Global Watchdog Warns Japan Lags Behind in Combating Money Laundering Techniques

A recent report by the Financial Action Task Force (FATF) has issued a stern warning to Japan, urging it to intensify its efforts to combat money laundering techniques. The global watchdog evaluated Japan’s measures against money laundering since 2008 and ranked it as “enhanced follow-up,” alongside the United States and China.

Insufficient Customer Due Diligence

The FATF emphasized that ongoing customer due diligence on bank accounts is insufficient, with financial institutions failing to regularly verify the identities of customers using their accounts. Criminal organizations and terrorists exploit this loophole by transferring illicit earnings into fictitious bank accounts, avoiding detection or arrest by authorities.

Urgent Measures Needed

To combat this issue, Japan’s Financial Services Agency is urging financial institutions to:

• Send letters or emails to bank account holders to confirm their identities and purposes for using the accounts
• Verify high-risk account information through additional measures such as phone calls, home visits, or warnings

However, a major bank official revealed that only around 40 percent of customers respond to such letters, with many mistaking them as junk mail.

Artificial Intelligence-Based System in Development

The Japanese Bankers Association is preparing to launch an artificial intelligence-based system for shared use among banks to develop and update systems that can detect illegal activities. This system aims to address the significant economic burden imposed on financial institutions, particularly those operating in regional areas with limited resources.

Improving Prosecution and Investigation

The FATF report also noted that Japan needs to improve prosecution and investigation of money laundering and terrorist financing cases. To address this issue:

• The government plans to increase the statutory maximum sentence for money laundering by revising laws on punishing organized crimes and penalizing terrorism financing
• The Justice Ministry and National Police Agency will establish a task force and conduct educational training for officials to prosecute more money laundering cases

Consequences of Non-Compliance

Although the FATF’s recommendations are not legally binding, failure to comply could result in restrictions on financial transactions. Japan must take immediate action to address these concerns and improve its measures against money laundering techniques.

Conclusion

The global watchdog has warned Japan that it lags behind in combating money laundering techniques. Urgent measures are needed to intensify efforts against money laundering, including customer due diligence, stricter enforcement, and the development of AI-based systems. Failure to comply with FATF recommendations could have severe consequences for Japan’s financial transactions.