Bank Secrecy and Depositor Protection in Japan

Preventing Money Laundering and Terrorist Financing

In Japan, financial institutions are subject to strict regulations aimed at preventing money laundering and terrorist financing. One such regulation is the requirement for banks to verify the identification of their customers prior to entering into a specified transaction.

Extensive Background Checks

Recent reports indicate that Japanese banks have been conducting extensive background checks on their clients to ensure compliance with these regulations. The verification process involves checking identification documents, such as driver’s licenses, to confirm the customer’s name, address, and date of birth.

Purpose of Transaction Verification

The purpose of this transaction verification is to prevent money laundering and terrorist financing by identifying the beneficial owners of corporate accounts and ensuring that transactions are legitimate and transparent.

Maintaining Records and Reporting Suspicious Transactions

In addition to verifying customer identities, Japanese banks are also required to maintain detailed records of all transactions for a period of seven years. These records must include information on:

• Date and contents of each transaction
• Measures taken to verify the identity of the customer at the time of the transaction

Furthermore, Japanese banks are obligated to report any suspicious transactions to the competent administrative authority. This is intended to help detect and prevent financial crimes such as money laundering and terrorist financing.

Depositor Protection under Japan’s Deposit Insurance System

In the event that a bank fails or goes bankrupt, depositors may be protected under Japan’s deposit insurance system. The Deposit Insurance Corporation (DIC) administers this system, which provides financial assistance to failed financial institutions and protects depositors up to a statutory limit of ¥10 million per depositor per insured financial institution.

Coverage of Deposits

Deposits for payment and settlement purposes are fully covered by the deposit insurance system, while deposits other than these may be protected up to the statutory limit. Certain types of deposits, such as foreign currency deposits and negotiable certificates of deposit, are disqualified from coverage under the system.

Funding the Deposit Insurance System

The DIC is funded through a combination of:

• Insurance premiums paid by insured financial institutions
• Capital contributions from the government, Bank of Japan, and certain financial institutions
• Bond issuances and borrowings from financial institutions

Improving Customer Identification Procedures

Japanese banks have been working to improve their customer identification procedures in recent years, with many implementing advanced technologies such as:

• Biometric authentication
• Artificial intelligence-powered fraud detection systems