Risk-Based Approach to Anti-Money Laundering Crucial for Japan’s Financial Institutions
A recent report by the National Public Safety Commission has highlighted the growing threat of money laundering through financial institutions in Japan. The report revealed that many cases of money laundering have been detected, with foreign nationals being involved in a significant number of these cases.
A Risk-Based Approach is Essential
Financial institutions in Japan must take a risk-based approach to anti-money laundering (AML) and counter-terrorist financing (CFT). This involves identifying and assessing the risks posed by customers, transactions, and other factors, and then implementing measures to mitigate those risks.
Key Areas of Focus
- Identifying and assessing customer risks
- Monitoring transactions for suspicious activity
- Reporting suspicious activity to the relevant authorities
- Implementing ongoing customer due diligence (CDD) to verify the identity of customers and monitor their activities
Japan’s Weaknesses in its Anti-Money Laundering Regime
The Financial Action Task Force (FATF), an intergovernmental body that develops global AML/CT standards, has highlighted Japan’s weaknesses in its anti-money laundering regime. The FATF report found that while Japan had made progress in implementing AML/CFT measures, there were still significant gaps and shortcomings.
Areas for Improvement
- National cooperation and coordination
- Terrorist financing offences
- Freezing terrorists’ assets
- Prevention of misuse of non-profit organizations
- Financial institutions’ understanding of money laundering and terrorist financing risks
The Japanese Government’s Action Plan
In response to the FATF report, the Japanese government has announced an action plan to improve its AML/CFT regime. The plan includes measures to:
Enhance National Cooperation and Coordination
- Strengthen supervision of financial institutions
- Increase public awareness of money laundering and terrorist financing risks
Implement New Measures for Financial Institutions
- Identify and assess customer risks
- Take appropriate steps to mitigate those risks
- Implement ongoing CDD, including verifying the identity of customers, monitoring transactions, and reporting suspicious activity
Deadline for Implementation
The Japanese government has set a deadline for implementation of these measures, with full compliance required by March 2024. Financial institutions that fail to comply with these requirements may face penalties and sanctions.
Conclusion
Japan’s financial institutions must take a risk-based approach to anti-money laundering and counter-terrorist financing if they are to effectively prevent money laundering and terrorist financing activities. This requires identifying and assessing risks, implementing appropriate measures to mitigate those risks, and ongoing monitoring and reporting of suspicious activity.