Authors: Katarina Svitekova, Of counsel; Yui Ota, Associate, Norton Rose Fulbright Gaikokuho Jimu Bengoshi Jimusho and in collaboration with Kaku Hirao of Nishimura & Asahi.
The Japanese Government has long come under criticism for the deficiencies in its efforts to regulate against money laundering.
In June 2014, the Financial Action Task Force (FATF) (an intergovernmental body established for the purposes of setting standards and promoting effective implementation of legal, regulatory and operational measures for combating money laundering, terrorist financing and other related threats to the integrity of the international financial system) published a statement requesting the Japanese Government ‘enact adequate anti-money laundering and counter terrorist financing legislation.’ According to reports published in Japanese Newspaper Nikkei, If the Japanese Government did not respond to this call then the country faced the possibility of being listed in FATF’s gray list along with other countries (including Afghanistan and Iraq) that are considered to either have strategic deficiencies in tackling money laundering or counter terrorist financing, or that have not made sufficient progress in addressing these deficiencies.
As a result of this international pressure, at the end of November 2014, an amendment (the Amendment Bill) to the Prevention of Transfer of Criminal Proceeds Act (the Criminal Proceeds Act) was successfully passed and promulgated by the Japanese government. The Criminal Proceeds Act is the main statute for anti-money laundering in Japan. It should be noted that, while the Amendment Bill will come into force within two years from the date of promulgation, the exact date is not yet known.
The Criminal Proceeds Act is administered by the National Public Safety Commission (NPSC) and Japan Financial Intelligence Center (JAFIC). JAFIC sits within the National Police Agency (NPA), which falls under NPSC’s supervision. The Amendment Bill includes the following changes to the Criminal Proceeds Act:
Clarification regarding assessment procedure of suspicious transactions
Specific business operators (SBOs), which are widely defined in the Criminal Proceeds Act to include a variety of business sectors that effectively handle money in any form and which include banks, insurance companies, currency exchange business operators, lawyers and accountants, are required to make an assessment of whether a transaction is suspicious and could involve an illegal transfer of money (e.g. money laundering). The Amendment Bill provides that when making a determination, a SBO must refer to the assessment report – which we describe in greater detail below – and follow procedures required by the relevant government authority1 under which the SBO falls. If a transaction is determined to be suspicious, then under article 8 the SBO must report the proposed transaction to the relevant regulating government authority. A failure to promptly report a suspicious transaction could result in a rectification order by the relevant government authority under article 17.
The assessment report
Under article 3 of the Amendment Bill, NPSC is now required to annually publish the danger of criminal proceeds transfer assessment report (the Assessment Report). The Assessment Report will contain research and analysis of various money laundering practices taking place in the relevant industries. The Assessment Report will be based on the information provided by the relevant authorities who are notified by SBOs as above. The Assessment Report will also describe the likely risks and triggers for transfer of criminal proceeds to occur within each type of money transfer.
Foreign counterpart arrangements
Article 9 sets out that SBOs who wish to engage in business with a foreign counterpart must confirm that the counterpart has adopted a similar level of internal anti-money laundering measures. If a SBO learns that the potential foreign counterpart has not implemented such anti-money laundering measures, then the SBO may not enter into business with such a counterpart. This provision does not apply in relation to the existing business between a foreign counterpart and a SBO; in other words, SBOs do not have an obligation to ensure that an existing counterpart has had effective antimoney laundering measures in place.
The Criminal Proceeds Act originally recommended that SBOs conduct training for employees regarding anti-money laundering issues and procedures. Article 11 of the Amendment Bill sets out the following additional recommendations:
- SBOs should implement internal rules regarding the assessment of each transaction in accordance with the assessment procedures of the relevant government authority.
- SBOs should appoint a person to be in charge of anti-money laundering issues and to supervise the implementation of assessment procedures and reporting of the relevant transactions.
- SBOs should implement other measures that relevant authorities set out (These measures will be provided by ministerial ordinances issued by these authorities).
It should be noted that these other recommendations above remain in the form of recommendations only and SBOs are not strictly required to implement them.
For your reference, please see below an English translation of a summary document on revisions to the Criminal Proceeds Acts prepared by the National Police Agency.
Overview of the partial amendment of the Criminal Proceeds Act