Japan’s Anti-Money Laundering and Combating Financing of Terrorism (AML/CFT) Governance Arrangements

Strengthening AML/CFT Measures in Japan

In a bid to strengthen its anti-money laundering and combating financing of terrorism (AML/CFT) measures, the Japanese government has outlined specific governance arrangements for obliged entities operating in the country.

Key Requirements

Financial institutions, including banks, fund transfer service providers, and cryptoasset exchange service providers, are required to implement effective AML/CFT measures, including:

* Customer Due Diligence *

Conduct thorough customer due diligence, including identification and verification of customers
Ensure that transactions are not linked to terrorist financing or money laundering

* Ongoing Monitoring *

Continuously monitor transactions for suspicious activity
Use advanced monitoring systems and train staff to identify potential red flags

* Reporting of Suspicious Activities *

Report any suspicious activities to the relevant authorities, such as the Financial Services Agency (FSA), in a timely and accurate manner

* Employee Training *

Provide regular training to employees on AML/CFT measures
Include identifying and reporting suspicious activities in employee training

Enforcement

The FSA will conduct regular inspections of financial institutions to ensure compliance with AML/CFT regulations. Failure to comply may result in:

Administrative penalties, including business improvement orders or fines

International Cooperation

Japan is a member of the Financial Action Task Force (FATF) and has developed its legal framework for AML/CFT based on FATF recommendations. The country is also part of international organizations such as the Wolfsberg Group, which provides frameworks and guidance for managing financial crime risks.

Outlook

As Japan prepares for the fifth round of mutual evaluations by the FATF, it is expected that the regulatory authorities will continue to closely supervise obliged entities to ensure compliance with AML/CFT regulations. Obligated entities must prioritize implementing effective governance arrangements to avoid administrative penalties and maintain a reputation as a responsible and compliant financial institution.

The Japanese government has also introduced travel rules for cryptoassets and stablecoins, which are expected to come into effect in 2024.