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

Tokyo, Japan - In an effort to combat money laundering and terrorist financing, Japanese banks have been taking extra precautions to verify customer information.

Verification of Customer Information

The move is part of the country’s efforts to comply with anti-money laundering (AML) and counter-terrorism financing (CFT) regulations. According to industry experts, banks are now more proactive in confirming customer information to prevent fraudulent activities.

One notable case is the misuse of deposit accounts opened by visitors to Japan, which were later sold to criminal organizations upon their return to their home countries and used for money laundering purposes.
To combat this issue, Japanese financial institutions have introduced measures during Know-Your-Customer (KYC) procedures, such as:
- Confirming visitors’ period of stay in Japan
- Verifying whether the period has been renewed prior to its expiry
- Requesting the closure of deposit accounts upon their return

Financial institutions with a large number of customers, such as banks, have also implemented 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 done to prevent customers from falling under the category of “anti-social forces” or being subject to domestic or international sanctions.

Transaction Monitoring

In addition, financial institutions are required to monitor transactions with customers to ensure that they do not constitute suspicious activities in terms of ML/TF and report such activities to regulatory authorities. According to data, approximately 500,000 suspicious transaction reports are made each year.

Development of Monitoring Systems

The Japanese Bankers Association is working to develop monitoring systems for common use among banks due to the high cost of implementing a system for each financial institution. The association aims to enhance the efficiency and effectiveness of AML/CTF measures in Japan.

Strengthened Inspections

The Financial Services Agency (FSA) has also strengthened inspections focused on AML/CFT measures and off-site monitoring of financial institutions since 2021. The agency has requested that financial institutions complete the development of their governance arrangements in compliance with guidelines published by the FSA by the end of March 2024.

Promising Outlook

The outlook for Japan’s AML/CTF measures is promising, with the country expected to continue to closely supervise obliged entities and impose administrative penalties on those found to have inadequate governance arrangements. The travel rules for cryptoassets and stablecoins are also set to be updated in the near future.

Conclusion

With the increasing strictness and sophistication of AML/CFT measures globally, Japan’s financial institutions must remain vigilant in their efforts to prevent money laundering and terrorist financing. By doing so, they can ensure the integrity of the financial system and protect consumers from fraudulent activities.