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Japan: Illegal Receipt of COVID-19 Subsidy for Small- and Medium-Sized Companies Rigorously Prosecuted

(Nov. 2, 2020) On July 22, 2020, a 19-year-old college student became the first person in Japan to be arrested for submitting false information and fraudulently receiving COVID-19 subsidy money intended for small- and medium-sized companies and freelancers. Later, on October 22, 2020, five people in their 20s who had taught the college student how to illegally receive the subsidy and had themselves received it were likewise arrested. By October 28, 2020, 55 people had been arrested on the charge of COVID-19 subsidy fraud.

Background of the Subsidy

On April 7, 2020, the Japanese government instituted the Emergency Economic Measures to Cope with COVID-19. (Cabinet Decision, Apr. 7, 2020, amended Apr. 20, 2020.) One of the measures is a subsidy for small- and medium-sized companies and freelancers. Businesses whose sales for one month in 2020 are 50% or less than the sales for the same month in 2019 as a result of COVID-19 are eligible for the subsidy program. Applicant businesses select one such month from January to December 2020. The amount to be received is calculated as follows: (total sales in 2019) – 12 x [(sales in one month in 2019) – (sales in same month in 2020)]. The maximum amount of subsidy that can be received is 2 million yen (about US$19,200) for a corporation and 1 million yen (about US$960) for an individual business operator. Large enterprises with over 1 billion yen (about US$959,000) of capital are excluded. On May 1, 2020, the Ministry of Economy, Trade and Industry (METI) started accepting requests for the subsidy program.

Reports of Fraudulent Subsidy Cases

On July 10, 2020, the National Consumer Affairs Center, after receiving many consultation requests and reports regarding solicitations for fraudulent applications for the subsidy, warned the public that they should not try to receive the subsidy if they are not qualified for it. In early September, a local newspaper reported that the Okinawa police had found many COVID-19 subsidy fraud cases that involved gangs. It reported that gangs recruited students and other young people who are not qualified for the subsidy, coached them on filing subsidy applications, and collected a significant part of the subsidy that those applicants received. The police have uncovered many COVID-19 subsidy fraud cases nationwide involving such coaches. Online social networking services are often used to recruit young people for the false applications.

Financial Penalties

Since the first arrest, many people have reportedly asked if they could return the subsidy money they received. The vice minister of METI, Hideki Makihara, tweeted on August 6, 2020, that if unqualified recipients who received money illegally voluntarily return it, the METI will not impose the financial penalty provided for in the COVID-19 subsidy terms and conditions. This penalty amounts to 20% of the paid subsidy and 3% interest since the payment. The government has accepted people’s return requests but has had to pause in authorizing people to actually go ahead with the return because of an unexpectedly high number of people who wish to return subsidy money. The METI announced on October 30 that, as of October 29, it had received 6,028 such requests.

The government has taken a firm stand in the fraud cases. The METI made a poster that encourages people who received the money illegally to voluntarily return it to the government before an administrative or police investigation of their case is initiated. Once the government initiates an investigation into their case, the voluntary return may not be accepted. The METI also made another poster warning that the government is investigating illegal receipt of the subsidy and stating that “it will never forgive such fraud.”

(Updated November 3, 2020)