Japan Falls Short on Anti-Money Laundering and Counter-Terrorism Financing Measures, Says FATF

A joint assessment by the Financial Action Task Force (FATF) and the Asia-Pacific Group on Money Laundering (APG) has found that Japan’s anti-money laundering and counter-terrorism financing measures fall short of international standards.

Key Findings

• Japan has a good legal structure in place to combat money laundering and terrorist financing, but:
  • The number of prosecutions remains low compared to the country’s drug consumption and organized crime problems.
  • The law does not cover funds collection by non-terrorists and lacks clarity on whether indirect funds provision and collection are covered.
• Japan’s system for confiscating, freezing, and seizing the proceeds of crime is not fully implemented.
• The country’s terrorist asset-freezing regime is limited to “funds” and does not cover other financial and non-financial assets.

Financial Intelligence Unit (FIU)

• The FIU receives a constantly increasing number of suspicious transaction reports (STRs) and has good access to law enforcement information.
• Recommendations include:
  • Increasing analysis capabilities
  • Expanding the FIU’s analytical staff

Preventive System

• Japan’s preventive system only addresses customer identification, and:
  • Recommends fully implementing customer due diligence obligations
  • Establishing adequate internal controls
• Sectors other than banking have filed an extremely limited number of STRs.

Supervisory Authorities

• Supervisory authorities in Japan are properly resourced, staffed, and trained.
• Concerns were raised over:
  • Low number of inspections carried out in financial institutions other than banks, insurance, and securities
  • Limited number and type of sanctions applied

International Cooperation

• Japan’s treaties with Korea and the United States on mutual legal assistance and extradition are not utilized frequently due to strict conditions set by Japanese law.
• Some measures have been adopted to facilitate administrative cooperation between domestic authorities and foreign counterparts.

Recommendations

The FATF has recommended that Japan take several steps to improve its anti-money laundering and counter-terrorism financing measures, including:

• Increasing the number of prosecutions
• Implementing a more comprehensive system for confiscating and freezing assets
• Improving internal controls

Overall, the report highlights several key areas where improvement is needed to bring Japan’s anti-money laundering and counter-terrorism financing measures in line with international standards.