Financial Crime World

Japan Toughens Anti-Money Laundering Measures

Combating Money Laundering and Terrorist Financing in Japan

In recent years, Japan has strengthened its anti-money laundering (AML) measures to combat money laundering and terrorist financing. Financial institutions in the country are now more proactive in verifying customer information, including changes such as address updates due to relocation.

The Concern over Misused Deposit Accounts

The move comes amid concerns over the misuse of deposit accounts opened by visitors to Japan, which were sold to criminal organizations upon their return home and used for money laundering. To combat this issue, banks now take measures during the know-your-customer (KYC) procedures, including:

  • Confirming visitors’ period of stay in Japan
  • Verifying whether the period has been renewed prior to its expiry
  • Requesting the closure of the deposit account upon their return

Monitoring Transactions and Reporting Suspicious Activities

Financial institutions in Japan are also required to monitor transactions with customers to ensure they do not constitute suspicious transactions. In 2020, there were approximately 500,000 reports of suspicious transactions submitted to regulatory authorities.

Strengthened Inspections and Governance Arrangements

The Financial Services Agency (FSA) has strengthened its inspections focused on AML measures and off-site monitoring of financial institutions since 2021. The agency has requested that financial institutions complete the development of their governance arrangements in compliance with guidelines published by the FSA by the end of March 2024.

Compliance with FATF Recommendations

Japan has been a member of the Financial Action Task Force (FATF) since its establishment in 1990 and has developed its legal framework for AML/CFT based on FATF recommendations. The country’s largest bank, Mitsubishi UFJ Financial Group (MUFG), is also a member of the Wolfsberg Group, which publishes frameworks and guidance for managing financial crime risks.

Relevant Laws and Regulations

Other laws affecting AML/CFT in Japan include:

  • Act on the Protection of Personal Information: Obligated entities are required to obtain a data subject’s consent when providing third parties with their personal data, unless exempted by law or necessary for protecting life, body, or property.
  • Whistleblower Protection Act: Employees who report suspicious transactions or money laundering activities are protected from dismissal or other unfavourable treatment.

Prioritizing AML/CFT Measures and Governance Arrangements

As Japan prepares for the fifth round of mutual examinations by the FATF, expected to start in 2024, financial institutions are advised to prioritize AML/CFT measures and governance arrangements to avoid administrative penalties. The FSA is expected to continue its close supervision of obliged entities, with a focus on ensuring effective and proportionate sanctions for non-compliance.

Sources

  • Financial Action Task Force (FATF)
  • Japanese Bankers Association
  • Financial Services Agency (FSA)
  • Act on the Protection of Personal Information
  • Whistleblower Protection Act

Keywords

  • Anti-money laundering
  • Terrorist financing
  • Know-your-customer
  • Personal data protection
  • Whistleblower protection