Financial Crime World

Japan’s Fight Against Money Laundering: A Look into the Requirements for Obliged Entities

Tokyo, Japan - AML/CFT Regulations

As part of its efforts to combat money laundering and terrorist financing, Japan’s government has outlined a series of requirements for obliged entities to ensure compliance with anti-money laundering (AML) and combating the financing of terrorism (CFT) regulations.

Obliged Entities: Responsibilities and Requirements

According to the Foreign Exchange and Foreign Trade Act, obliged entities such as banks, fund transfer service providers, and cryptoasset exchange service providers must:

  • Confirm that transactions requested by customers are legitimate and do not involve illegal activities.
  • Verify the identity of customers.
  • Monitor transactions for suspicious activity.
  • Report any suspicious transactions to the authorities.

Japanese Financial Services Agency (FSA) Guidelines

The FSA has set forth guidelines for obliged entities to develop effective AML/CFT governance arrangements, including:

  • Establishing a risk-based approach to AML/CFT compliance.
  • Identifying and mitigating risks associated with transactions and customers.
  • Implementing internal controls and procedures to ensure compliance.
  • Conducting regular training and testing of employees.

Strengthened Inspections and Off-Site Monitoring

The FSA has strengthened its inspections focused on AML/CFT measures and off-site monitoring of financial institutions. The agency has requested that all financial institutions complete the development of their governance arrangements in compliance with the guidelines by the end of March 2024.

Commitment to Compliance

“We are committed to ensuring that Japan’s financial system is free from money laundering and terrorist financing,” said a spokesperson for the FSA. “We will continue to closely supervise obliged entities and take enforcement action against those that do not comply with our regulations.”

Japan has been a member of the Financial Action Task Force (FATF) since its establishment in 1990, and has developed its legal framework for AML/CFT based on FATF recommendations.

Additional Laws and Regulations

Other laws affecting Japan’s response to money laundering include:

  • Act on the Protection of Personal Information (APPI): regulates the handling of personal data by obliged entities.
  • Whistleblower Protection Act: protects employees who report suspected money laundering activities from retaliation.

Future Expectations

As the FATF plans to start its fifth round of mutual examinations in 2024, Japan’s regulatory authorities are expected to continue their close supervision of obliged entities and take enforcement action against those that do not comply with the regulations.