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Japan’s Anti-Money Laundering Regulations: Confirmation Methods and Reporting Requirements

TOKYO, Japan - In a move to combat money laundering and terrorist financing, the Japanese government has implemented strict anti-money laundering (AML) regulations for financial institutions and other specified business operators. The AML rules require these entities to implement robust customer due diligence procedures, including confirmation methods and reporting requirements.

Confirmation Methods

There are two types of confirmation methods: ordinary confirmation at the time of transaction and strict confirmation at the time of transaction. The required type of confirmation will be determined according to the amount of risk involved in the transaction. Ordinary confirmation is typically used for low-risk transactions, while strict confirmation is used for high-risk transactions.

Creation and Retention of Confirmation Records

When confirmation at the time of transaction is conducted, a record pertaining to the confirmation items (confirmation record) must be created and retained for a certain period of time. This ensures that all transactions are properly documented and can be easily accessed in the event of an investigation.

Notification of Suspicious Transactions

Certain transactions that are suspected of money laundering must be notified to the relevant authorities. The notification process is critical in identifying and preventing illegal activities.

Strict Confirmation at Time of Signing Correspondent Contract

When concluding a contract with a foreign financial institution, such as a foreign bank or electronic payment instruments transaction service provider, for continuous or repeated foreign exchange transactions (correspondent contract), transfer of electronic payment methods, or transfer of digital assets, it is necessary to confirm the foreign institution’s system for confirmation at the time of transaction and the status of the transaction.

Establishing a System for Appropriate Confirmation

To properly perform the confirmation at the time of transaction, it is necessary for the business operator to establish a certain system (e.g., a system for education and training, and maintenance of rules and regulations).

AML Compliance Requirements Vary by Institution Type

Yes. Various regulations set forth by the AML rules are selectively applied depending on the type of specified business operator. For example:

  • The notification requirement of suspicious transactions does not apply to certain professionals (such as attorneys and judicial scriveners).
  • The strict confirmation at time of conclusion of correspondent contracts and notification regarding foreign exchange transactions apply only to financial institutions (such as banks, insurance companies, and financial instruments dealers).

Government Authorities Responsible for Examination and Enforcement

The supervisory authority differs depending on the type of specified business operator. For example:

  • The Financial Services Agency supervises banks, securities companies, funds transfer agents, and crypto asset exchangers.
  • The Minister of Economy, Trade, and Industry supervises financial lease companies and credit card companies.
  • The Casino Management Commission supervises casino operators.

Confidentiality Requirements

Under the AML rules, specified business operators are prohibited from divulging to customers or other related parties involved in the transactions in question that they intend to notify or have notified suspicious transactions. If a specified business operator violates this confidentiality obligation, it will be subject to a corrective order as an administrative sanction, and violation of the corrective order will result in criminal penalties.

Penalties for Violations

Violations of AML regulations can result in severe penalties, including fines and even imprisonment. It is essential that financial institutions and other specified business operators comply with these regulations to avoid any legal consequences.

In conclusion, Japan’s anti-money laundering regulations are designed to prevent illegal activities and ensure the integrity of the country’s financial system. By understanding the confirmation methods and reporting requirements outlined in this article, financial institutions and other specified business operators can better comply with these regulations and protect their reputation and assets.