Title: Japan Strengthens Financial Regulatory Compliance in Response to FATF Recommendations

Strengthening AML/CFT Framework Against Money Laundering and Terrorist Financing

The Financial Action Task Force (FATF), an international organization that sets standards for combating money laundering and terrorist financing (ML/CTF), commended Japan for its progress in recent years but advised the country to prioritize efforts in specific areas to improve its anti-money laundering and counter-terrorist financing (AML/CFT) framework.

Context: Asia Pacific Group’s Evaluation of Japan’s Regulatory Compliance and Risk Management

The Asia Pacific Group (APG)—the Asian regional affiliate of the FATF—conducted a mutual evaluation assessment (MEA) of Japan from October 2018 to February 2021. The evaluation identified several strengths and areas for improvement regarding Japan’s regulatory compliance and risk management.

Key Findings: Japan’s Achievements in AML/CFT

1. Beneficial Ownership Reporting Systems: Japan has established beneficial ownership reporting systems, which cover real estate transactions. This improvement strengthens the transparency of financial transactions.
2. Stronger Customer Due Diligence Measures: Japan has implemented stronger customer due diligence measures, including increased use of innovative technologies such as biometrics for customer identification.
3. Enhanced ML/CTF Risk Assessment: Japan has enhanced its ML/CTF risk assessment by intensifying investigative efforts into money laundering and terrorist financing cases.
4. Transparency in Financial Transactions: Japan has increased transparency in financial transactions by implementing reporting requirements.

Areas for Improvement: Japan’s Next Steps

1. Risk-Based Supervision: Enhance risk-based supervision to ensure that financial regulators effectively assess and mitigate ML/CTF risks.
2. ML/CTF Risks Associated with Casinos: Address the ML/CTF risks associated with casinos, such as implementing anti-money laundering controls and effective customer due diligence procedures.
3. International Cooperation: Strengthen international cooperation to prevent cross-border financial crimes, such as sharing information and best practices with other countries.

Responses to the Recommendations: JFSA and JFIU’s Plan of Action

In response to the recommendations, the Japanese Financial Services Agency (JFSA) and the Financial Intelligence Unit (JFIU) announced a series of steps to further fortify Japan’s AML/CFT framework:

1. Regulatory Updates: The JFSA has been working on regulatory updates to enhance risk-based supervision and increase the transparency of financial transactions.
2. Intensified Investigative Efforts: The JFIU has been intensifying investigative efforts to tackle complex ML/CTF cases.

Implications: The Global Impact of Japan’s Commitment to AML/CFT

Japan’s commitment to addressing ML/CTF risks will likely benefit not only its economy but also the international financial system. The implementation of the FATF’s recommendations may encourage other countries to follow suit, leading to a broader strengthening of global AML/CFT frameworks.