Why Compliance in Japan Feels So Different – Lessons from the Inside

I’m not a compliance officer. I’m a former Head of HR.

But during my time working in both Japan and the U.S., I was often struck by how differently compliance is approached — not just in policy, but in mindset. The contrast between Japan and the U.S. reveals a lot about Japanese culture and corporate norms.

At the same time, I know firsthand how difficult compliance can be. In Japan, the term compliance-heavy felt all too real — expectations kept rising, and so did the pressure.

This isn’t a legal guide. It’s a personal take on why compliance in Japan feels so uniquely complex — especially for those coming from abroad.

In this blog:

1.        Japan vs. the U.S. — Cultural Gaps in Compliance

a.        Compliance as a business enabler vs. compliance as a brake

b.        Whistleblowing and retaliation

c.        The FSA’s unexpected question: “What is your culture?”

2.        Inside Compliance in Japan: Systemic Issues

a.        Under-resourced and Undervalued

b.        Role Confusion: Legal, Compliance, and Risk All Lumped Together

c.        The “Black Company” Problem – A Compliance Perspective

3.        Universal Compliance Pains: When Doing the Right Thing Gets Hard

a.        Cross-border complexity

b.        “Tick-the-box” vs. Real Integrity

c.        Greedy Executives & Budget Pressure

d.        Fatigue and Burnout

 4.        Wrap up

1.     Japan vs. the U.S. — Cultural Gaps in Compliance

Here is the comparison chart. 🇺🇸 🇯🇵

 a.    Compliance as a business enabler vs. compliance as a brake

In the U.S., compliance is increasingly seen as a business enabler:

• A strong compliance system builds public trust.

• Trust attracts investors, customers, and top talent. As a result, compliance becomes a foundation for growth, partnerships, and new markets.

🔹 Real story:  That said, enforcement in the U.S. is tough. In 2024, Boeing finalized a guilty plea to a criminal fraud conspiracy charge and agreed to pay at least $243.6 million after breaching a 2021 agreement with the U.S. Department of Justice. Source: Reuters

In contrast, consider Japan’s famous Olympus accounting scandal in 2011:

• The company concealed massive losses through a complex corporate structure and accounting manipulation.

• Outcome: A fine of ¥700 million (approximately $5 million – 1$=JPY140), and executives received suspended sentences—with no significant jail time.

👉 In the U.S., avoiding compliance landmines isn’t just about playing defense — it’s a business necessity. Turning compliance into an advantage is part of the American-style.

On the other hand, In Japan, compliance is often viewed more conservatively — as a brake on business activity.

• Japanese companies are excellent at building structure and rule-based processes — but sometimes apply those standards too rigidly.

• Decision-making can be slow, as teams overanalyze for compliance and avoid even minor risks.

• As one American colleague once joked, “Japanese companies wear both suspenders and a belt.” Compliance sometimes prevents bold decisions or adds significant time and cost through exhaustive risk reviews.

🔹 Real story: A major Japanese tech company delayed the launch of a new mobile product due to overly cautious internal compliance reviews. During that time, Korean competitors took the risk, released similar products, and captured the market.

🔹 Real story: In my previous role, we created a working group of new graduates to brainstorm innovative business ideas. Their presentations were exciting and well-received — until senior leaders dismissed the proposals by saying, “It could be a compliance risk.” The room went silent. A few years later, a competitor released a similar model, and it became a hit. That moment still stings.

In Japan, compliance is often about preventing failure. In the U.S., it's increasingly about enabling responsible risk.

b.    Whistleblowing and retaliation

In the U.S., whistleblowers are protected by law (e.g., SOX, Dodd-Frank), and in some cases, even rewarded. Legal consequences for retaliating managers are well-defined, and many employees are culturally encouraged to assert their rights.

In Japan, however, even when reporting systems are in place, employees often hesitate to use them due to fear of retaliation or social consequences.

🔹 Real story:
When we launched a new Speak-Up hotline, managed by an external vendor, I presented the process to all. Immediately, someone asked, “Will HR receive the report from the vendor? Will it be shared with the CEO?”

In fact, none of us — including HR — had access to the report. The vendor submitted it directly to the Financial Crime Department, a fully independent team at headquarters.


And yet, that question revealed something deeper: a lingering fear and mistrust — the concern that whistleblowers might be identified and punished.

In many workplaces, if you witness misconduct, the expected action is to speak with your manager or HR. Using a Speak-Up hotline often feels like a last resort — something you wouldn’t mention to anyone else. In that context, whistleblowing remains stigmatized in many companies.

Or perhaps I was the only one who felt that way.
If your experience has been different — or if you've seen whistleblowing work well — I’d genuinely love to hear your perspective!!!

To be fair, even in the U.S., I’ve heard that fear of retaliation still discourages some employees from speaking up.

c.    The FSA’s unexpected question: “What is your culture?”

When I worked in financial services, the FSA (Financial Services Agency — Japan’s financial regulator) didn’t just ask about our internal policies. They asked questions like:

• “Is there an environment where employees feel safe speaking up?”

• “Do your HR and performance systems reward ethical behavior?”

• “When problems occur, do you investigate both system flaws and cultural causes?”

It was a wake-up call. Compliance wasn’t just about having manuals — it was about the open communication culture of the organization.

🔹 Real story:
In the U.S., I often participated in discussions about company culture. But the focus was usually on how to collaborate more effectively across divisions with different working styles.

Even within the same department, software engineers and hardware engineers had completely different ways of thinking. Some operations teams were made up of ex-military professionals with a strong sense of discipline and structure. Most of our marketing division came from Silicon Valley — even though we were based in Chicago — and brought with them a completely different culture (including riding skateboards through the office).

But when I returned to Japan, I found it difficult to respond to those same culture-related questions — especially from a compliance perspective.
Even now, I still find “Compliance” to be a challenging topic to fully grasp.

2. Inside Compliance in Japan: Systemic Issues

a. Under-resourced and Undervalued

In Japan, compliance professionals are often overwhelmed.
The scope of their responsibilities is vast — spanning legal compliance, whistleblowing systems, due diligence, risk management, governance, internal controls, data protection, audits, communication frameworks, and even personal integrity.

And yet, compliance teams are sometimes seen as “necessary but annoying.”
(No offense if you're in compliance — I’ve just had so many things to handle on the HR - Compliance side, and they always seemed to be chasing me down!)

When everything runs smoothly, their efforts often go unnoticed. But the moment something goes wrong, they're the first to be blamed — and the consequences can be serious.

It’s well known that skilled compliance professionals are hard to find in Japan.

If you're a subject matter expert in this area, your employability in Japan is very strong. The key challenge would be that you'll need both:

• Fluency in Japanese, and

• In-depth knowledge of local regulations

— because you're the one expected to explain complex issues directly to government authorities.

💡 Note to global compliance experts: Japan’s growing regulatory complexity = career opportunity.

b. Role Confusion: Legal, Compliance, and Risk All Lumped Together

Depending on the company’s size and industry, some organizations in Japan still group Legal, Compliance, and Risk into a single department.

In other cases, the global reporting line changes frequently, creating role ambiguity, siloed decision-making, and limited capacity to build a strong, cross-functional compliance culture.

🔹 Real story:
At one global financial firm I worked with, Legal, Compliance, and Risk were all housed under the same department, with a rotating reporting line depending on the global head office’s structure.

One year, Compliance reported directly to Legal. The next, it was moved under Enterprise Risk. These changes created confusion on the ground:

• Who owns the whistleblowing process — Compliance or HR?

• Who signs off on third-party due diligence — Compliance, Procurement, or Finance?

• Who handles regulatory inquiries — Legal or Compliance?

As a result, teams hesitated to take action without “cross-checking,” which slowed decision-making and undermined trust. People were afraid to “step on someone else’s turf.” Even small compliance matters became political — not because of the content, but because of internal uncertainty over roles.

The lack of role clarity made it harder to build a proactive compliance culture. Most importantly, employees didn’t know where to turn when they had real concerns.

c. The “Black Company” Problem – A Compliance Perspective

Japan continues to struggle with so-called “Black Companies”. “Black Companies” are a widely recognized term for exploitative workplaces that ignore labor laws and compliance standards.

 Typical characteristics include:

• Allowing harassment to go unaddressed

• Failing to prioritize employee well-being or engagement

• Forcing unpaid overtime (サービス残業)

• Imposing unreasonable quotas or sales pressure

• Ignoring legal requirements for breaks or paid leave

• No whistle blowers hotline

These behaviors not only breach Japan’s labor standards but also expose a deeper issue: compliance is still viewed in some companies as optional or secondary—rather than a foundation for ethical business.

🚨 Tip: Not all uncomfortable practices indicate a Black Company.

For example, many Japanese companies do not use a pay-for-performance system.
Instead, salaries are often based on seniority or tenure, not necessarily individual output.
That means a lower-performing employee might earn more than a high-achiever — especially in the early years.

While this may feel unfair to those used to performance-based systems, it’s a traditional compensation model, not a compliance issue.

Unfortunately, young workers and foreign employees unfamiliar with local norms often enter these companies without recognizing the warning signs.

🇯🇵 Japan vs. 🇺🇸 U.S. — Black company comparison

Toxic workplaces exist in every country, but how they’re framed — and how they’re held accountable — differs.

In the U.S., toxic workplaces are more likely to be confronted through legal, reputational, or financial risk lenses.

In Japan, even with laws in place, compliance violations may go unchallenged due to fear of retaliation, stigma around whistleblowing, or internal power dynamics.

🚨 Tip: How to Spot a Black Company — Before You Join

It’s not always easy to identify a Black Company before joining, but here are some signals to look for:

• Constant hiring despite small company size → High turnover is a red flag

• Messy office environment → May reflect lack of care for employee well-being

• Vague job descriptions on overtime or salary → Could indicate illegal practices

• Disorganized HR or recruiter behavior → Slow replies, unclear terms = warning

• Office lights on late at night → Chronic overwork may be normalized

• Invasive interview questions (e.g., family structure) → Signals low compliance awareness

• Recruitment via hiring agent → Use this to your advantage; ask them what they know about the company’s turnover rate, management style, and prior employee experience

🚨 Tip: What to Do If You’re Already in One

My personal advice? Leave early.

If management shows no compliance awareness — or worse, retaliates against whistleblowers — improvement is unlikely. Toxic behavior and disregard for labor law rarely change unless driven by leadership, and that transformation can take years (if it happens at all).

Some people stay out of loyalty to their team or interest in the work, thinking:
“Maybe I can just avoid that one difficult person…”


But unless your role allows you to fully isolate yourself from that individual, the chances of experiencing psychological safety are slim to none. Even using the company hotline can backfire if the organization lacks a functioning speak-up system and an ethical leadership mindset.

✅ Why This Matters for Compliance

At its core, the existence of Black Companies is a compliance failure — not just a labor issue.

A company that ignores harassment, overwork, or fair treatment is not simply “old-fashioned.” It is a high-risk entity— both legally and reputationally.

For Japan to align with global standards, it’s not just the laws that need to change — it’s the mindset. Compliance must be taken seriously by every leader and employee.

3. Universal Compliance Pains: When Doing the Right Thing Gets Hard

 Even with all the cultural differences, some compliance challenges are truly global. Regardless of the country, doing the right thing is not always easy.

 a. Cross-border Complexity

• For global companies, applying consistent ethics and compliance standards across multiple countries is extremely difficult.

• Even Japanese companies expanding overseas must comply not only with Japan’s laws but also with local regulations in their clients’ or operating countries — which often conflict or evolve rapidly.

• This creates multi-jurisdictional headaches for legal, compliance, and HR teams alike.

b. “Tick-the-box” vs. Real Integrity

• Some companies treat compliance as a checklist — policies are in place, training is completed, boxes are ticked. But nobody truly embodies the values.

• The real challenge is transforming rules into shared values — and that requires more than manuals. It takes training, reinforcement, and leadership commitment.

c. Greedy Executives & Budget Pressure

• Financial pressure — whether from investors, parent companies, or internal KPIs — can tempt even well-meaning leaders to cut corners.

• Most people don’t intend to break rules, but pressure to perform can lead to unethical shortcuts or rationalizations.

• In both Japan and the U.S., major scandals often trace back to a culture of numbers-at-all-costs rather than one that supports long-term integrity.

d. Fatigue and Burnout — The Hidden Compliance Risk

Japan has adopted the Three Lines of Defense model in risk management and compliance:

• The first line of defense is the operational teams themselves — HR handles HR risks, Sales handles sales risks, and so on.

• That means every department owns its own heavy compliance responsibilities: conducting risk assessments, revising procedures, implementing controls, documenting changes, reviewing outcomes… and repeating the cycle endlessly.

This is a massive burden, especially for departments already under pressure to meet business goals.

Employees may become overly cautious, avoid innovation, or simply burn out.

🔹 Real Story: When Compliance Fatigue Sets In

There used to be a company-sponsored “Rent Program” — a housing benefit where employees could pay their rent directly through payroll, reducing taxable income. It was a long-standing and popular practice.

While the program didn’t technically violate any laws, it existed in a gray zone, and the tax authority continued to raise questions about it.

After years of back-and-forth and increasing concern about regulatory risk, the company decided to terminate the benefit — not because it was clearly illegal, but because the compliance fatigue and uncertainty had become too great.

4. Wrap up

I believe compliance today requires not only an up-to-date understanding of business and risk, but also a kind of intuition — the ability to sense when something just feels off.

There are many practices that used to be considered normal — but no longer are.
Take workplace harassment, for example. In the past, it was often overlooked. But since 2020, Japan has made harassment prevention a legal requirement.

As an HR professional, I often found myself asking:

• Where’s the line between harassment and proper guidance?

• Is a fake business trip grounds for dismissal or a suspension?

Each case is different — but our responses must be consistent and fair.

When launching a new product, there's often tension between Sales, Product, Operations, and Legal. Finding the right balance between innovation and compliance requires sharp judgment — and often, those decisions can shape the future of the company.

If you’re coming to Japan from abroad, you may find parts of Japan’s approach to compliance puzzling.  If so — I’d love to hear your perspective!