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Banking & Finance

Japan to strengthen money-laundering guidelines

Banks adopting a risk-based approach to flag suspicious actions

TOKYO -- Japan will issue new guidelines against money laundering in an effort to prevent funds from getting into the hands of terrorist and criminal organizations and to shake its reputation as weak on dirty money.

The Financial Services Agency is expected to announce the rules soon and implement them as early as January. Currently, Japan's law preventing the transfer of criminal proceeds only says that suspicious transactions should be reported to authorities after the fact. Risk-based approaches are recommended but not required.

But the agency will now demand that financial institutions use a risk-based approach. Consider a customer with a direct payroll deposit of 300,000 yen ($2,660) a month who receives 200 million yen from an overseas bank. The government would require that the bank not only follow up confirming the identity of the person withdrawing the funds, but also check the deposit history and what the cash will be used for. 

Although it is difficult to tell whether an account is related to criminal activity when first opened, this proactive approach identifies high-risk transactions early so that they can be continuously monitored. 

The agency will verify that financial institutions are following the guidelines through questioning and on-site inspections. It will also order operational improvements to be made if it catches lax compliance that could invite money laundering.

The Financial Action Task Force, an intergovernmental body that combats money laundering, plans to examine Japan's financial sector in 2019, the year before the Tokyo Olympics. Public and private institutions are cooperating to strengthen their prevention systems.

(Nikkei)

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