Financial Crime World

Anti-Money Laundering (AML) in Japan: A Comprehensive Overview

Overview

Japan has implemented a robust framework to combat money laundering and terrorism financing (ML/TF). The Financial Services Agency (FSA) is responsible for supervising and enforcing Anti-Money Laundering/Countering the Financing of Terrorism (AML/CFT) measures, while the Ministry of Finance (MOF) sets guidelines for obliged entities.

Key Regulations

1. Foreign Exchange and Foreign Trade Act

  • Prohibits transactions with sanctioned persons to combat terrorist financing.
  • Ensures compliance with international regulations and standards.

2. AML Act

  • Requires obliged entities to implement AML/CFT measures, including:
    • Risk-based approaches
    • Customer due diligence
    • Reporting suspicious transactions
  • Establishes a robust framework for combating ML/TF.

3. FSA Guidelines

  • Establishes requirements for governance arrangements, including:
    • Appointment of a Chief AML Officer
    • Development of an AML/CFT policy
  • Ensures effective implementation and enforcement of AML/CFT measures.

Enforcement

The FSA enforces compliance through:

  • Reporting orders
  • Business improvement orders
  • Strengthened inspections focused on AML/CFT measures since 2021

While there are no cases of criminal or financial sanctions due to deficient governance arrangements, the FSA has taken a proactive approach to ensure compliance.

International Cooperation

Japan is a member of the Financial Action Task Force (FATF) and has developed its legal framework for AML/CFT based on FATF recommendations. This collaboration enables Japan to:

  • Share best practices and expertise
  • Enhance international cooperation in combating ML/TF

One of Japan’s major banks, MUFG, is also a member of the Wolfsberg Group, which publishes frameworks and guidance for managing financial crime risks.

Other Laws

Act on the Protection of Personal Information (APPI)

  • Requires obliged entities to obtain consent from data subjects when providing personal data to third parties
  • Exempts provision based on laws and regulations or necessary to protect life, body, or property

Whistleblower Protection Act

  • Protects employees from dismissal or unfavourable treatment as a result of whistle-blowing about money laundering by their employer

Outlook

Given the increasing strictness and sophistication of AML/CFT measures, it is assumed that regulatory authorities will continue to closely supervise obliged entities. Those with inadequate governance arrangements may be subject to administrative penalties. The travel rules for cryptoassets and stablecoin transactions are also expected to be strengthened in response to money laundering concerns.