Japan Falls Short on Financial Inclusion and Money Laundering Efforts, Says Global Watchdog

Despite making progress in combating money laundering and terrorist financing, Japan has been urged to step up its efforts in several key areas to improve the effectiveness of its anti-money laundering and counter-terrorist financing (AML/CFT) framework.

Key Findings

• Japanese authorities have a good understanding of the risks they face but need to prioritize efforts in areas such as:
  • Improving financial inclusion
  • Enhancing customer due diligence
  • Addressing key risk areas like organized crime
• The country needs to ensure the effective implementation of measures to prevent the unwitting facilitation of sanctions evasion and improve access to beneficial ownership information
• Japanese authorities were commended for their efforts in addressing the risks associated with virtual assets and their service providers, but full implementation of measures is needed to prevent abuse

Strengths and Weaknesses

• Japan’s proactive approach to combating terrorist financing has been praised, particularly its outreach efforts to educate businesses about the risks of proliferation financing
• The country’s law enforcement agencies were urged to focus more on the laundering of proceeds in complex large-scale cases often involving fraud and drug-related crimes
• Japanese authorities have been criticized for their lack of progress in addressing the risk associated with organized crime groups like the “Boryokudan”

Recommendations

• Improve requirements for financial and non-financial institutions to prevent money laundering and terrorist financing, including customer due diligence
• Enhance capabilities to investigate and prosecute these crimes
• Increase efforts in confiscating criminal proceeds and improving cooperation with international partners to combat money laundering and terrorist financing

Context

• Japan is working to strengthen its financial system and improve its reputation as a leading economy
• The country has been addressing the risks associated with financial inclusion, including the use of cash-based transactions and the lack of access to financial services for marginalized communities

Response and Criticism

• Japanese authorities have vowed to implement the recommendations and continue to work towards strengthening their AML/CFT framework
• Critics argue that more needs to be done to address the root causes of money laundering and terrorist financing in Japan and improve financial inclusion for all citizens.