Financial Crime World

Banks Take Extra Precautions to Verify Customer Information Amid Money Laundering Concerns

Banks in Japan Step Up Efforts to Combat Money Laundering and Terrorist Financing

TOKYO - Japanese banks are taking extra measures to verify customer information and update their databases accordingly, as part of efforts to prevent money laundering and terrorist financing.

Enhanced Customer Verification Measures

  • Banks are now more proactive in confirming with customers whether their information has changed, such as a change of address due to relocation or other reasons.
  • This is aimed at preventing the misuse of deposit accounts opened by visitors to Japan, which were sold to criminal organizations upon their return to their home countries and used for money laundering.

Know Your Customer (KYC) Procedures

  • Banks are taking measures during the KYC procedures, such as:
    • Confirming visitors’ period of stay in Japan.
    • Requesting whether the period has been renewed prior to the expiry of the period.
    • Requesting the closure of the deposit account upon their return from Japan.

Screening Systems

  • Financial institutions have introduced systems to screen against databases of anti-social forces and sanctioned persons at the time of onboarding and whenever the lists are updated.
  • This is aimed at preventing fraudulent activities and ensuring that customers do not fall under the category of “anti-social forces” such as organized crime groups or persons subject to domestic or international sanctions.

Transaction Monitoring

  • Banks have been monitoring transactions with customers to ensure that they do not constitute suspicious transactions in terms of money laundering and terrorist financing.
  • Any suspicious transactions are reported to regulatory authorities.

Regulatory Efforts

  • The Japanese Bankers Association is working on developing monitoring systems for common use among financial institutions, given the high cost of implementing a system for each institution.
  • Regulatory authorities in Japan have been strengthening inspections focused on anti-money laundering and combating the financing of terrorism (AML/CFT) measures.
  • Financial institutions that fail to comply with AML/CFT requirements may be subject to administrative penalties or business improvement orders.

International Cooperation

  • Japan has been a member of the Financial Action Task Force (FATF) since its establishment in 1990 and has developed its legal framework for AML/CFT based on FATF recommendations.
  • Other laws affecting AML and CFT include the Act on the Protection of Personal Information and the Whistleblower Protection Act.

Future Outlook

  • Japan is expected to face the fifth round of mutual examinations by the FATF, which will likely lead to continued close supervision of financial institutions by regulatory authorities.
  • Financial institutions with inadequate governance arrangements may be subject to administrative penalties.