Confirmation Methods and Records: A Key Aspect of Japan’s Anti-Money Laundering Regime

Japan’s anti-money laundering (AML) regime requires financial institutions to implement robust measures to prevent money laundering and terrorist financing. Two types of confirmation methods are employed to ensure compliance: ordinary confirmation at the time of transaction and strict confirmation at the time of transaction. The required type of confirmation is determined by the level of risk involved in the transaction.

Ordinary Confirmation

For most transactions, ordinary confirmation at the time of transaction is sufficient. This involves:

• Verifying the customer’s identity
• Obtaining relevant information about the transaction

A record of the confirmation items (confirmation record) must be created and retained for a certain period of time.

Strict Confirmation

However, in cases where the risk of money laundering or terrorist financing is higher, strict confirmation at the time of transaction is required. This involves:

• Verifying not only the customer’s identity but also
  • The foreign institution’s system for confirmation at the time of the transaction
  • The status of the transaction

Strict confirmation is typically applied to transactions with foreign financial institutions, such as correspondent contracts.

Notification Requirements

Certain transactions must be notified to the relevant authorities. These include:

• Suspicious transactions suspected of money laundering
• Foreign exchange transactions outsourced to a third party
• Transfer of electronic payment methods or digital assets

Business operators are required to establish a system for proper confirmation at the time of transaction and to maintain records of such transactions.

Supervision and Enforcement

The Financial Services Agency (FSA) is responsible for supervising:

• Banks
• Securities companies
• Funds transfer agents
• Crypto asset exchangers

The Minister of Economy, Trade, and Industry supervises:

• Financial lease companies
• Credit card companies

The Casino Management Commission oversees casino operators.

Reporting Suspicious Activity

Business operators are required to monitor transactions for suspicious activity and report such activity to the relevant authorities promptly. Factors that trigger reporting requirements include:

• Property received in transactions suspected of being proceeds from crime
• Concealment of proceeds from crime

The process for reporting suspicious activity involves:

• Comparing the transaction with normal transaction patterns
• Verifying customer information
• Conducting investigations

Confidentiality Requirements

Business operators are prohibited from divulging to customers or other parties involved in the transactions that they intend to notify or have notified suspicious transactions. Violation of this confidentiality obligation can result in administrative sanctions or criminal penalties.

Public officials who receive notifications are also subject to confidentiality obligations and may face criminal penalties for violations.

Conclusion

In summary, Japan’s AML regime requires financial institutions to implement robust measures, including confirmation methods and records, notification requirements, and reporting of suspicious activity. Confidentiality requirements apply to business operators and public officials, with penalties for violations. By understanding these requirements, financial institutions can ensure compliance and effectively prevent money laundering and terrorist financing.