Efforts of Outreach, Awareness and Training of Procurement Officials and Reforming the Public Procurement Process in Japan Toshiyuki NAMBU Deputy Secretary General for International Affairs Japan Fair Trade Commission (JFTC) October 11th, 2011 ICN Cartel Workshop Oud Sint Jan Congress and Event Centre, Bruges, Belgium The view stated here is my own and does not necessarily reflect the view of the JFTC.

Overview 1. Bid-rigging enforcement by the JFTC 2. Importance of public procurement for the national economy 3. Importance of outreach and awareness 4. History of bid rigging in Japan 5. Anticompetitive tender system in Japan 6. Exposing bid rigging and its advocacy effects 7. Reforming public procurement processes to reduce the risks of bid rigging 8. Outreach and awareness activities by the JFTC, OECD and ICN 9. The JFTCs challenge continues 1

1. Bid-rigging enforcement by the JFTC Article 3 unreasonable restraints of trade of the Anti- Monopoly Act (AMA) Cease and desist orders (administrative) Surcharge payment orders (administrative) Prosecutions (criminal) JFTC files a criminal accusation with the Prosecutor General Cease and desist orders by the JFTC Criminal penalty by the Criminal Law 2

2. The importance of public procurement for the national economy Public procurement makes up a significant portion of the Japanese economy. Given the recession and the growth of the budget deficit, public procurement still has an important role in Japan. –Public investment is being actively pursued as a means of recovering from the recession. Public engineering and construction are major industries, particularly in cities where business and employment opportunities are scarce. It is important for procurement organizations to procure goods and services at lower prices and/or with better quality and innovation via competitive bidding processes. 3

3. The importance of outreach and awareness Construction companies would like equally to obtain the highest price possible. –There exists a strong incentive for bid rigging. Procurement officials may not make an effort to ensure the competitiveness of bidding processes. Procurement officials tend to lack awareness of the damages from bid rigging. 4 Outreach and awareness activities are important

4. History of bid rigging in Japan Dango (=bid rigging) has been prevalent in Japan since before the 19 th century. Criminal Law introduced a criminal penalty for dango in 1940, and the AMA was enacted in Enforcement of the AMA has been weak for a long time. Historically speaking, dango has been deeply rooted in the Japanese economy, with limited recognition that dango represents illegal conduct. 5

5. Anticompetitive tender system in Japan Main tender system in Japan: Designated tender system Procurement organization restricts the number of bidders and designates those that are permitted to participate in the bidding process. Municipal governments generally designate local construction companies to participate, in order to promote the economic situation of the city. Bidders can easily rig bids. The WTO government procurement treaty was put into effect in 1996 and governments were obligated to conduct open tenders for large construction projects. The Japanese government is continuing to promote the use of open tender systems. 6

6. Exposing bid rigging and its advocacy effects Since the mid-1990s, the AMA has been amended to enhance the JFTCs enforcement powers. The 2006 amendments introduced a leniency program and increased the maximum monetary surcharge rate for illegal cartels. –This increased the probability of detection and the sanction, which increased deterrence. The public prosecutors office has also publicly declared that they will take action against bid rigging, where warranted. The media has broadly reported the exposition of bid rigging by the JFTC and the public prosecutors. 7 The fact that bid rigging is an illegal activity that wastes tax payers money, and needs to be strictly controlled, is spreading throughout the Japanese society. Detecting and taking action by the JFTC and public prosecutors office has resulted in the most effective advocacy.

7. Reforming the procurement process to reduce the risks of bid rigging Since mid-1990s, the government of Japan has: 1) Required the disclosure of order plans, tender contents and contract results for the public procurement. 2) Promoted open tendering systems. 3) Introduced a competitive proposal system, in which contractors are selected according to elements other than price. 4) Required procurement organizations to report warning signs of bid rigging to the JFTC. 5) Included the suspension of bidders from participation in tender systems for a certain period as an administrative measure by the procurement organization when the JFTC takes measures against bid rigging. 6) Included a written oath by the contractor of public procurement that the contractor pays a certain percent of the amount of the contract as the compensation for damages when the JFTC takes measures against the bid rigging. 8 Deterrence against bid rigging has been further strengthened.

9 8. Outreach and awareness activities by the JFTC, OECD and ICN JFTC Procurement organizations request training from the JFTC for their procurement officials Edit a JFTC textbook more than 27,000 copies each year Hold a training seminar In 2010, 165 times and 12,500 participants OECD Guidelines for Fighting Bid Rigging in Public Procurement published in 2009 ICN A series of teleconference to share member experiences in bid rigging enforcement are planned for 2011/2012. Procurement officials have gradually started to recognize the need to deter bid rigging. The Government Assisted Bid Rigging Prevention Act was enacted in Since then, procurement organizations can be not only a victim of bid rigging but also a target of the JFTCs bid rigging enforcement.

9. The JFTCs challenge continues In August 2011, JFTC issued cease and desist orders and surcharge payment orders to construction companies in Ibaraki Prefecture. Since June 2007, the construction companies engaged in bid rigging for the procurement orders of public engineering and road pavement. The Director of the prefectural construction office allocated the successful bidders for each procurement order in advance. In this case, according to the Government Assisted Bid Rigging Prevention Act, the JFTC required the Governor of Ibaraki Prefecture to implement improvement measures. 10 Subject of cease and desist orders 109 companies Subject of surcharge payment orders 89 companies Total amount of Surcharge about 3.8 million U.S. dollars

11 Thank you for your kind attention !! Japan Fair Trade Commission (