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Japan’s Economic Sanctions Compliance: A Review of Payment Transactions and Underlying Transactions

Introduction

In a move to ensure compliance with international sanctions and anti-money laundering regulations, Japan has implemented stringent measures to prevent violations of economic sanctions laws and regulations. This review aims to provide an overview of the country’s economic sanctions compliance framework.

Guidelines for Anti-Money Laundering and Combating the Financing of Terrorism

The Financial Services Agency (FSA) has established guidelines for anti-money laundering and combating the financing of terrorism, requiring financial institutions to implement robust customer identification and verification processes. Additionally, the Ministry of Finance (MOF) has issued guidelines for banks and other financial institutions to effectively comply with their obligations under the Foreign Exchange and Foreign Trade Act (FEFTA).

Requirements for Financial Transactions

The FEFTA requires permission or approval for financial transactions and international trade subject to economic sanctions. While such permission may not be granted, payments are permitted when used for “expenses usually required for normal living” of terrorists and their families.

Sanctions-related reporting requirements include notification to government authorities of “suspicious transactions,” which are defined as transactions suspected to be criminal proceeds or conducted by individuals suspected of terrorism-related crimes.

Compliance Guidelines and Internal Control Systems

The MOF has established compliance guidelines for financial institutions, while the FSA has issued anti-money laundering and combating the financing of terrorism guidelines. The FEFTA also requires all persons engaged in exports of goods or transfers of technology to establish internal control systems to comply with export control regulations.

Enforcement Measures

Criminal penalties include imprisonment and fines for violating economic sanctions laws and regulations. Administrative sanctions may also be imposed, including prohibition of financial transactions and service transactions by the relevant person for a period not exceeding one year.

Corporate and Personal Liability

According to sources, there is both corporate and personal criminal liability under the FEFTA. Maximum financial penalties applicable to individuals and legal entities convicted of criminal sanctions violations include imprisonment and fines.

Administrative Sanctions

The Japanese government has also established provisions regarding administrative sanctions in addition to criminal penalties, including prohibition of importation or exportation by the relevant person for a period not exceeding one year.

Conclusion

Japan’s economic sanctions compliance framework is designed to prevent violations of international sanctions and anti-money laundering regulations. With robust reporting requirements, strict enforcement measures, and both corporate and personal liability, Japan is committed to ensuring the effectiveness of its economic sanctions regime.