July 7, 2006

 

Announcement: Administrative Punishment

It is with sincere apologies that we announce that effective on July 7, 2006, the Ministry of Economy, Trade and Industry issued to SANIX, according to the provisions in Article 8, Paragraph 1 of Specific Commercial Transactions Law (hereinafter the “Law”), an order to suspend operations of part of SANIX’s home-call sales activities as defined in Article 2, Paragraph 1 of the Law, and directions in accordance with Article 7 of the Law. We express our deepest regret for any distress or concern caused to SANIX’s shareholders and other stakeholders and for lowering customers’ confidence in SANIX as a result of this administrative punishment.
 

1. Details of the punishment

(1) Order for suspension of operations
During the period from July 8, 2006 to October 7, 2006, the branch or sales offices specified in ① below are banned from undertaking certain operations related to home-call sales activities specified in ② below.
① Branch or sales offices (6 sites)
Odawara Sales Office, Gifu Sales Office, Sakai Branch Office, Kure Sales Office, Saga Sales Office and Kumamoto Branch Office
② Operations banned
-Solicitation of the conclusion of new service contracts
-Acceptance of applications for service contracts from customers via home-call sales activities
-Conclusion of service contracts through home-call sales activities
(2) Directions
① When sales representatives visit consumers’ home for sales activities, they must inform the consumers in the first place that the purpose of their visit is to sell a service contract and they must also provide information about the type of service provided (Article 3 of the Law).
② Sales approaches that cause annoyance to consumers must not be used when soliciting the conclusion of a service contract by home-call sales activities (Article 7, Paragraph 3 of the Law, and Article 7, Paragraph 1 of the Law's Enforcement Regulations).
③ Sales representatives must not take advantage of consumers’ inability or low ability to make judgments when soliciting the conclusion of a service contract through home-call sales activities (Article 7, Paragraph 3 of the Law, and Article 7, Paragraph 2 of the Law's Enforcement Regulations).
④ In home-call sales activities, sales representative must not solicit a conclusion of a contract that is deemed inappropriate for the consumer, considering the consumer’s knowledge, experience and financial situation (Article 7, Paragraph 3 of the Law, and Article 7, Paragraph 3 of the Law's Enforcement Regulations).

2. Acts judged as subject to the order for suspension of operations and directions

(1) From around 2004 to June 2005, when soliciting the conclusion of contracts for the provision of services in exchange for considerations (hereinafter “service contract(s)”) in home-call sales activities, some SANIX employees in the Odawara Sales Office, Gifu Sales Office, Sakai Branch Office, Kure Sales Office, Saga Sales Office, and Kumamoto Branch Office suggested to consumers that their houses had problems that such problems were dangerous and that consumers should obtain a certain provision of services to alleviate that danger. These acts were judged as a violation of the provisions in Article 6, Paragraph 1 of the Law.
(2) Before soliciting a conclusion of service contracts, some employees of these sales or branch offices did not expressly explain to consumers that the purpose of their visit was to solicit a conclusion of service contracts; neither did they explain the type of service to be provided. These acts were judged as a violation of the provisions in Article 3 of the Law.
(3) When soliciting a conclusion of service contracts, some employees of these sales or branch offices used approaches that caused annoyance to consumers. These acts were judged as a violation of the provisions in Article 7, Paragraph 3 of the Law and Article 7, Paragraph 1 of the Law's Enforcement Regulations.
(4) Some employees of these sales or branch offices concluded service contracts with consumers who were suffering from dementia, schizophrenia or other similar mental disorder. These acts were judged as a violation of the provisions in Article 7, Paragraph 3 of the Law and Article 7, Paragraph 2 of the Law's Enforcement Regulations.
(5) Some employees of these sales or branch offices concluded service contracts with pensioners, which is deemed inappropriate considering the financial conditions of such pensioners. These acts were judged as a violation of the provisions in Article 7, Paragraph 3 of the Law and Article 7, Paragraph 3 of the Law's Enforcement Regulations.

3. Actions to prevent recurrences and to encourage compliance

(1) Implement stricter internal rules for sales activities in regard to senior citizens
Provision of products and services to senior citizens shall be performed in accordance with the rules set for each senior age group internally defined. In general, sales solicitation shall not include new customers over 75 years old.
(2) Implement reinforcement of contract status check system
The Company will establish a job position dedicated to contract monitoring. For each contract concluded, the appropriateness and actual status of the contract shall be examined by the person assigned to this job position during the period from conclusion of a contract to the commencement of installation work.
(3) Improve the compliance system
① Fundamental review and implementation of employee education programs
The fundamentals of the current employee education programs shall be reviewed. By the end of July 2006, education shall be provided mainly to employees whose service years are over three years but less than 15 years, in accordance with the “Home-Call Sales Representatives Education and Registration System” established by the Japan Direct Selling Association.
② Compliance with internally established standards of conduct
③ Establishing a “whistle blowing” system to improve transparency of operations
④ Improving measures to clarify to existing customers that the purpose of offering a periodical inspection service is the purchase of additional products or services by the consumer
Previously, the Company instructed sales representatives to expressly explain to existing customers, before performing periodical inspection services, that the inspector would recommend the purchase of additional products or services after the inspection. Sales representatives were instructed that the “Inspection Advice” postcard sent to existing customers should include a clear statement that the inspector would “recommend re-disinfection of their house.” In future, in addition to these measures, a leaflet shall be delivered to existing customers before periodical inspections are conducted. The leaflet shall explain the type of inspection performed and shall clearly indicate that the inspector will recommend the purchase of additional products or services after the inspection.
⑤ Holding compliance meetings by each job class
(4) Distribute a leaflet to establish a self-purification system
At the time of the conclusion of a contract and performance of periodical inspection, a leaflet containing information on SANIX’s Consumer Advisory Service shall be handed to customers. The purpose of this leaflet is to direct all complaints, requests, requests for a cooling-off period, consultation regarding contracts and other inquiries from customers to the Consumer Advisor at the Customer Support Division at SANIX’s head office, to ensure a prompt and proper response to and handling of consumer affairs.
(5) Internal educational activities (by site visit) by staff members from the head office
Staff members from the administrative department of the head office shall visit sales offices and branch offices. They shall provide face-to-face education and instructions on performing operations in compliance with statutory and internal regulations to those employees directly engaged in consumer sales.


4. Punishment by the Company

SANIX has administered strict punishment of employees involved in the above-mentioned violations. Moreover, the following punishment is administered to directors who are responsible for this matter:
President & CEO 30% reduction of monthly remuneration for three months
Director of the HS Division (Managing Director) 20% reduction of monthly remuneration for three months
Manager of the HS Division (Director) 10% reduction of monthly remuneration for three months
SANIX has striven for strict compliance and improvement of the compliance system for consumer protection, considering it one of the most important management issues. However, the administrative punishment for this matter indicates that our efforts were not successful. Taking the administrative punishment seriously, we will further our corporate-wide efforts for strict compliance, in order to recover consumer’s confidence as quickly as possible, and put our all energies into the prevention of recurrences of similar situations.

We would like to express our deepest and most sincere apologies for any inconveniences or concern caused to our shareholders and other involved parties, and would sincerely appreciate your continued support in the future.

 
 

For more information, please contact:
Kozo Inoue, Managing Director
E-mail: k-inoue@sanix.co.jp