Financial Crime World

Japan’s Financial Institutions Warned: No Shell Banks Allowed

The Japanese government has issued a stern warning to foreign financial institutions, stating that they are not allowed to operate as shell banks in Japan. This move is aimed at preventing money laundering and terrorist financing activities.

Additional Due Diligence Required

According to the guidelines issued by the Financial Services Agency (FSA), additional due diligence is required for non-face-to-face transactions and relationships. This includes:

  • Verifying a customer’s address through registered mail
  • Conducting a site visit

Reporting Suspicious Activity Reports (SARs)

The FSA has also emphasized that financial institutions must report suspicious activity reports (SARs) to the Japan Financial Intelligence Center (JAFIC). Failure to comply with reporting requirements can result in administrative penalties.

Anti-Money Laundering (AML) Systems and Controls

In addition, financial institutions are:

  • Prohibited from using automated suspicious transaction monitoring technology without proper authority
  • Required to maintain robust AML systems and controls

Data Protection Laws

The Personal Information Protection Law (2003) defines personal information as any data that can identify a living individual. Financial institutions must take necessary measures to protect this sensitive information from unauthorized access, use, or disclosure.

Protecting Sensitive Information

Furthermore, the FSA has issued guidelines on protecting “sensitive information,” which includes:

  • Criminal records
  • Medical data

Financial institutions are restricted from obtaining such information from customers without proper consent.

E-Signatures

Japan allows electronic signatures for most types of agreements, provided they meet certain requirements under the Law Concerning Electronic Signatures and Certification Services.

Risk-Based Approach

Although Japan’s AML regime is not risk-based, some aspects of this approach are incorporated into the FSA guidelines. Banks are expected to establish internal controls to detect and monitor suspicious customers, considering factors such as:

  • Customer attributes
  • Transaction types
  • Business profiles

Conclusion

In conclusion, foreign financial institutions operating in Japan must comply with strict regulations aimed at preventing money laundering and terrorist financing activities. Failure to comply can result in severe penalties.