he/she performs duties for a government agency.
Investigation of crimes committed by employees
As mentioned above, embezzlement and breach of trust are typical examples of white collar crime in the private sector, and bribery in the case of public officials. The question then arises as to how to deal with such criminal acts if they are recognized by the company.
Establishment of a third-party committee
In this regard, it is necessary to confirm the facts, punish according to the Labor Law, pursue civil liability, and pursue criminal liability. It is possible that the company’s general affairs or human resources staff could conduct the investigation on their own, but they are not experts in investigations, and as a private company, it may not be clear to what extent they are allowed to do so. Therefore, in cases where white-collar crime is recognized, a third-party investigation committee or the like is established by outside experts (lawyers and accountants) to conduct the investigation, or an outside lawyer is asked to prepare a report. If there is a corporate lawyer, they may investigate, but criminal investigation is essentially the job of police and prosecutors, and ordinary employees are not likely to have the expertise needed to conduct voluntary interviews with employees in the private sector. In addition, employees of a company may hesitate to reveal the truth to each other because of their personal relationships. Therefore, it is most appropriate to ask an outside expert to investigate white-collar crime. In cases of major corporate scandals that are reported in the newspapers, investigative committees are often established, and the lawyers who serve as members of such committees are often those who have been prosecutors. However, even ordinary lawyers are trained in interrogations and hearings at the Legal Training and Research Institute, and their daily work consists of confirming facts through hearings, so there should be no problem with their ability to investigate through hearings. When an attorney is asked to investigate a criminal act, he or she reads the relevant materials, confirms where the problem lies, and assumes what kind of facts should be confirmed from the perspective of the constituent facts in criminal law. We then conduct interviews with the people involved and summarize the results in a notebook called a hearing memo. For small cases, we may only need to interview three to five people, but for complex or serious cases, we anticipate a situation where we may need to hear from 10 or 20 people.
Employee Interviews and Digital Forensics
In order to prepare a report, it is necessary to confirm the facts, identify the causes, and identify future countermeasures. Particularly important is to confirm the facts. Since there is a possibility that the person involved may have misremembered the incident or perjured himself/herself to avoid being held accountable, it is necessary to determine which testimony is correct by comparing it with objective evidence. In recent cases, many objective evidences are not as printed out hard copies, but as data in a computer. Therefore, with regard to the investigation of computer data, there is the problem of how to properly extract the necessary information from the vast amount of information and the problem of how to recover the data that has already been erased. This is the so-called digital forensic method. The most common recent example is the theft of company money by accounting and general affairs personnel. It is difficult to determine whether it is embezzlement or theft, but the distinction is based on whether the person is in a position of responsibility to manage the money in the course of his or her duties. However, since embezzlement and theft are the same in terms of the severity of responsibility, there seems to be no need to make a clear distinction between the two in practice. In the case of theft, the employee will often deny the crime itself. Even if the company is certain that the person stole from the company, based on the evidence surrounding the theft, the company will not be able to pursue the theft as a criminal offense in the absence of hard evidence. In such cases, an interview by an attorney can be effective. In many cases, our firm has been able to obtain testimony from an employee who claimed that he or she did not commit theft, after spending about an hour slowly listening to the employee’s story and repeatedly asking questions about inconsistencies. If you think it is difficult to get the company to admit the fact of the crime, please contact our office.
In the case of a U.S. court case, if you destroy relevant evidence, you may be forced to pay an extremely high fine as contempt of court, or you may be found liable to pay billions of yen in punitive damages, so you need to be especially careful about the concealment of evidence. Of course, the cover-up of evidence does not have to be anything special; it can be as simple as dumping e-mail data in the trash and then emptying the trash afterward. Such an action may be considered an obstruction of discovery, and even if there is no intent to cover up, it may be found to be contempt of court, so it is necessary to instruct the relevant departments extensively not to delete data when they become aware that litigation has commenced. This is the so-called litigation hold.
Pursuit of Liability under Labor Legislation
If the above investigation reveals that a crime has been committed, it is necessary to consider what measures need to be taken under labor law. In this case, both procedural and substantive aspects will be considered. As for the procedural aspect, since the investigation and action must be based on the employment regulations, you cannot freely compel testimony or get involved in personal privacy just because you are an employee of your own company. In addition, the employment regulations often stipulate that the employee concerned should be given notice and an opportunity to be heard when deciding on a course of action, so it is necessary to comply with that provision. In addition, if there is a provision for an advisory committee or an award and punishment committee, the committee should meet in accordance with the relevant regulations and determine the action to be taken according to the procedures of the committee. In terms of substance, it is important to select the type of disciplinary procedure that should be used. The question is which of the following procedures should be chosen: warning, leave of absence order, pay reduction, dmonition to resign, dismissal on disciplinary grounds, dismissal on disciplinary grounds, etc. Since the principle of proportionality comes into play, the action should be taken in accordance with the seriousness of the conduct. For example, if a disciplinary dismissal or a three-month leave of absence is ordered for a very minor offense, the company may be sued for being too harsh. Unlike in the past, there are more opportunities for companies to be sued by their employees, and there are many cases where the company loses the lawsuit, so care must be taken. In addition, it should be noted that, unlike in the past where the company was limited to temporary restraining orders or lawsuits for compensation for damages, recently, arbitration procedures and labor tribunal procedures as ADR (Alternative Dispute Resolution) have been enhanced, so there is a high possibility that the appropriateness of the disposition will be judged at a public place. In cases where disciplinary dismissal causes serious disadvantages to the employee, such as not paying severance pay, prior approval from the Labor Standards Inspection Office may be required, so confirmation of the Labor Standards Law and the labor-management agreement is necessary. Prior consultation with the Labor Standards Inspection Office is effective.
Pursuit of civil liability
If there is an employee who embezzles company money, the company must of course try to recover the embezzled money from that person. As mentioned above, since the company is not a criminal investigation agency, fact-finding is only done on a voluntary basis, and even in cases where a crime would naturally be considered to have been committed, it may be difficult to determine whether a crime has been committed. Therefore, this should be done with caution, as there is a possibility of repercussions on the part of the employee. Given the high possibility of disputes arising from differences of opinion, it would be appropriate to use the courts as much as possible to seek an official judgment as to whether or not a fact exists. On the other hand, there may be cases in which it is not appropriate to file a court case from the beginning. In such cases, it may be possible to first conduct a hearing with the employee in question and ask for his/her signature on a document admitting the fact of the crime. Also, considering that employees usually do not have high value assets, it may be necessary to consider seizing their homes. Seeking compensation through civil litigation may not be that common. However, it cannot be said that leaving the company’s money unattended may not be regarded as a breach of trust or a breach of the duty of care to the company. When considering the possibility of a representative suit, it may be necessary to make a proper claim for compensation. On the other hand, even in cases where a criminal act is recognizable, it is likely to be considered excessive to ask the employee’s family (e.g., wife or parents) to co-sign the agreement, in some cases, the employee’s family may counterattack, claiming that they were coerced or blackmailed into signing the agreement.
Pursuit of criminal responsibility
In cases where criminal acts are evident, criminal penalties should be considered. This may mean filing a damage report or a complaint with the police. In the case of a damage report, the police are not obliged to respond to the police report, since the police have only learned of such a fact. However, in the case of a criminal complaint, the police cannot leave the matter unattended, but must investigate the facts, send the results to the public prosecutor, and request that the public prosecutor take action. Recently, there have been many cases (especially in the case of domestic violence) where the police have failed to act despite being notified of a crime, so the police must be very careful in their handling of such cases. Until now, the principle of non-intervention in civil matters has allowed the police to get away with saying that they do not get involved in civil cases, but recent trends suggest that there are many cases in which the police have no choice but to treat them seriously.
Response as crisis management
Fictitious sales through circular transactions can lead to window dressing, which can be a matter of corporate survival, including reporting to stock exchanges and timely disclosure, especially in the case of listed companies. Even if the amount is not so large or the company is not listed, it is extremely important to take proper measures so that there will be no problem even if someone asks about it later, given the recent demand for compliance in management. Our firm provides advice on crisis management in the event of criminal acts by officers or employees, including restructuring of corporate governance and preparation of improvement reports to stock exchanges.