Financial Crime World

Japan’s Banking System Fails to Curb Money Laundering

A Deepening Concern

A recent report by Japan’s National Public Safety Commission has shed light on the country’s ongoing struggle with money laundering through financial institutions. The report, released on December 1, 2022, highlights several cases of money laundering involving deceased persons, foreign nationals, and domestic exchange transactions.

Notable Cases

  • Deceased Individuals: Accounts belonging to deceased individuals or foreigners who have returned home without closing their Japanese bank accounts are being used to conceal criminal proceeds.
  • Foreign Nationals: Hundreds of passbooks seized from a foreigner’s base of operations in Japan, who was arrested for illegally soliciting the transfer of accounts through social media.

Domestic Exchange Transactions

The report also notes cases involving domestic exchange transactions, including:

  • Illegal Foreign Transfers: An offender accepting requests from multiple clients and remitting cash for an illegal foreign transfer of money into an account purchased from a Vietnamese national.
  • Forced Labor: A Chinese offender engaging in agriculture in Japan obtaining criminal proceeds by forcing a Chinese worker to work illegally and remitting the proceeds to an account under a different name.

International Assessment: Japanese Financial Institutions Lacking

In August 2021, the Financial Action Task Force (FATF) published its Fourth Round Mutual Evaluation Report of Japan. The report found that Japan was placed in the “enhanced follow-up” category, requiring it to improve its anti-money laundering and counter-terrorism financing measures.

The FATF identified several areas where Japanese financial institutions were lacking, including:

  • National Cooperation and Coordination: Improvements are needed in national cooperation and coordination among various organizations.
  • Handling of Politically Exposed Persons (PEPs): Financial institutions must improve their handling of PEPs to prevent money laundering.
  • Customer Due Diligence for Designated Non-Financial Businesses and Professions (DNFBPs): Financial institutions must conduct thorough customer due diligence on DNFBPs.

Government Action Plan

In response to the FATF’s report, Japan’s Ministry of Finance published an action plan outlining six categories with clearly stated deadlines for compliance by Japanese financial institutions within the next three years.

Key Points for Japanese Financial Institutions

  • Implementing Appropriate Risk Assessment and Risk Mitigation Measures: Financial institutions must implement risk assessment and risk mitigation measures to prevent money laundering.
  • Continuously Analyzing Products, Services, Customers, etc.: Financial institutions must continuously analyze their products, services, customers, etc., and understand and take measures against the risks.
  • Ongoing Customer Due Diligence (CDD) in Actual Business Operations: Financial institutions must conduct ongoing CDD in actual business operations to prevent money laundering.