Japan has been taking effective measures to combat financial crime for years. But, despite all these measures, Japan still faces risks of money laundering, terrorist financing, corruption, and fraud. According to the reports, money laundering cases increased by 40% to 511 in 2018. Cryptocurrencies are among the sources of this increase. The system's deficiencies, which occurred due to the rapid growth of the crypto sector and the fact that it could not be regulated yet, were vulnerable to financial crimes.
The global COVID-19 pandemic, which started in 2020, has dramatically impacted businesses worldwide, including Japan. This has changed money laundering and terrorist financing (ML/TF) risks, partly because there are more non-face-to-face transactions now than ever.
The National Police Agency's "Annual Report on Prevention of Transfer of Criminal Proceeds (2021)" states that starting in 2016, there has been a steady increase in the number of reports of suspicious transactions. This quantity increased to an unexpected 530,150 in 2021. According to the data, banks were the source of the majority of these reports, or 390,381 cases, or roughly 73.6% of all reported cases. This ratio vastly surpasses that of the money lending industry.
AML Laws and Regulations in Japan
- The Act on Special Provisions for the Narcotics and Psychotropics Control Act, etc, and Other Matters for the Prevention of Activities Encouraging Illicit Conduct and Other Activities Involving Controlled Substances through International Cooperation (Act No. 94 of 1991) (the Anti-Drug Special Provisions Act);
- The Act on Punishment of Organised Crimes and Control of Crime Proceeds (Act No. 136 of 1999) (the Act onPunishment of Organised Crimes); and
- The Act on Prevention of Transfer of Criminal Proceeds (Act No. 22 of 2007).
In the Japanese criminal justice system, public prosecutors possess the authority to exercise discretion when determining whether to bring charges against an individual accused of money laundering. Once a suspect is formally charged by the public prosecutor, it falls upon the court to assess the available evidence and make a verdict regarding the defendant's guilt. If the court finds the defendant guilty, they will then impose an appropriate sentence.
It's important to note that Japanese criminal procedure does not provide for alternative resolutions such as plea agreements or settlement agreements as substitutes for a full trial. In money laundering cases, the criminal penalty typically involves imprisonment for a maximum of five years, a fine that can reach up to ¥10 million, or a combination of both. The severity of the sentence may vary depending on the specific type and circumstances of the money laundering activities involved.
Japan's FATF Status
On August 30, 2021, the FATF (Financial Action Task Force), an organization responsible for setting international standards related to anti-money laundering, counter-terrorism financing, and countering the financing of proliferation, released its 4th round of Mutual Evaluation Report (MER) concerning Japan's efforts in these areas, aligning with FATF recommendations. This report highlighted Japan's improvements compared to its 3rd MER in 2008, particularly in certain aspects. However, it also pointed out areas that require more attention, such as enhancing the supervision of financial institutions (FIs) and designated non-financial businesses and professions (DNFBPs), as well as strengthening anti-money laundering and counter-terrorism financing (AML/CFT) measures taken by FIs and DNFBPs, often referred to as specified business operators.
In response to the FATF MER, the Japanese government unveiled a "National AML/CFT/CPF Action Plan" for the next three years to implement necessary legislative actions effectively. To achieve the Action Plan's objectives, collaboration between the public and private sectors remains essential.
In addition, the FATF's Second 12-Month Review Report on Standards for Virtual Assets and Virtual Asset Service Providers, adopted in June 2021, emphasizes the significance of swift implementation of FATF Standards and travel regulations by both the public and private sectors to avoid regulatory loopholes. The report also identifies risks related to peer-to-peer transactions and crypto-assets, highlighting the FATF's dedication to industry engagement and monitoring to promote global adherence to FATF Standards and address concerns about ransomware.
Anti-Money Laundering Solutions for Japan
Given Japan's significant influence in finance, maintaining a proactive stance on AML regulations is crucial. The expertise of Sanction Scanner enables institutions to fulfill their AML obligations while gaining insightful knowledge of the dynamic AML environment unique to Japan. Learn how Sanction Scanner's AML solutions influence compliance in Japan and beyond by contacting us and requesting a demonstration today.