This Article is organized as follows. Part I presents a rational actor model of legal compliance under an enforcement regime based on random inspections and identifies two classes of reforms that can be applied in combination to improve aggregate compliance. Part II introduces the problem of corrupt tip-offs into the model and argues that exogenous reforms are necessary to combat corruption. Part III surveys the use of random administrative inspections in the United States, reviews the approaches taken by four such programs to improve compliance and fight corruption, and describes the various constraints under which they must operate. Part IV conducts a similar analysis of banking regulation and reform in Japan. This Article does not attempt to provide a complete survey of bank regulation in Japan or the United States. The more modest aim is to present case studies of various random inspection programs, thereby obtaining a systems analysis of the constraints facing reformers at Japan's Financial Supervision Agency. However, to the extent that Japan's recent financial reform initiative thus far has targeted the constraints that led to the 1998 raid, the analysis provides a basis for guarded optimism and suggests the complexity of the reform task ahead.
Spoiling the Surprise: Constraints Facing Random Regulatory Inspections in Japan and the United States,
Nw. J. Int'l L. & Bus.