Japan Embarks on Risk-Based Approach to Financial Crime Compliance

TOKYO, JAPAN - In a bid to strengthen its anti-money laundering (AML) and counter-terrorist financing (CTF) frameworks, Japan has implemented a risk-based approach to financial crime compliance. This move is in line with the recommendations of the Financial Action Task Force (FATF), an intergovernmental organization that sets international standards for AML/CTF.

Risk Assessment and Risk-Based Approach

Japan’s Financial Services Agency (FSA) has taken steps to assess and manage risks associated with financial crime. The agency has established a risk-based approach, which involves identifying high-risk areas and implementing targeted measures to mitigate those risks. This includes:

• Enhanced customer due diligence: Financial institutions are required to conduct thorough checks on customers to verify their identity and assess the risk of money laundering or terrorist financing.
• Monitoring of suspicious transactions: Financial institutions are required to monitor transactions for suspicious activity and report any findings to the authorities.
• Reporting requirements: Financial institutions are required to submit reports to the FSA on a regular basis, providing information on customer transactions and other relevant data.

National Cooperation and Coordination

Japan’s government agencies have demonstrated a commitment to cooperation and coordination in the fight against financial crime. The FSA, law enforcement authorities, and other relevant agencies work together to share information, coordinate efforts, and prevent the misuse of financial systems for illicit purposes.

Key Areas of Compliance

While Japan has made significant progress in implementing FATF recommendations, there are areas where improvement is needed. These include:

• Money laundering offense: Japan’s law enforcement authorities have limited powers to investigate and prosecute money laundering cases.
• Confiscation and provisional measures: The country’s laws do not provide adequate provisions for confiscating proceeds of crime or freezing assets.
• Targeted financial sanctions: Japan’s regulatory framework does not fully align with international standards on targeted financial sanctions.

Next Steps

To further strengthen its AML/CTF frameworks, Japan will need to address these areas of non-compliance. The government and relevant agencies must work together to develop and implement effective policies, laws, and regulations that prevent the misuse of financial systems for illicit purposes.