Financial Crime World

Anti-Money Laundering (AML) and Combating the Financing of Terrorism (CFT) in Japan

Japan’s AML/CFT framework is based on the Financial Action Task Force (FATF) recommendations, which ensures a robust system to prevent and detect money laundering and terrorism financing. This article provides an overview of the key laws and measures implemented by Japan to combat these financial crimes.

Key Laws Regulating AML/CFT in Japan

The following are the primary laws regulating AML/CFT in Japan:

  • Act on Prevention of Transfer of Criminal Proceeds: This law aims to prevent the transfer of criminal proceeds, including money laundering.
  • Anti-Money Laundering Act: This act sets out the framework for anti-money laundering measures in Japan.
  • Foreign Exchange and Foreign Trade Act: This law regulates foreign exchange transactions and trade to prevent money laundering.

Risk-Based Approach to AML/CFT

A risk-based approach is essential in AML/CFT measures, which involves identifying and assessing ML/TF risks. The following steps are crucial:

Identify and Assess ML/TF Risks

  • Know-Your-Customer (KYC) procedures: Obtain and verify customer information to assess the risk of money laundering.
  • Asset freezes: Freeze assets suspected of being linked to terrorism or money laundering.
  • Transaction monitoring: Monitor transactions for suspicious activity.

Regulatory Authorities’ Role

Regulatory authorities play a crucial role in supervising obliged entities and imposing administrative penalties for non-compliance. They ensure that obliged entities have adequate governance arrangements in place to prevent and detect ML/TF risks.

Japan’s Membership in the FATF

Japan has been a member of the FATF since its establishment in 1990 and has developed its legal framework for AML/CFT based on FATF recommendations. Other laws affecting AML/CFT include:

  • Act on the Protection of Personal Information (APPI): This law regulates personal information to prevent data breaches.
  • Whistleblower Protection Act: This act protects whistleblowers who report suspicious activity.

Conclusion

Japan’s responses to the fifth round of examinations will be carried out in parallel with the follow-up to the fourth round of examinations. Regulatory authorities will continue to closely supervise obliged entities, and those with inadequate governance arrangements may be subject to administrative penalties.