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

In Japan, anti-money laundering regulations require financial institutions to implement measures to prevent money laundering and terrorist financing. A crucial aspect of these regulations is the confirmation method, which involves verifying the identity of customers and transactions.

Confirmation Methods

There are two types of confirmation methods:

• Ordinary Confirmation: Typically conducted for low-risk transactions.
• Strict Confirmation: Required for high-risk transactions, involving verification through multiple channels such as government-issued identification and proof of address.

The required type of confirmation will be determined based on the amount of risk involved in the transaction.

Creation and Retention of Confirmation Records

When conducting ordinary or strict confirmation at the time of transaction, a record must be created and retained for a certain period of time. This record should include:

• Information about the customer
• The transaction details
• The verification process

Notification of Suspicious Transactions

Financial institutions are required to notify relevant authorities if they suspect that a transaction is related to money laundering or terrorist financing. The notification must include detailed information about the transaction and the reasons for suspicion.

Strict Confirmation at the Time of Signing Correspondent Contracts

When concluding contracts with foreign financial institutions, such as banks or electronic payment service providers, strict confirmation is required to ensure that the institution’s system for confirming transactions is effective and compliant with AML regulations.

Notification Regarding Foreign Exchange Transactions

Financial institutions must notify customers of their identification and other relevant information when conducting foreign exchange transactions.

Establishing a System for Appropriate Confirmation

To properly perform confirmation at the time of transaction, financial institutions must establish a system that includes:

• Education and training for employees
• Maintenance of rules and regulations

Variations in AML Compliance Requirements

AML compliance requirements differ depending on the type of institution. For example:

• Notification requirements for suspicious transactions do not apply to certain professionals, such as attorneys and judicial scriveners.

Supervisory Authorities

The supervisory authority responsible for examining and enforcing compliance with AML regulations varies depending on the type of institution. For example:

• The Financial Services Agency oversees banks, securities companies, and other financial institutions.
• The Minister of Economy, Trade, and Industry oversees financial lease companies and credit card companies.

Monitoring and Reporting Suspicious Activity

Financial institutions must:

• Monitor transactions for suspicious activity
• Report any suspected money laundering or terrorist financing to relevant authorities

The reporting process involves comparing transaction information with normal transaction patterns and conducting additional investigations when necessary.

Confidentiality Requirements

Financial institutions are prohibited from divulging information about reported suspicious transactions to customers or other related parties. Violation of this confidentiality obligation can result in:

• Administrative sanctions
• Criminal penalties
• Both

Overall, Japan’s AML regulations require financial institutions to implement robust confirmation methods and reporting requirements to prevent money laundering and terrorist financing. Failure to comply with these regulations can result in significant legal and reputational consequences.