Japanese Banks Preparing for Latest FATF Evaluation of Anti-Money Laundering Implementation

On May 5, the Japan Times reported that the Japanese banking industry “will strengthen efforts to prevent money laundering,” in anticipation of the upcoming Financial Action Task Force (FATF) evaluation of Japan that is scheduled for October and November.  (The FATF is an intergovernmental body that establishes standards and promotes effective implementation of legal, regulatory, and operational measures to combat money laundering, terrorist financing and other related threats, in part through the periodic monitoring of its member nations’ progress in implementing appropriate anti-money laundering (ATF) and counter-terrorist financing (CTF) measures.)

Among other industry actions, MUFG Bank, Japan’s largest bank and a group company under Mitsubishi UFJ Financial Group Inc., reportedly “plans to terminate overseas remittances made at the counter of branch offices that bypass bank accounts,” and other Japanese banks “are likely to follow suit.”  In addition, the article stated that a number of regional banks have discontinued some forms of overseas fund transfers, and Shimane Bank, which provides commercial banking and leasing services, has discontinued “all types of overseas remittances, including services that use bank accounts.”

As for regulatory agency activity, after a number of foreign students who had bank accounts in Japan sold those accounts to make extra money and the accounts were then used “in money laundering and remittance fraud cases, the Japanese Financial Services Agency (FSA) decided to “keep all financial institutions and other businesses informed of the need to urge foreign students and workers in Japan to close their bank accounts in the nation when they return home.”

Note: The coming months will be a significant period for the Japanese financial sector in demonstrating its commitment to AML/CTF compliance, at a time when money laundering appears to be increasing in Japan.   In February, the Japanese National Police Agency reported that in 2018, police received reports of 417,465 cases of suspected money laundering or other abuse (an increase of 7,422 since 2017), and most of those reports pertained to banks and other financial institutions.  In addition, after it analyzed those reports, the NPA “provided information on 8,259 cases to investigating authorities (an increase of 1,096, or more than 15 percent, since 2017).  Furthermore, in 2018 the NPA received 7,096 reports of suspicious transactions connected with cryptocurrencies (a more than tenfold increase since the 669 cryptocurrency-related reports received in 2017).

While Japan is a FATF member and a signatory to the G7 Action Plan on Combatting the Financing of Terrorism, the government is quite conscious that in FATF’s last evaluation of Japan in 2008, FATF deemed Japan’s AML/CTF implementation insufficient.  As the Nikkei Asian Review observed, the government has been interested in repairing “its tarnished image,” particularly because Japan will soon be hosting the Group of 20 Summit and Ministerial Meetings on June 28-29.

The FSA’s recent actions regarding foreign-student accounts are not the only actions that it has taken since the start of 2018 to improve AML/CTF regulation and oversight.  For example, according to the Nikkei Asian Review,

the FSA issued anti-money laundering guidelines and directed smaller financial institutions such as regional banks and shinkin banks [cooperative regional financial institutions] to conduct emergency inspections. To close the loopholes on overseas remittances, the policy requires institutions to come up with plans to train staff.

Those guidelines made clear that the FSA expected all financial institutions to adopt a risk-based approach to AML, including verifying ”that financial institutions are following the guidelines through questioning and on-site inspections” and “order[ing] operational improvements to be made if it catches lax compliance that could invite money laundering.

In addition, last fall the FSA stated in its annual report that it had made AML measures “a top priority,“ and urged financial institutions

to take steps to halt money laundering, requiring them to identify and analyze the risks associated with certain types of transactions, such as the stated purpose of cross-border cash transfers, customer attributes and countries of origin or destination.

Even so, Japan should be prepared – not least because of the reported increases in money laundering activity – for close scrutiny by the FATF this fall.

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