Theft and Embezzlement in Japan: Key Differences and How to Protect Corporate Assets

The misappropriation of assets, whether by outsiders or insiders, poses a significant threat to businesses globally. In Japan, the criminal law framework addresses such acts primarily through the distinct offenses of theft (窃盗罪, Settō-zai) and embezzlement (横領罪, Ōryō-zai). While both involve the unlawful taking or conversion of property, a critical legal distinction, centered on the concept of possession (占有, sen'yū) at the time of the act, determines which charge applies. Understanding these differences is crucial for companies to assess risks, implement appropriate internal controls, and respond effectively to incidents of asset misappropriation.

1. Understanding Theft (Settō-zai) in Japan

Theft, as defined by Article 235 of the Japanese Penal Code, is "the stealing of another person's property." It is punishable by imprisonment with work for not more than 10 years or a fine of not more than 500,000 yen. An attempt to commit theft is also punishable.

A. Core Elements of Theft

• Object: "Another's Property" (他人の財物, Tanin no Zaibutsu): The primary object of theft is tangible movable property belonging to another person. While electricity is specifically deemed "property" for theft purposes under Article 245, and the theft of real property is addressed by a separate offense of "real property encroachment" (不動産侵奪罪, fudōsan shindatsu-zai, Article 235-2), theft generally concerns movables. Information itself is typically not considered "property" for theft, though the physical medium containing it (e.g., a document, a USB drive) can be.
• Act: "Stealing" (窃取, Sesshu): This involves transferring the possession of the property from another person to oneself or a third party, against the will of the current possessor. It is a crime of "dispossession."

B. The Crucial Element of "Possession" (Sen'yū) in Theft

For an act to constitute theft, the property must have been in another person's possession at the moment it was taken. "Possession" in Japanese criminal law is a concept of factual dominion or control over an item, which can be more flexible and context-dependent than its civil law counterpart.

• It's not limited to physical grasping; items within a person's sphere of control (e.g., in their home, office, or even temporarily left in a nearby, observable location) can still be considered in their possession.
• The Supreme Court has held that items momentarily forgotten but still within the owner's general area of control or items they would quickly realize were missing and could retrieve may still be under their possession (e.g., a camera left on a bench while waiting in line, Supreme Court ruling, November 8, 1957 [Shōwa 32]; a pochette left on a bench some 27 meters away, Supreme Court ruling, August 25, 2004 [Heisei 16]). If an item is truly lost and its owner's possession is completely severed, then finding and taking it would more likely constitute misappropriation of lost property (Article 254, discussed under embezzlement).
• In a business context, inventory in a store, tools in a workshop, or cash in a register are clearly in the possession of the business (or its designated responsible persons). An employee taking such items without authorization would be committing theft from the business.

C. The Subjective Requirement: Intent to Unlawfully Appropriate (不法領得の意思, Fuhō Ryōtoku no Ishi)

Beyond the intent to simply take the item, Japanese courts and prevailing legal theory require a specific subjective element for theft known as the "intent to unlawfully appropriate" (fuhō ryōtoku no ishi). This generally consists of two components:

1. Intent to Exclude the Rights-Holder (排除意思, Haijo Ishi): The actor must intend to permanently or substantially deprive the rightful owner/possessor of the property and to treat it as if it were their own. This helps distinguish theft from mere unauthorized temporary use (使用窃盗, shiyō settō). While very brief and trivial unauthorized use might not be punishable, Japanese courts have found the intent to unlawfully appropriate in cases of "joyriding" vehicles even with an eventual intent to return, if the period of use is significant or involves substantial risk to the property (e.g., Supreme Court ruling, September 17, 1968 [Shōwa 43]; Supreme Court ruling, October 30, 1980 [Shōwa 55]).
2. Intent to Utilize or Dispose of the Property (利用意思, Riyō Ishi): The actor must intend to use or dispose of the property according to its economic purpose or value. This distinguishes theft from acts of mere destruction or concealment, which would typically fall under property damage offenses (器物損壊罪, kibutsu sonkai-zai).
   • For example, taking confidential company documents not to use their content for economic gain, but solely to destroy them out of spite, might be property damage rather than theft of the documents. However, if the documents are taken to copy the information for competitive purposes, courts have found the necessary intent to utilize the economic value inherent in the information, thus affirming the intent for theft of the documents themselves (e.g., Tokyo District Court ruling, February 14, 1980; Tokyo District Court ruling, June 15, 1984).

2. Understanding Embezzlement (Ōryō-zai) in Japan

Embezzlement, in its various forms, involves the misappropriation of property that is already lawfully in the perpetrator's possession. This prior lawful possession is the key factor distinguishing it from theft.

A. Core Concept: Misappropriation of Property in One's Own Possession

The essence of embezzlement is a breach of trust or duty concerning property that one rightfully possesses but does not own, followed by an act of converting that property for an unauthorized purpose.

B. Types of Embezzlement

The Japanese Penal Code outlines three main types:

1. Simple Embezzlement (委託物横領罪, Itakubutsu Ōryō-zai) - Article 252(1): This is the basic form, criminalizing the misappropriation of "another person's property which one possesses" based on a relationship of trust or entrustment (委託関係, itaku kankei). The punishment is imprisonment with work for not more than 5 years. The existence of an "entrustment relationship" is crucial.
2. Business Embezzlement (業務上横領罪, Gyōmujō Ōryō-zai) - Article 253: This is an aggravated form where the embezzlement is committed by a person who possesses another's property "in the course of his/her business." This applies to individuals whose occupation involves handling others' property (e.g., accountants, treasurers, fiduciaries, bailees). It carries a heavier penalty: imprisonment with work for not more than 10 years.
3. Misappropriation of Lost Property, etc. (遺失物等横領罪, Ishitsubutsutō Ōryō-zai) - Article 254: This offense covers the misappropriation of lost items, adrift property, or any other property that has unintentionally left another person's possession and is not yet in the possession of the perpetrator through entrustment. The penalty is significantly lighter: imprisonment with work for not more than 1 year, a fine of not more than 100,000 yen, or a minor fine. This crime lacks the element of breach of a specific trust relationship found in simple or business embezzlement.

C. "Possession" by the Perpetrator in Embezzlement

For embezzlement, the perpetrator must already be in possession of the property. This possession can be based on factual control or legal authority.

• It can include legal control over assets, such as a company director having signatory authority over bank accounts, or a trustee managing trust funds.
• For real estate, possession for embezzlement purposes can be established through registration in one's name, even if that registration was meant to be for the benefit of another (e.g., Supreme Court ruling, December 26, 1955, concerning a double sale scenario where the seller, after a first sale, still held registration).
• Money entrusted for a specific purpose, even if physically commingled with the possessor's own funds, can be considered "another's property" in their possession for that purpose (Supreme Court ruling, May 25, 1951). The focus is on the obligation to use the value for the entruster.

D. "Another's Property" (Tanin no Mono)

The property misappropriated must belong to another.

• In cases like a double sale of real estate, where a seller sells property to Buyer 1 but then sells and registers it to Buyer 2 before Buyer 1 perfects their claim, Japanese courts have found the seller liable for embezzlement against Buyer 1, as the seller possesses the property (or the ability to legally dispose of it via registration) under an implied trust for Buyer 1 pending completion of formalities (Supreme Court ruling, December 26, 1955).
• Funds received by an agent for a principal (e.g., collected debts, proceeds from sales) are considered the principal's property in the agent's possession.

E. The Act of Embezzlement (横領行為, Ōryō Kōi)

The act of embezzlement is any conduct that externally manifests the intent to unlawfully appropriate the property. This is often described by the "manifestation of unlawful appropriation intent theory" (領得行為説, ryōtoku kōi setsu). It means acting in a way that is inconsistent with the owner's rights and the terms of entrustment, essentially treating the property as one's own.

• Examples include selling the entrusted property for personal gain, pledging it as collateral for a personal loan, consuming it, or simply refusing to return it upon legitimate demand when obligated to do so, coupled with an intent to appropriate.
• A mere internal decision to misappropriate is not enough; an external act is required. For example, the Supreme Court (October 17, 1952) indicated that an outward act expressing the intent to appropriate is necessary for the crime to be consummated.
• In the context of double-sold real estate, embezzlement is typically consummated when the second transfer is registered, as this definitively prejudices the first buyer's rights.

F. Intent to Unlawfully Appropriate (Fuhō Ryōtoku no Ishi) in Embezzlement

Similar to theft, embezzlement requires the fuhō ryōtoku no ishi. This means the actor must intend to:

1. Exclude the rightful owner.
2. Treat the property as their own (or for the benefit of an unauthorized third party) by utilizing its economic value or disposing of it.

• Acting for the Owner's Benefit: If an act of disposing of entrusted property is done genuinely and solely for the benefit of the property owner (the principal/entruster), even if the specific act was unauthorized or ill-judged, the intent to unlawfully appropriate is usually negated, and embezzlement does not arise (though other liabilities like breach of trust might). The Supreme Court ruling of December 25, 1953, supports this. However, if the act, even if claimed to be for the owner's benefit, is clearly illegal or extremely detrimental and not something the owner could legitimately authorize (e.g., using company funds for bribery "to help the company"), courts may still find the intent to unlawfully appropriate. The Supreme Court ruling of November 5, 2001 (the Kokusai Kogyo case) indicated that acts a company itself could not lawfully perform cannot be considered solely for the company's benefit if done by an executive.
• Temporary Use and Intent to Replenish (Anaume Ōryō): If a person temporarily uses entrusted funds for an unauthorized purpose but fully intends to replenish them shortly and has the definite ability to do so, the situation is complex. While some lower courts have occasionally negated embezzlement if replenishment was certain and immediate, the general tendency of higher courts is to find embezzlement at the moment of unauthorized use, as the fuhō ryōtoku no ishi is formed at that point. The subsequent intent or ability to repay might affect sentencing but not necessarily the commission of the crime itself, unless the "borrowing" is so trivial and fleeting, with immediate and certain repayment capacity, as to be deemed lacking the requisite intent to exclude the owner.

3. Key Distinctions Summarized: Theft vs. Embezzlement

The fundamental distinction lies in who had lawful possession of the property before the criminal act of misappropriation began:

This distinction is critical because it determines which crime is charged, the specific elements that need to be proven (especially regarding the initial state of possession and any trust relationship), and potentially the applicable penalties (e.g., business embezzlement is punished more severely than simple theft in some ranges, while misappropriation of lost property is punished much less severely than theft).

4. Corporate Assets at Risk: Common Scenarios

Both theft and embezzlement pose significant risks to corporate assets:

• Employee Theft:
  • Pilfering office supplies, tools, or small equipment.
  • Stealing inventory from a warehouse or retail floor.
  • Taking cash from tills, safes, or during transit.
  • Unauthorized removal of company data on physical media (theft of the medium).
• Employee Embezzlement:
  • An accountant or finance employee diverting company funds to personal accounts.
  • Sales staff pocketing cash payments from customers instead of remitting them.
  • Unauthorized personal use of company credit cards or expense accounts where funds were legitimately entrusted.
  • Executives misusing large sums of corporate assets for personal investments or lavish lifestyles.
  • A manager entrusted with a budget for a specific project diverting it for unapproved personal or departmental uses.

5. Protecting Corporate Assets: Preventative Strategies

Given the risks, robust preventative measures are essential:

• Strong Internal Controls:
  • Segregation of Duties: No single individual should control all aspects of a financial transaction (e.g., authorization, execution, recording, and reconciliation should be separated).
  • Authorization Procedures: Clear and enforced approval processes for expenditures, asset transfers, and access to valuable property.
  • Regular Reconciliations and Audits: Frequent reconciliation of bank statements, accounts receivable/payable, and inventory. Independent internal and external audits are crucial.
  • Physical Security: Secure storage for cash, valuable inventory, and sensitive equipment. Access controls (keys, cards, biometrics).
• Clear Policies and Training:
  • Written policies regarding the proper use of company assets, expense reporting, data handling, and ethical conduct.
  • Regular training for employees on these policies and the consequences of violations.
  • Establishing a clear code of conduct and promoting an ethical corporate culture.
• Digital Security and Data Protection:
  • Strong cybersecurity measures to prevent unauthorized access to digital assets, financial systems, and sensitive company or customer data.
  • Controls over data copying, transfer, and storage.
• HR Practices:
  • Thorough background checks for employees hired into positions of financial trust or with access to significant assets.
  • Clear job descriptions outlining responsibilities and limitations regarding company property.
• Monitoring and Whistleblowing Mechanisms:
  • Systems for monitoring transactions and asset movements for anomalies.
  • Secure and confidential channels for employees to report suspected fraud or misappropriation without fear of retaliation.
• Prompt and Thorough Investigation:
  • When suspicions arise, conduct a prompt, objective, and thorough internal investigation (often with the assistance of legal and forensic accounting professionals).

Conclusion

The distinction between theft (Settō-zai) and embezzlement (Ōryō-zai) in Japanese criminal law primarily turns on whether the perpetrator had lawful possession of the property before its misappropriation. Theft involves taking from another's possession, while embezzlement involves converting property already in one's own (often entrusted) possession. Both require an "intent to unlawfully appropriate." For businesses, these crimes represent significant internal and external threats. A clear understanding of their legal elements, coupled with the implementation of comprehensive internal controls, robust security measures, and a strong ethical culture, is paramount to safeguarding corporate assets and minimizing legal risks in Japan.