Compliance

We carry out our business not only in full compliance with legal requirements but also in ways thatensure socially responsible conduct. Spreading understanding of this among all Hitachi employees
is a fundamental management issue. As economic activity becomes increasingly borderless, there
is a growing need for steps to eradicate bribery, corruption, and other illegal behavior inaccordance with conditions in the countries and regions where we have operations. As a globalcompany, we are implementing a consistent compliance structure across the entire Hitachi Group.

42Enhancing Our Compliance Framework

Compliance Reporting System

Based on the Hitachi Group Codes of Conduct, we haveexpanded the Hitachi Global Compliance Program. To
comprehensively implement our compliance framework
through this program, we have appointed a senior executive
as the head of risk management for the entire Hitachi Group.
Every business unit and key Group company also has an
executive handling risk management, assisted by acompliance manager. We are also supporting regional Group
companies and have appointed compliance heads in 11
regions globally.
Under this system, policies and measures are sharedthrough the Compliance Management Conference,composed of risk management executives from business
units and key Group companies. In addition, all compliancemanagers meet regularly at the Hitachi Group Compliance
Conference to provide information on compliance and toconfirm implementation of required actions.
The Advisory Committee, consisting of outside experts,
convenes regularly to exchange views on the state ofcompliance initiatives. The insights provided by committee
members are utilized to improve policies and actions.
The internal audit section regularly conductsGroup-wide reviews to verify that each area of compliance isbeing appropriately operated. In cases where the reviews
identify necessary improvements, corrective measures areswiftly implemented.

Hitachi has instituted a Group-wide whistleblowing system
to prevent illegal and unethical behavior, to promptly addressinfractions, and to enhance our ability to self-regulate.
In this system, reports go directly to the ComplianceDepartment at Hitachi or to an outside attorney. This system
can be used not only by employees within the Hitachi Group,
who are able to report issues through in-house channels, butalso by temporary staff and suppliers. In addition, we have
implemented the Channel to the Board of Directors system
to allow employees to directly report problems anonymously
to Hitachi directors.
The facts related to all reports are subject to thoroughinvestigation and checking, and people who have identified
themselves in the reports are informed of the investigation
results. We make every effort to appropriately deal withsituations, including taking remedial action where necessary.

Hitachi, Ltd. Integrated Report 2017

Thorough Export Controls
For basic export control policies, we have adopted theHitachi Standards of Corporate Conduct, which state: “Weshall help maintain international peace and security throughcompliance with trade-related laws and regulations.” Weestablished the Corporate Regulations Concerning Security
Export Control based on this policy in 1987. We carry out
strict export control practices in line with relevant laws andregulations, screening all goods and technologies intended
for export against such factors as destination countries andregions as well as intended end use and end users. We
provide guidance and educational support on the formulation of regulations as well as on the establishment offrameworks to Hitachi Group companies in Japan andaround the world to ensure that all Group companies follow
the same export control policies.
At present, as part of our educational program for all
the Group companies, we host workshops on export control
in addition to the annual implementation of an e-learning
program in Japanese, English, and Chinese. Moving
forward, we will continue to make an effort so that export
control is thoroughly enforced throughout the Group.

* The US Foreign Corrupt Practices Act consists of antibribery provisions regarding
foreign government officials and transparent accounting provisions within theSecurities Exchange Act. Enforced by the Department of Justice, it prohibits
bribes to foreign government officials. Transparent accounting, enforced by theSecurities and Exchange Commission, requires companies to show transactions
fairly and accurately in their accounting records and to maintain effective internal
control over accounting.

Our Business Model
CEO Message

The global expansion of Hitachi’s business activities has
made it necessary for the Group as a whole to build asystem of tax governance in order to comply with indications
made by the tax authorities in each country and respond torisks concerning taxation, such as tax-related legal proceedings. In January 2016, we established a set of tax-related
regulations with which the entire Group must comply.
Additionally, in connection with the globalization of ourbusiness, we are implementing risk management for taxationthat focuses in particular on the points listed below:(1) Group companies strictly comply with all relevant laws
and implement tax management when pursuing theirbusiness activities, bearing in mind such international
tax-compliance standards as the Transfer Pricing
Guidelines for Multinational Enterprises and Tax Administrations of the Organisation for Economic Co-operation
and Development (OECD), as well as that body’s Action
Plan on Base Erosion and Profit Shifting (BEPS).
(2) Group companies effectively, continually, and proactively
manage tax-related issues as socially responsibleorganizations, while maintaining Hitachi brand value andseeking to maximize shareholder value.
(3) Group companies build sincere and positive relations oftrust with the tax authorities in the regions where thecompanies do business, and strive to maintain anddevelop those relations.

Strategic Focus

Hitachi makes thoroughgoing efforts to prevent bribery andcorrupt practices in accordance with the Hitachi GlobalCompliance Program.
To deal with global bribery and corruption risks, sincefiscal 2013 we have referred to the Resource Guide to theUS Foreign Corrupt Practices Act* and other documents todevelop various corruption risk scenarios. These were usedas the basis for a survey conducted at almost all HitachiGroup companies outside Japan (roughly 600 companies intotal). By analyzing the survey results, we identified
companies at risk from corruption due to factors such as
high levels of involvement with governmental and related
businesses. These risks were identified at approximately
10% of the companies surveyed, and through closemonitoring of those companies, along with educational andother initiatives, we are working to reduce corruption
worldwide. We will continue to carry out this sort of risk
evaluation regularly.
In 2016, we revised our rules regarding the preventionof bribery and corrupt practices, with changes including anexplicit ban on facilitation payments and clarification of due
diligence procedures for transaction partners.
To ensure awareness of these policies and regulations,
we developed a global e-learning program on preventing
bribery and corrupt practices, making it available in ninelanguages—including Japanese, English, and Chinese—for
use by Group companies worldwide.
In fiscal 2016, there were no incidents in which Hitachi
violated or was penalized under laws or regulations
regarding bribery or corrupt practices.

Implementing Thorough Tax ComplianceFurthermore, following the establishment in April 2017of rules for Group transfer pricing management, Hitachi
manages transfer pricing in accordance with the OECD
Transfer Pricing Guidelines as well as laws and regulations
on transfer pricing in each country or region where Group
companies are located.
Regarding tax compliance, Hitachi acts in accordancewith all applicable laws and regulations. Hitachi did not haveany significant fines or nonmonetary sanctions fornoncompliance with tax laws and regulations in fiscal 2016.

Value Creation

Measures to Prevent Bribery and Corrupt
Practices

Measures to Prevent Unfair Competition

Hitachi, Ltd. Integrated Report 201743

Performance

Management & Governance

Hitachi engages in business based on the principles ofconformance with the law and business ethics and fair anddisciplined competition. The Hitachi Global Compliance
Program was developed based on these principles to ensure
strict compliance with competition laws.
Fiscal 2016 saw two incidents in the United States ofplea agreements related to cartel activities, and one in Japanof a cease and desist order related to collusion.
Hitachi takes these incidents very seriously and willcontinue strengthening its educational and institutional
efforts to eliminate violations of competition laws.