Financial Crime World

Japan Embarks on Risk-Based Approach to Anti-Money Laundering

In a bid to strengthen its anti-money laundering (AML) and counter-terrorism financing (CFT) measures, Japan’s Financial Services Agency (FSA) has proposed new guidelines for certified public accountants and audit firms.

Strengthening Measures in Response to Globalization and Sophisticated Criminality

The FSA’s draft guidelines aim to bring Japan into line with international standards set by the Financial Action Task Force (FATF), which has previously criticized the country for its underperformance. The revised Act on the Prevention of Transfer of Criminal Proceeds is expected to take effect in April 2024 and will impose stricter obligations on certified public accountants, tax accountants, and administrative scriveners.

Key Changes

  • Require more extensive verification checks on certain transactions, including:
    • Pinpointing the purpose of transactions
    • Client identity
    • Business nature
    • Beneficial ownership
  • Verify clients’ assets and income for “high-risk” transactions above ¥2 million
  • Professional firms must adopt a risk-based approach, regularly assessing risks associated with their services and compiling customer risk profiles

Enhanced Due Diligence in High-Risk Cases

The guidelines emphasize the importance of enhanced due diligence in high-risk cases, such as transactions involving Politically Exposed Persons (PEPs). Lawyers and legal scriveners are already subject to similar AML/CFT measures.

Compliance Requirements

  • Certified public accountants and audit firms must keep records of verification processes for seven years
  • Records must include details on the individual who completed the verification
  • Failure to adhere to these requirements may result in regulatory penalties and damage to reputation

Meeting FATF Expectations and Best Practices

The proposed changes signal Japan’s commitment to meeting FATF expectations and following international best practices. As the country seeks to combat exploitation of corporate structures and nominee director arrangements by criminal elements, financial institutions are urged to scrutinize client activities to ensure compliance with FSA requirements.

For more information on the draft guidelines, please visit the FSA website (Japanese only). For assistance in implementing AML/CFT programs or training, contact Philippa Allen or Manabu Nagano.