Financial Crime World

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Japan Faces Pressure to Strengthen Anti-Money Laundering Regulations

A recent report by the National Public Safety Commission has highlighted a growing trend of money laundering cases involving foreign nationals in Japan. The report, published on December 1, 2022, revealed that many cases involve the misuse of deposit and savings accounts, as well as domestic exchange transactions.

FATF’s Assessment Highlights Areas for Improvement

The Financial Action Task Force (FATF), an intergovernmental body that sets global anti-money laundering (AML) and counter-terrorist financing (CFT) standards, evaluated Japan’s AML/CFT measures in its Fourth Round Mutual Evaluation Report. The report found that Japan had not fully implemented 40 out of 51 FATF Recommendations, with 11 items deemed insufficient.

Key Areas for Improvement

The FATF’s assessment highlighted several key areas where Japan needs to improve:

  • National cooperation and coordination
  • Terrorist financing offence
  • Freezing terrorists’ assets
  • Prevention of the misuse of non-profit organizations
  • Financial institutions lacking sufficient understanding of AML/CFT risks, particularly smaller banks and regional financial institutions

Japanese Government’s Response

In response to the FATF’s evaluation, the Japanese government has published an Anti-Money Laundering, Counter-Terrorist Financing and Counter-Proliferation Financing Action Plan. The plan sets out six key categories with specific deadlines for implementation by Japanese financial institutions over the next three years.

Deadline for Implementation

For Japanese financial institutions, the deadline for implementing the Financial Services Agency’s Money Laundering Guidelines is March 2024. In addition to complying with these guidelines, financial institutions must also follow the AML/CFT/CPF Action Plan and take two critical steps:

  • Implement risk assessment and risk mitigation measures
  • Conduct ongoing customer due diligence

Pressure to Strengthen Regulations

The Japanese government has acknowledged that improving AML/CFT measures is a priority, and the country faces pressure to strengthen its regulations in order to maintain its reputation as a major financial hub.