Financial Crime World

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Japan’s Obliged Entities Must Implement Strengthened Governance Arrangements to Combat Money Laundering

TOKYO, JAPAN - The Japanese government has issued guidelines requiring obliged entities, including banks and financial institutions, to implement strengthened governance arrangements to combat money laundering (ML) and terrorist financing (TF). These new regulations aim to reduce the risk of ML/TF activities in the country.

Measures to Combat Money Laundering

According to the guidelines, obliged entities must implement seven key measures:

  • Ongoing Customer Management: Financial institutions must maintain up-to-date customer information verified through know-your-customer (KYC) procedures.
  • Risk-Based Approach: Institutions must identify and assess the risk of ML/TF activities in their transactions and customers.
  • Transaction Monitoring: Financial institutions must monitor all transactions for suspicious activity and report any unusual or potentially illegal transactions to the authorities.
  • Employee Training: Employees must receive regular training on AML/CFT policies and procedures to ensure they are aware of the risks and can identify potential ML/TF activities.
  • Independent Audit: Institutions must conduct regular independent audits to ensure compliance with AML/CFT regulations.
  • Reporting Orders and Business Improvement Orders: Financial supervisors will issue reporting orders or business improvement orders to institutions that fail to comply with AML/CFT regulations.
  • International Cooperation: Japan has pledged to cooperate with international organizations, such as the Financial Action Task Force (FATF), to combat ML/TF activities globally.

Enforcement

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

International Cooperation

Japan has been a member of the FATF since its establishment in 1990 and has developed its legal framework for AML/CFT based on FATF recommendations. Japan’s major banks, such as MUFG, are also members of international organizations, such as the Wolfsberg Group, which publishes frameworks and guidance for managing financial crime risks.

Outlook

The Japanese government’s efforts to strengthen its AML/CFT regime will continue in the coming years. The country is expected to face increased scrutiny from international organizations and regulatory bodies, and obliged entities must be prepared to demonstrate their compliance with AML/CFT regulations.