Japan’s Anti-Money Laundering Laws Under Scrutiny: Country Faces Calls for Improvement

Background

A recent assessment by the Financial Action Task Force (FATF) and the Asia-Pacific Group on Money Laundering has highlighted that Japan’s anti-money laundering and counter terrorist financing (AML/CFT) framework is delivering results, but requires further prioritization to improve its effectiveness. The Mutual Evaluation Report of Japan, released in August 2021, provides a comprehensive review of the country’s measures to combat money laundering and terrorist financing.

Key Findings

• Japanese authorities have demonstrated a good understanding of the risks they face, including those associated with organized crime groups such as the “Boryokudan”.
• Law enforcement needs to focus more on tackling complex large-scale cases involving fraud and drug-related crimes.
• The report calls for increased efforts in confiscating criminal proceeds.

Recommendations

The FATF has praised Japan’s proactive outreach to businesses about the risks of proliferation financing, but notes that the country needs to ensure effective implementation of measures to prevent unwitting facilitation of sanctions evasion. Additionally, Japanese authorities are urged to fully implement measures to prevent the abuse of virtual assets and their service providers.

To further strengthen its AML/CFT framework, Japan is advised to prioritize efforts in several key areas:

• Improving requirements for financial and non-financial institutions to prevent money laundering and terrorist financing
• Enhancing access to beneficial ownership information to prevent the misuse of legal persons and arrangements

Conclusion

The FATF’s assessment is based on a comprehensive review of Japan’s measures and their level of compliance with the FATF Recommendations. The report does not address the justification for designating an entity as a terrorist or terrorist group, but instead focuses on the effectiveness of Japan’s AML/CFT system in addressing risks emanating from UN-designated terrorists and domestically designated terrorist organizations.

The adoption of this report by the FATF at its June 2021 Plenary meeting underscores the importance of continuous improvement in Japan’s efforts to combat money laundering and terrorist financing. As a key player in the region, Japan is expected to prioritize these efforts to maintain the integrity of its financial system and prevent illicit activities.