FATF, APG Criticize Japan’s Efforts to Combat Money Laundering and Terrorist Financing

Report Highlights Weaknesses in Japan’s Anti-Money Laundering and Counter-Terrorist Financing Measures

The Financial Action Task Force (FATF) and the Asia-Pacific Group on Money Laundering (APG) have released a report criticizing Japan’s efforts to combat money laundering (ML) and terrorist financing (TF). While Japan has made significant progress in implementing anti-money laundering and counter-terrorist financing measures, there are still several weaknesses that need to be addressed.

Key Areas of Concern

• Implementation of Travel Rule: The report highlighted gaps in the implementation of the Travel Rule for Financial Institutions (FIs), Designated Non-Financial Businesses and Professions (DNFBPs), and Virtual Currency Exchange Providers (VCEPs). FIs, DNFBPs, and VCEPs need to improve their compliance with these measures.
• Lack of Targeted Anti-Money Laundering Activities: Japan’s authorities have been criticized for lacking targeted anti-money laundering activities in key risk areas, such as organized crime groups and virtual asset risks.

Strengths and Weaknesses

The report noted that Japan has made significant progress in implementing anti-money laundering and counter-terrorist financing measures. The country’s authorities have demonstrated a good understanding of ML and TF risks and have taken steps to address some of its higher ML risks. However, the report also highlighted several technical shortcomings that present challenges for effectiveness, including: + Gaps with certain preventive measures applicable to DNFBPs + Technical deficiencies affecting the dissuasiveness of sanctions for ML and TF offenses

Recommendations

The FATF and APG have called on Japan to address the weaknesses identified in the report and to improve its implementation of anti-money laundering and counter-terrorist financing measures. Specifically, they recommend that Japan: + Implement the Travel Rule without delay + Improve inter-agency cooperation and coordination on intelligence and law enforcement activities related to combating weapons of mass destruction (WMD) and TF + Take targeted anti-money laundering actions in key risk areas, such as organized crime groups and virtual asset risks

Conclusion

Despite some progress made by Japan, the report highlights several weaknesses that need to be addressed. The FATF and APG have called on Japan to take concrete steps to improve its implementation of anti-money laundering and counter-terrorist financing measures, in order to effectively combat ML and TF.