Anti-Social Forces Exclusion Clauses — Why They Matter

Imagine that after signing a service agreement, you discover the counterparty has ties to an organized crime group. You look back at the contract — and there is no anti-social forces exclusion clause (hereinafter "anti-social forces clause") anywhere. The problems this creates for both contractors and clients are severe.

The absence of termination grounds is the core problem. Under the Civil Code, a contract generally cannot be terminated without mutual consent. Even if the counterparty turns out to have ties to organized crime, that fact alone does not directly meet the statutory grounds for termination (impossibility of performance, breach of obligation, etc.). Without an anti-social forces clause, you are either forced to continue the transaction or risk a counterclaim for damages if you terminate unilaterally.

Reputational damage is equally serious. If it becomes known that you continued doing business with an organization connected to anti-social forces, your credibility as a business — whether contractor or client — will be severely compromised. There are many real-world cases where loss of trust from business partners, financial institutions, and clients led to threats to the viability of the business itself.

Even more serious is the risk of complicity. The Act on Prevention of Unjust Acts by Organized Crime Group Members (Bōtaihō) and anti-gang ordinances in each prefecture prohibit providing benefits to organized crime figures. If a business continues a transaction while knowing the counterparty is connected to anti-social forces, the business itself may be found in violation of those ordinances.

Consider a freelancer A who took on a web system development project, then discovered after launch that an organized crime group was involved behind the client. The original contract had no anti-social forces clause. At that point, A has no legitimate termination grounds — and by continuing to receive payment, risks being deemed to have provided a benefit to anti-social forces. This is how the absence of an anti-social forces clause directly creates legal risk for the business operator.

Anti-social forces clauses are not "complicated provisions for large corporations." They are a practical necessity that every business, including freelancers, should incorporate into their service agreements.

The legal and institutional framework for excluding anti-social forces in Japan has been rapidly developed since the 2000s.

The 2007 government directive was the turning point. In June of that year, the Ministerial Council on Crime Control Measures issued "Guidelines for Preventing Businesses from Suffering Harm from Anti-Social Forces." This directive defined anti-social forces as "groups or individuals that pursue economic gain through violence, threats, and fraudulent methods," and called on businesses to adopt the basic stance of "having no relationship whatsoever with anti-social forces, including in business transactions."

Nationwide enactment of anti-gang ordinances (bōhai jōrei) formed the next pillar. When Tokyo and Okinawa prefectures implemented their anti-gang ordinances in October 2011, all 47 prefectures had completed their legislation. Each ordinance imposes a duty on businesses to ensure that organized crime figures do not benefit from business activities, and many ordinances explicitly specify or recommend the inclusion of anti-social forces clauses in contracts as a concrete exclusion measure.

Osaka Prefecture's anti-gang ordinance, for example, states: "When a business operator is about to enter into a contract that may allow a gang member to benefit from business activities, the operator must make efforts to confirm that the counterparty is not a gang member." This imposes a verification obligation on businesses at the contract stage.

Requirements imposed by financial institutions and listed companies also create practical pressure. Major financial institutions require their counterparties to have anti-social forces clauses in place, and anti-social forces exclusion systems are also an important item in stock market listing reviews. The increasing frequency with which large companies and financial institutions present boilerplate contracts already containing anti-social forces clauses to freelancers and small businesses is a direct result of this background.

While it is possible to adapt a boilerplate exclusion clause template, a clause that is merely "formally written in" will not function effectively. It is necessary to understand the role and requirements of the clause accurately, and to tailor the content to the actual nature of your transactions.

When drafting an anti-social forces clause, the scope of the definition is an important question. Too narrow a definition will render the clause ineffective; too broad a definition risks unduly restricting the counterparty's rights.

The attribute criteria set out in the government directive identify the following groups and individuals as anti-social forces:

• Organized crime groups (bōryokudan)
• Organized crime group members
• Quasi-members of organized crime groups
• Organized crime group affiliate companies
• Corporate racketeers (sōkaiya), corporate blackmailers, etc.
• Groups disguised as social movements or political organizations that seek unjust profit
• Special intelligence violent groups (groups closely associated with organized crime but not formally affiliated)

The government directive also requires attention to conduct criteria beyond attribute criteria. These include violent demands, demands that exceed legal obligations, and threatening behavior in connection with transactions.

In contract drafting, the modifier "whether directly or indirectly" is important. Even if someone is not nominally an organized crime member, if they are an officer of a company controlled by an organized crime group, or if an organized crime member is effectively involved in managing the company, they must be included in the exclusion scope.

A commonly used definition in practice reads as follows:

"Organized crime groups, organized crime group members, persons who ceased to be organized crime group members within the past five years, quasi-members of organized crime groups, organized crime group affiliate companies, corporate racketeers, groups disguised as social movements, special intelligence violent groups, and others equivalent to any of the foregoing (collectively, 'anti-social forces')"

The phrase "persons who ceased to be organized crime group members within the past five years" addresses the risk of unjust demands by former members immediately after leaving, and is used in the model contract clause examples issued by the National Police Agency. If this language is absent from a contract presented by a counterparty, it may be worth negotiating its addition.

An effective anti-social forces clause requires three elements: representation and warranty, termination right, and damages.

1. Representation and Warranty

A representation and warranty is a clause under which each party affirms to the other that certain facts are true, both at the time of contract execution and throughout the contract period. In anti-social forces clauses, it is common for both parties to mutually affirm the following:

• That they do not fall under the definition of anti-social forces
• That they have not provided funds or other benefits to anti-social forces
• That they do not use anti-social forces
• That they do not have any relationship with anti-social forces that would invite social criticism

Because breach of this representation and warranty is the trigger for the termination right discussed below, it is important to state the scope of the warranted facts as clearly as possible. Relying solely on vague language like "no relationship" leaves room for interpretation that indirect funding or benefit provision is excluded.

2. Termination Right

If the representation and warranty is breached, or if a breach is discovered, the non-breaching party must have the right to terminate the contract immediately without the breaching party's consent. Without this clause, the "loss of termination grounds" problem described at the outset arises.

It is important to state explicitly in the clause that termination may occur "without prior notice (saikoku)." If the clause can be interpreted as requiring a prior notice period before termination, anti-social forces may buy time by making empty promises to rectify the situation.

It is also advisable to include a provision that "termination is possible even if the contract was entered into without knowledge of the anti-social nature." This serves to prevent the argument that "we didn't know" from being raised when the anti-social nature is discovered after the fact.

3. Damages

Clearly state the liability for damages if termination of the contract causes loss to the other party. In terminations on grounds of anti-social forces clause violation, the terminating party often suffers the loss. The clause should explicitly cover two points:

• The party in breach bears the obligation to compensate the other party for any losses incurred
• The other party bears no liability for losses suffered by the breaching party as a result of the termination

The second provision is critical — it blocks the risk of being hit with a counterclaim for damages even after rightfully terminating on grounds of an anti-social forces clause violation. Case law generally recognizes the legitimacy of terminations based on anti-gang exclusion clauses (see, e.g., Fukuoka High Court judgment of October 4, 2016), so this provision functions in practice.

For a basic sample clause containing all three elements, the model clause examples for sales and brokerage contracts published by the National Police Agency serve as a useful reference. However, adjustment to fit your specific business, transaction volume, and transaction structure is essential, and important transactions should be reviewed by a lawyer.

Having incorporated an anti-social forces clause into the contract, the next challenge is how to operate it in actual transactions.

The timing for anti-social forces screening is principally before contract execution. For a legal entity counterparty, confirm the company registration, company name, and representative's name, and check public sources (newspapers, official gazettes, databases) for any negative information. For transactions with sole proprietors, obtaining identification documents and cross-checking with public information is the baseline.

Practical verification methods include the following:

• Self-conducted research: Internet and newspaper article searches (low cost, but limited in coverage)
• Anti-social forces database services: Paid services provided by specialist firms (high accuracy, but incurs cost)
• Questionnaires and pledges from counterparties: Having counterparties sign a pledge confirming they are not anti-social forces before contract execution (commonly used in practice)

For freelancers and small businesses, the most realistic approach is to obtain a "pledge of non-affiliation with anti-social forces" (or memorandum) in addition to the anti-social forces clause in the contract. Obtaining such a pledge means that if anti-social nature is later discovered, the termination right can clearly be invoked on grounds of a "breach of representation and warranty based on false declaration."

The limitations of anti-social forces screening must also be recognized. Complete verification is difficult, and there will be cases where anti-social nature is not discovered even after thorough checking. What matters most is to record that adequate verification was conducted in advance. When problems arise later, the legal and social evaluation will differ between a business that neglected screening and one that conducted and documented reasonable verification.

The response procedure if a problem is discovered should also be prepared in advance. If suspicion arises that a counterparty is connected to anti-social forces, do not try to judge or handle the situation alone — the baseline is to first consult a lawyer. Anti-social forces are adept at isolating business operators and pressuring them into complying with unjust demands. Establishing an advance internal (organizational) procedure — sending a termination notice under the anti-social forces clause, consulting the police or the violence exclusion consultation center, delegating the response to legal counsel — forms the core of an effective anti-social forces exclusion system.

Including an anti-social forces clause in the contract is just the first step of compliance. The clause's full function is realized only through a three-layer system: drafting the clause, conducting screening, and establishing a response procedure for when problems are discovered.

References

Guidelines for Preventing Businesses from Suffering Harm from Anti-Social Forces (2007)

Sample Anti-Gang Exclusion Clause Language

Model Clause Example for Sales Contracts (Exclusion of Anti-Social Forces)

On the Validity of Anti-Gang Exclusion Clauses as Seen in Case Law (2017)

Anti-Social Forces Clause: Reasons to Include It, Sample Language Explained