Deception for Profit in Japan: Understanding Different Types of Fraud (e.g., Payment Fraud, Card Fraud) and Key Investigative Points

Japanese Attorney at Law - Bengoshi L.L.

27 May 2025 • 9 min read

Fraud, known as sagi (詐欺) in Japanese, is a pervasive white-collar crime that undermines trust in commercial and personal transactions. Japanese law, primarily through Article 246 of the Penal Code, provides a comprehensive framework for addressing various deceptive practices aimed at unlawfully obtaining property or pecuniary advantages. Understanding the core legal elements of fraud and the typical investigative approaches for different common schemes is essential for businesses and legal professionals operating in or interacting with Japan. This article explores the legal architecture of fraud in Japan, its essential components, and how these apply to scenarios such as payment deception, small-amount loan fraud, and credit card fraud.

The Legal Architecture of Fraud in Japan: Penal Code Article 246

The cornerstone of fraud prosecution in Japan is Article 246 of the Penal Code, which is divided into two main sections:

Section 1 (一項詐欺 - ikkō sagi): Fraud involving the delivery of property. This section states: "A person who deceives another person and thereby causes the other person to deliver property shall be punished by imprisonment with work for not more than 10 years." This covers situations where the victim, due to deception, hands over tangible assets, including real estate (which distinguishes fraud from theft, as theft typically pertains to movable property).
Section 2 (二項詐欺 - nikō sagi): Fraud involving the unlawful acquisition of a pecuniary advantage. This section extends the scope of fraud: "The preceding paragraph shall also apply to a person who, by the methods prescribed in that paragraph, unlawfully obtains a pecuniary advantage, or causes another person to do so." This covers scenarios where no physical property changes hands, but the offender illicitly gains a financial benefit, such as the forgiveness of a debt, the provision of services without payment, or the deferral of a payment obligation due to deceit.

The protected interest in fraud cases is therefore twofold: tangible property (zaibutsu) and intangible pecuniary advantages (zaisan-jō no rieki). A key distinction between fraud and theft (settō) in Japanese law lies in the victim's actions. In theft, property is taken against the victim's will. In fraud, the victim, laboring under a mistake induced by deception, makes a disposition of property or grants an advantage, which, although based on deceit, involves an outward appearance of voluntary action.

Core Elements of Criminal Fraud (Sagi)

For a fraud conviction under Article 246, the prosecution must typically establish several interconnected elements:

Act of Deception (欺罔行為 - Gimō Kōi)
This is the foundational act of misleading another person. Deception involves inducing a mistake in the victim concerning facts that are material to a transaction or decision. It can be achieved through:
- Explicit Falsehoods (Commission): Making direct statements that are known to be untrue (e.g., falsely claiming to represent a legitimate business, misrepresenting the quality of a product, or fabricating an emergency to solicit funds).
- Deceptive Conduct (Implicit Deception): Actions or behaviors that create a false impression even without explicit verbal misrepresentations. For example, presenting a counterfeit item as genuine or, as in the case of "dining and dashing," ordering services with the outward appearance of a paying customer while having no intent or ability to pay.
- Deception by Omission: In certain circumstances, failing to disclose a material fact can constitute deception if there is a legal or customary duty to speak truthfully and fully. This often arises in situations where one party has superior knowledge and the other party is relying on them for accurate information.
Victim's Mistake (錯誤 - Sakugo)
The act of deception must directly cause the victim to form a mistaken belief about the true state of affairs. This mistake must be a significant factor influencing their subsequent actions. If the victim is not actually deceived (e.g., they see through the lie but decide to provide money out of pity), the crime of completed fraud may not be established, though an attempt might be.
Disposition of Property or Pecuniary Advantage (財産的処分行為 - Zaisan-teki Shobun Kōi)
Acting under the influence of the mistake, the victim must engage in an act (or, in some cases, an omission) that results in the transfer of property or the granting of a pecuniary advantage. This "dispositional act" is crucial as it signifies the victim's (albeit mistaken) will to part with the asset or benefit.
- For Section 1 fraud (property fraud), this typically involves the physical delivery of property, such as handing over cash, transferring ownership of goods, or executing a deed for real estate.
- For Section 2 fraud (pecuniary advantage fraud), this can include actions like forgiving a debt, agreeing to defer a payment, providing services without receiving due compensation, or releasing a lien.
Transfer of Property or Advantage and Corresponding Loss
The property or pecuniary advantage must be transferred from the victim to the offender or a designated third party. Concurrently, the victim must suffer a corresponding economic loss or damage as a result of this transfer.
Causal Links
A clear and unbroken chain of causation must exist between these elements: the offender's deceptive act must lead to the victim's mistake; the mistake must induce the victim's disposition of property or granting of advantage; and this disposition must result in the transfer of the asset/advantage and the victim's loss. If this chain is broken at any point, the offense of completed fraud may not be made out.
Fraudulent Intent (詐欺の犯意 - Sagi no Han'i) and Intent of Unlawful Acquisition (不法領得の意思 - Fuhō Ryōtoku no Ishi)
The offender must possess the requisite criminal intent. This includes the intent to deceive the victim and, through that deception, to unlawfully acquire property or a pecuniary advantage for themselves or a third party. This fraudulent intent must generally be present at the time the deceptive act is committed. Simply being unable to fulfill a promise made in good faith later on does not typically constitute fraud, unless the initial promise was made with deceptive intent. The "intent of unlawful acquisition" in fraud refers to the intention to gain the property or benefit through the specific means of deception, distinguishing it from other forms of unlawful acquisition like theft.

Illustrative Types of Fraud and Investigative Approaches

The general principles of fraud apply across a wide range of deceptive schemes. Japanese law and investigative practices address various common manifestations:

A. Payment Deception: The Case of "Dining and Dashing" (無銭飲食 - Musen Inshoku)

This classic form of fraud involves obtaining food, beverages, or services from an establishment without intending to pay.

How it Exemplifies Fraud: The deceptive act (gimō kōi) occurs when the individual orders items. This act implicitly represents an intention and ability to pay. If the individual secretly lacks this intent or ability from the outset, their conduct is deceptive. Actively making false statements, such as claiming to have forgotten a wallet but promising to return with payment, can further constitute deception.
Investigative Focus: A key aspect is establishing when the fraudulent intent was formed. If the intent to not pay existed before ordering, it's generally considered Section 1 fraud (obtaining property – the food and drink – by deception). If the individual initially intended to pay but, perhaps after consuming the meal, realized they had no money and then decided to abscond, the situation can be more complex. The food already consumed might be seen as a pecuniary advantage (services received) under Section 2 fraud if a further deceptive act (e.g., lying to get a payment deferral) occurs. However, a significant ruling by the Daishin'in (Great Court of Cassation, a precursor to the Supreme Court) on April 26, 1915, suggested that if a single continuous fraudulent transaction results in both the delivery of property and the obtaining of an illicit profit, it can be treated as a unified fraud under Article 246, without needing to meticulously separate the two sections. Investigators will focus on proving the lack of funds, the absence of any means to pay, and any actions taken to avoid payment.

B. Exploiting Trust: Small-Amount Loan Fraud (寸借詐欺 - Sunshaku Sagi)

This type of fraud involves tricking someone into lending a relatively small sum of money with no intention of repaying it.

Common Scenario: The offender fabricates a pretext for needing the loan, such as a sudden emergency (e.g., "I was in a traffic accident and need money for an immediate settlement"), a pressing business need, or a personal hardship. They often make fervent promises to repay the money quickly, for example, "within 10 days."
Investigative Focus: The core of the investigation is to prove that the stated reason for the loan was false and that the offender had no intention or capability to repay from the very beginning. Evidence might include:
- The offender's actual financial situation at the time (e.g., significant debts, no source of income, dire financial straits).
- Evidence that the purported emergency or need did not exist.
- A pattern of similar deceptive borrowing from other individuals.
- Immediate dissipation of the borrowed funds on non-essential items like gambling, rather than the stated purpose.

C. Misuse of Financial Instruments: Card Fraud (カード詐欺 - Kādo Sagi)

This involves the unauthorized use of credit cards, debit cards, or other payment cards.

Scenario: An individual uses a lost, stolen, or fraudulently obtained payment card (e.g., one acquired through phishing or from illicit online markets) to make purchases of goods or services. The deception is directed at the merchant.
Deception: By presenting the card for payment, the offender implicitly and falsely represents that they are the legitimate cardholder or have the authority to use the card, and that the transaction will be honored by the card issuer. The merchant, relying on this representation, provides the goods or services.
Investigative Focus:
- Source of the Card: How did the offender come into possession of the card? Was it found, stolen, or purchased from an illicit source? What knowledge did the offender have about its illicit status?
- Lack of Authorization: Confirming with the legitimate cardholder that no permission was given for its use.
- Interaction with the Merchant: Details of the transaction, what was said or done to induce the merchant to accept the card, and whether any identity verification was attempted or circumvented.
- Goods/Services Obtained: The nature and value of what was fraudulently acquired.
- Pattern of Use: Whether the card was used multiple times at different locations.

Key General Investigative Points in Fraud Cases

Across all types of fraud, investigators in Japan concentrate on several common evidentiary threads to build a case:

Formation and Nature of Fraudulent Intent: When did the intent to deceive arise? What was the specific deceptive plan?
The Deceptive Act Itself: What precise words, actions, or omissions constituted the deception? How was the victim misled?
The Victim's Mistake: What was the exact nature of the victim's misunderstanding, and how did it directly result from the offender's deceptive conduct?
The Disposition and Transfer: Details of the property delivered or pecuniary advantage granted – its value, the date, time, and location of the transfer, and the specific circumstances surrounding it. Was any counter-performance offered by the offender, and if so, was it genuine or part of the deception?
Tracing Assets: What happened to the fraudulently acquired property or funds? How were they used or disposed of by the offender?
Offender's Background: The offender's financial history, employment status, known associates, and any prior history of fraudulent or deceptive behavior are often examined for patterns or indications of motive and intent.
Relationships: The nature of the relationship (if any) between the offender, the person directly deceived, and the ultimate victim is explored. This is particularly relevant in "triangle fraud" (sankaku sagi) scenarios, where the person deceived by the offender (e.g., an employee) is different from the person or entity that ultimately suffers the loss (e.g., the employer). In such cases, the authority of the deceived person to dispose of the property is a key consideration. Japanese law also has provisions (Article 251 applying Article 244) that can affect prosecution or punishment if the fraud occurs between certain family members.
Absence of Rightful Claim: Ensuring that the offender's acquisition of the property or advantage was not based on any legitimate underlying right or claim. Even if a debt is genuinely owed, using deception to collect it can still constitute fraud.

Corporate Relevance of Understanding Fraud in Japan

Fraud presents a dual threat to corporations: they can be the perpetrators (through the actions of their employees or management) or the victims.

Internal Fraud: Employees might engage in expense report fraud, create fictitious vendors to embezzle funds, or misappropriate assets through deceptive accounting. Understanding the elements of fraud helps companies design internal controls to prevent and detect such activities.
External Fraud: Companies can be targeted by external actors through sophisticated schemes, such as invoice redirection fraud, phishing attacks leading to unauthorized fund transfers, or fraudulent investment proposals.
Due Diligence: A clear understanding of what constitutes fraudulent misrepresentation is vital when conducting due diligence in mergers, acquisitions, or significant commercial partnerships in Japan.
Compliance: Companies must ensure their own practices do not inadvertently cross into deceptive conduct in their marketing, sales, or financial reporting.

Robust internal financial controls, clear ethical guidelines, employee training on fraud awareness, and effective reporting mechanisms are crucial lines of defense.

Conclusion

Fraud under Japanese law, as defined in Penal Code Article 246, is characterized by the core elements of deception, a resulting mistake by the victim, a disposition of property or pecuniary advantage based on that mistake, and the offender's intent to unlawfully acquire that gain. While the specific schemes and scenarios of fraud can be incredibly varied—from simple payment deceptions like "dining and dashing" to complex financial and card frauds—the underlying legal principles and the investigative focus on establishing these key elements remain consistent. The emphasis on proving the offender's fraudulent intent at the time of the deceptive act, and meticulously tracing the causal links between deception and loss, underscores the comprehensive nature of Japanese fraud investigations.