Financial Crime World

Financial Crime Prevention Measures in Japan: A Growing Concern

Introduction

Japan has been grappling with a rise in financial crime cases, including money laundering through various channels. The National Public Safety Commission recently reported on recent cases of money laundering in Japan, highlighting the need for strengthened anti-money-laundering (AML) measures.

Notable Cases of Money Laundering

Several cases have highlighted the need for improved AML measures:

  • Using deceased persons’ or foreign nationals’ bank accounts: Criminal proceeds from fraud, theft, etc. were concealed by using these accounts.
  • Social media-based account solicitation: Hundreds of passbooks were seized from a foreigner’s base of operations in Japan, who was arrested for illegally soliciting the transfer of accounts through social media.

Deposit Transactions Misused for Money Laundering

Deposit transactions have been misused for money laundering in various ways:

  • Disguising criminal proceeds as legitimate business proceeds: An offender withdrew criminal proceeds derived from overseas fraud and transferred them to an account in Japan.
  • Using ATMs to withdraw stolen coins: A large number of stolen coins were deposited into a third party’s account at an ATM operated by a financial institution, and then withdrawn in bills at another ATM.
  • Transferring underground banking proceeds: A Vietnamese individual transferred proceeds from underground banking into the account of a relative who had become a naturalized Japanese citizen with a Japanese name.

Domestic Exchange Transactions Misused for Money Laundering

Domestic exchange transactions have also been misused for money laundering:

  • Illegally soliciting foreign transfers: An offender accepted requests from more than one client and had them remit cash for an illegal foreign transfer of money into an account that the offender had purchased from a Vietnamese national who had returned to Vietnam.
  • Forcing workers to work illegally: A Chinese offender engaged in agriculture in Japan obtained criminal proceeds by forcing a Chinese worker without a work permit to work illegally and remitted the proceeds to an account under the name of a Chinese person whom they had previously hired.
  • Raising standards for financial institutions: A staffing agency made its subsidiary staffing agency remit money to an account under the name of a third party, knowing that the standards in the guidelines of the Financial Services Agency, which set common minimum standards for all financial institutions, be raised.

Global Anti-Money Laundering Efforts

The Financial Action Task Force (FATF) is an inter-governmental body that develops global AML and CFT standards. The FATF currently comprises 37 member jurisdictions, including the G7, and two regional organizations and together with 9 FATF-style regional bodies; the FATF Recommendations apply to 205 jurisdictions around the world.

Japanese Government’s Action Plan

In response to these concerns, the Japanese government has published an Action Plan that outlines six categories with clearly stated deadlines for compliance by Japanese financial institutions within the next three years. These include:

  • Identification of risks and cooperation regarding AML/CFT and counter-proliferation financing (CPF)
  • AML/CFT/CPF measures and supervision by financial institutions and VASPs
  • AML/CFT/CPF measures and supervision by DNFBs
  • Prevention of the misuse of legal persons and trusts
  • Money laundering/terrorist financing investigation and prosecution, etc.
  • Asset freezing and NPOs

Implementing Appropriate Risk Assessment Measures

For Japanese financial institutions, implementing appropriate risk assessment and risk mitigation measures is essential. This involves analyzing their products, services, customers, etc. and understanding and taking measures against the risks by referring to the National Risk Assessment-Follow-up Report or other relevant sources. Ongoing Customer Due Diligence (CDD) in actual business operations is also crucial.

Conclusion

By strengthening AML/CFT efforts, Japanese financial institutions can help prevent financial crime and ensure a safer financial environment for all stakeholders.