Financial Crime World

Japan Tightens Financial Inclusion and Crime Prevention Measures to Combat Money Laundering and Terrorist Financing

The Japanese government has introduced new proposed guidelines aimed at strengthening measures to prevent money laundering and terrorist financing in the country. These guidelines are part of Japan’s efforts to comply with international standards set by the Financial Action Task Force (FATF).

Enhanced Client Verification Requirements

Under the new guidelines, certified public accountants and audit firms will be required to:

  • Verify the identities of their clients more thoroughly, including:
    • Purpose of transactions
    • Nature of businesses
    • Beneficial ownership
  • Verify clients’ assets and income for high-risk transactions above 2 million yen
  • Keep records of the verification process for seven years following the date of the transaction or termination of the contract relating to the transaction

Risk-Based Approach for Professional Firms

The guidelines introduce a risk-based approach for professional firms, requiring them to:

  • Frequently examine risks associated with the services they provide
  • Maintain records of the verification process for seven years following the date of the transaction or termination of the contract relating to the transaction

Reporting Suspicious Transactions

Administrative scriveners, certified public accountants, and tax accountants will be required to report on suspicious transactions where they suspect proceeds are connected to criminal activities. In some cases, accounts may be frozen.

Combating Money Laundering and Terrorist Financing Challenges

The new guidelines aim to combat money laundering and terrorist financing by addressing key challenges such as:

  • Exploitation of corporate structures
  • Shell companies
  • Special purpose vehicles (SPVs)
  • Nominee director arrangements

Implementation and Compliance

The Financial Services Agency (FSA) has outlined obligations and supervisory expectations for certified public accountants and audit firms. Changes are expected to take effect in April 2024.

Experts stress the importance of compliance with the proposed guidelines, warning that failure to adhere may result in regulatory penalties and damage to reputation.

International Cooperation

The move signals Japan’s commitment to meeting FATF’s expectations in relation to anti-money laundering (AML) and countering terrorist financing (CFT). The country is following the lead of other international financial centers in scrutinizing how ancillary service providers meet the financial sector’s need for reducing risks.

Expert Assistance

Financial institutions are advised to pay closer attention to the activities of their clients to ensure compliance with FSA requirements. The proposed guidelines can be accessed on the FSA website, and experts are available to provide assistance in implementing AML/CTF programs, procedures, training, or remediation of inadequate client identification files.

By strengthening financial inclusion and crime prevention measures, Japan aims to combat money laundering and terrorist financing, demonstrating its commitment to international standards and cooperation.