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Notice Regarding Charges Filed against Former Officers and Employee for Violation of the Unfair Competition Prevention Act

No. 136

YOKOHAMA, JAPAN (July 20, 2018) - In reference to recent media reports concerning allegations of bribery on the part of individuals affiliated with Mitsubishi Hitachi Power Systems, Ltd. (MHPS), today MHPS has been notified that two former officers (Director, Executive Vice President, Head of Engineering Headquarters; and Senior Vice President, Senior General Manager of Procurement & Sourcing Division) and the former General Manager of the then-existing Logistics Division have been charged on suspicion of violating the Unfair Competition Prevention Act, more specifically for offering a bribe to a foreign public officer. MHPS has long put in place a host of measures to ensure strict compliance with all laws and regulations, and MHPS finds the current situation extremely regrettable and deeply apologizes to its customers and all other stakeholders for this turn of events. MHPS fully recognizes the gravity of the charges filed and pledges to do everything possible to ensure total compliance by all MHPS officers and employees, to prevent any recurrence of this kind and restore full trust and confidence in MHPS.

1.Overview of the Facts of the Case

These charges are in relation to the construction of a thermal power plant undertaken by MHPS in the Khanom District of Nakhon Si Thammarat Province, Thailand. In February 2015, an employee of MHPS in charge of material transport received word that, when subcontractor carriers of the transport services provider entrusted by MHPS with the marine transport of plant parts attempted to unload the parts at the jetty constructed near the plant construction site, local residents, including what was believed to be a public officer of the local port authority, blocked off the jetty and demanded payment of 20 million Thai baht.

The jetty was blocked off due to the unexpected failure by the transport services provider in undertaking the necessary procedures to acquire authorization to use the jetty. It was expected that any delay in unloading the parts as a result of this blockade would cause delay to the plant construction schedule, and thereby obligate MHPS to incur significant costs and expenses, such as the payment of delay damages. In order to avoid such circumstances, relevant MHPS individuals provided the abovementioned subcontractor carriers with funds in the amount of 20 million Thai baht in response to the demand that had been made, as a result of which the blockade of the jetty was resolved.

MHPS was not able to confirm whether the subcontractor carriers did indeed deliver the 20 million Thai baht to the public official.

The 20 million Thai baht was generated by individuals affiliated with MHPS at that time by way of issuing an additional order to a local contractor for fictitious work.

2.MHPS Response after Learning of the Incident

In March 2015, MHPS became aware, through internal whistle-blowing, of the possibility that an improper monetary payment had been made to local public officials. MHPS immediately launched an internal investigation and, within that same month, in order to conduct a more detailed investigation, retained an outside law firm to conduct a more thorough investigation. This included, inter alia, interviews of the individuals concerned and the collection of relevant evidence by the firm's attorneys. As a result, because the possibility remained that there had been a violation of laws and regulations, in June 2015, MHPS reported its findings to the Tokyo District Public Prosecutors Office.

3.Use of the Prosecutorial Agreement System

In 2015, at which time MHPS reported its findings to the Tokyo District Public Prosecutors Office, the present Prosecutorial Agreement System was not yet in place. Over the course of the subsequent three years, MHPS has nonetheless cooperated fully with the Tokyo District Public Prosecutors Office's investigation of this case. The Tokyo District Public Prosecutors Office duly acknowledged MHPS' cooperative stance, and in June 2018, suggested that the Prosecutorial Agreement System be applied to this case.

It is MHPS' understanding that, even without application of the Prosecutorial Agreement System, the charges against the three individuals who were prosecuted would have been no different, and as MHPS believed it necessary to cooperate in order to fully uncover the facts of this case, entered into an agreement with the prosecutor under the Prosecutorial Agreement System.

MHPS believes that its decision to enter into such an agreement was both necessary and reasonable in order to ensure that the interests of its stakeholders, including its employees not involved in this issue, were protected.

4.Measures against Recurrence

MHPS concluded from its internal investigation described in 2. above that in order to prevent recurrence of a similar incident, it would need to stress more than ever the importance of compliance internally and reinforce its internal checking functions. As practical measures, MHPS is currently implementing the following:

  1. issuance of top management messages concerning prevention of bribery;
  2. diversification of methods for reporting compliance incidents, including new online and toll-free telephone access points;
  3. requirement of more thorough checks to detect bribery risk both before and after the receiving of an order;
  4. strengthening of audits on expenditures made from overseas construction sites;
  5. renewed acquisition of compliance pledges from all managerial personnel; and
  6. training including those conducted by external instructors concerning prevention of bribery.

5.Internal Disciplinary Action

Internal disciplinary action was taken against those individuals involved in making the improper monetary payment in February 2016. Furthermore, in order to clarify responsibility at the managerial level, the President and officers overseeing sales and compliance as of February 2015 returned their remuneration in part as further elaborated below:

  1. President and CEO: 30% of remuneration, for 3 months
  2. Senior Executive Vice President (officer in charge of sales): 20% of remuneration, for 3 months
  3. Head of Business & Strategic Planning Headquarters (officer in charge of sales): 20% of remuneration, for 3 months
  4. Senior General Manager of Management & Administration Division (officer in charge of compliance): 10% of remuneration, for 3 months