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Japan’s Anti-Money Laundering (AML) Regulations: Confirmation Methods and Reporting Requirements
In a move to combat money laundering and terrorist financing, Japan has implemented strict anti-money laundering (AML) regulations. As part of these regulations, financial institutions are required to implement confirmation methods to verify the identity of their customers and report suspicious transactions.
Confirmation Methods
There are two types of confirmation methods:
- Ordinary Confirmation: Verifying a customer’s identity through a combination of checks, such as proof of address and identification documents. This method is typically used for low-risk transactions.
- Strict Confirmation: A more thorough verification process, including checking the customer’s background and source of funds. This method is typically used for high-risk transactions.
Creation and Retention of Confirmation Records
When conducting confirmation at the time of transaction, a record must be created and retained for a certain period of time. This record, known as a “confirmation record,” must include details such as:
- Customer’s identity
- Type of transaction
- Relevant documentation
Similarly, records related to certain transactions stipulated under the AML Rules must also be created and retained for a certain period of time.
Notification of Suspicious Transactions
If a financial institution suspects that a transaction is linked to money laundering or terrorist financing, it must notify the competent supervisory agency promptly. This notification must include details such as:
- Customer’s identity
- Type of transaction
- Relevant documentation
Strict Confirmation at the Time of Signing a Correspondent Contract
When concluding a contract with a foreign financial institution for continuous or repeated foreign exchange transactions, electronic payment methods, or digital assets, strict confirmation is required. This involves verifying the foreign institution’s system for confirmation at the time of transaction and the status of the transaction.
Notification Regarding Foreign Exchange Transactions
When outsourcing foreign exchange transactions, the business operator must notify the outsourced party of the customer’s identification and other relevant information.
Notification Regarding Transfer of Electronic Payment Methods or Digital Assets
When transferring electronic payment methods or digital assets, the business operator must notify the transferee of the customer’s identification and other relevant information.
Establishing a System for Appropriate Confirmation at the Time of Transactions
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
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. Violation of this confidentiality obligation can result in administrative sanctions and criminal penalties.
The public official to whom the notification is made is also subject to the obligation of confidentiality under the National Public Service Law, and any violation of this obligation is subject to criminal penalties.
Penalties for Non-Compliance
Failure to comply with AML regulations can result in severe penalties, including administrative sanctions and criminal penalties. Financial institutions that fail to implement adequate confirmation methods or report suspicious transactions may be subject to fines and other penalties.
In conclusion, Japan’s AML regulations require financial institutions to implement strict confirmation methods and report suspicious transactions to combat money laundering and terrorist financing. Failure to comply with these regulations can result in severe penalties, highlighting the importance of implementing effective AML measures.