As of June 2008, there is no comprehensive assessment publicly available on Japan's compliance with the Financial Action Task Force's (FATF) 40+9 Recommendations and Special Recommendations. Nevertheless, the International Monetary Fund's (IMF) 2004 Report on the Observance of Standards and Codes (ROSC) indicates that Japan has made good progress in bringing its Anti-Money Laundering and Criminalizing the Financing of Terrorism regime into greater compliance with international standards. However, the report was prepared in 2003 and bases its findings on the 2002 FATF methodology rather than the latest (2004) methodology. Therefore, it cannot be used as an accurate measurement of Japan's compliance with the FATF's present requirements for this standard. Nevertheless, according to the IMF ROSC, Japan has a comprehensive legal and institutional framework. For example, money laundering was originally criminalized in Japan as it related to drug offenses through the Law Concerning Special Provisions for Narcotics and Psychotropic Control Law etc. and Other Matters for Prevention of Activities Encouraging Illicit Conduct and Other Activities Involving Controlled Substances of 1991. The Law for the Punishment of Organized Crimes, Control of Crime Proceeds and Other Matters of 1999 expanded the reach of predicate offenses beyond drug-related offenses to cover money laundering predicate offenses like financial crime. A 2008 U.S. Department of State (DoS) report notes that, in March 2007, the Japanese government enacted the Act on Prevention of Transfer of Criminal Proceeds, a new money laundering law designed to further Japan's compliance with the FATF's recommendations. Terrorist financing is criminalized pursuant to the Law on Punishment of the Financing of Offenses of Public Intimidation of 2002, which also facilitates the freezing of terrorist assets.

General Overview

The 2004 International Monetary Fund's (IMF) 2004 Report on the Observance of Standards and Codes (ROSC) concluded that Japan had "a comprehensive legal and institutional framework" and "ha[d] achieved a good level of compliance with the FATF's [Financial Action Task Force] 40+9 Recommendations" (p. 1). However, the report was prepared in 2003 and as such bases its findings on the 2002 FATF methodology rather than the latest (2004) methodology. Money laundering was originally criminalized in Japan as it related to drug offenses through the Law Concerning Special Provisions for Narcotics and Psychotropic Control Law etc. and Other Matters for Prevention of Activities Encouraging Illicit Conduct and Other Activities Involving Controlled Substances (NSL) of 1991. The Act on the Punishment of Organized Crimes, Control of Crime Proceeds and Other Matters (POCL) of 1999 expanded the reach of predicate offenses beyond drug-related offenses to cover money laundering predicate offenses like financial crimes. The 2008 U.S. Department of State's (DoS) International Narcotic Control Strategy report notes that, in March 2007, the Japanese government enacted the Act on Prevention of Transfer of Criminal Proceeds, a new money laundering law designed to further Japan's compliance with the FATF's recommendations. Terrorist financing is criminalized pursuant to Law on Punishment of the Financing of Offenses of Public Intimidation of 2002, which also facilitates the freezing of terrorist assets.

The 2004 IMF ROSC observed that both the NSL and POCL empower Japanese authorities to confiscate, freeze and seize the proceeds of crime. Specifically, the NSL provides the power to confiscate illegal profits gained through drug crimes, and the POCL extends these confiscation powers to money laundering predicate offenses. According to the ROSC, the Law on Punishment of the Financing of Offenses of Public Intimidation of 2002 provides for the freezing of funds used for terrorist financing. As reported in the 2008 U.S. DoS report, in 2006, Japanese law enforcement seized 6.07 billion yen (U.S. $52 million) in forfeited assets due to money laundering and terrorism financing, up from 4.46 billion yen (U.S. $39 million) in 2005. However, the ROSC notes that Japan's Anti-Money Laundering and Criminalizing the Financing of Terrorism (AML/CFT) freezing and confiscation regime is lacking in specified and itemized statistics, adding that "confiscation of proceeds of crime or property used to finance terrorism appears to be relatively low" (p. 5). The ROSC recommended that Japan adopt adequate means to gather and disseminate such data.

Japan's financial intelligence unit (JAFIO), until April 2007, was under the Financial Services Agency (FSA). According to the JAFIC 2007 Annual Report, on April 1, 2007, per the 2007 Act on Prevention of Transfer of Criminal Proceeds, JAFIO was renamed the Japan Financial Intelligence Center (JAFIC) and was established within the National Police Agency (NPA) under the administration of the National Public Safety Commission (NPSC). In its 2007 Annual Report the JAFIC notes that it is tasked with receiving suspicious transaction reports (STRs) submitted by entities subject to Japan's AML/CFT laws. It then analyzes these STRs, and finally disseminates this intelligence to investigative authorities such as the Public Prosecutor's Office and the Prefectural Police. According to its annual report, in 2007 the JAFIC received 158,041 STRs and disseminated 98,629 of these reports. According to the 2008 U.S. DoS report, in 2006, Japanese law enforcement seized 6.07 billion yen (U.S. $52 million) in forfeited assets due to money laundering and terrorism financing, up from 4.46 billion yen (U.S. $39 million) in 2005.

The 2008 U.S. DoS report observes that Japan has not adopted specific due diligence or banker negligence laws to make individual bankers legally responsible if their institutions launder money. However, the report states that there are administrative guidelines that require due diligence. For example, the 2004 IMF ROSC notes that the FSA and the Ministry of Finance (MoF) have issued guidelines on customer due diligence for financial institutions. The ROSC recommends that Japan further provide financial institutions with additional guidance. Nevertheless, the U.S. DoS report states that, in addition to criminalizing money laundering, the 2007 Act on Prevention of Transfer of Criminal Proceeds also requires financial institutions to conduct customer due diligence, confirm client identity and retain customer verification records.

Regarding the ratification and implementation of Conventions and United Nations (UN) Special Resolutions, the 2008 U.S. DoS report observes that, since June 11, 2002, Japan is a party to the UN International Convention for the Suppression of the Financing of Terrorism. Also, Japan is party to the 1988 UN Drug Convention and has signed but not ratified the UN Transnational Organized Crime Convention. Japan's new financial intelligence unit, the JAFIC, became a member of the Egmont Group of FIUs in May 2007. Japan is one of the founding members of the FATF and has been an active contributor to its work. Japan is also one of the founding members of the Asia Pacific Group on Money Laundering (APG).

The Principles

1. Legal Systems and Related Institutional Measures

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There is insufficient information publicly available regarding Japan's compliance with the FATF's recommendations relating to this principle. The 2004 IMF ROSC based its assessment of Japan's compliance with FATF recommendations on the 2002 (old) methodology, which has since been revised. According to the 2004 IMF ROSC, Japan criminalizes money laundering through a variety of laws. Money laundering was originally criminalized as it related to drug offenses through the Law Concerning Special Provisions for Narcotics and Psychotropic Control Law etc. and Other Matters for Prevention of Activities Encouraging Illicit Conduct and Other Activities Involving Controlled Substances of 1991. The Act on the Punishment of Organized Crimes, Control of Crime Proceeds and Other Matters of 1999 expanded the reach of predicate offenses beyond drug-related offenses to cover money laundering predicate offenses like organized crime and financial crime. The 2008 U.S. DoS report notes that, in March 2007, the Japanese government enacted the Act on Prevention of Transfer of Criminal Proceeds, a new money laundering law designed to further Japan's compliance with the FATF's 40+9 Recommendation and Special Recommendations. According to the JAFIC's 2007 Annual Report, this new law is created on the basis of existing laws and in response to the FATF's revised recommendations. The DoS report notes that the new law makes several significant improvements upon the POCL and NSL. One such development is the extension of the law to several more non-financial businesses, such as real estate agents, private mail box agencies, dealers of precious metals and stones, and certain types of trust and company service providers. However, the 2008 U.S. DoS report notes some deficiencies in Japan's money laundering legal framework, notably the fact that there have been few successful money laundering prosecutions. The report also states that the narrow scope of the POCL and NSL limits their effectiveness, and the U.S. DoS particularly recommends that Japan aggressively enforce the POCL.

Terrorist financing is criminalized pursuant to Law on Punishment of the Financing of Offenses of Public Intimidation of 2002, which also facilitates the freezing of terrorist assets. This law came about as part of revisions to the POCL that basically added terrorism financing to the list of money laundering predicate offenses. Furthermore, according to the U.S. DoS report, Japan is party to the UN International Convention for the Suppression of the Financing of Terrorism, which, amongst other functions, requires parties to take steps to prevent and counteract the financing of terrorists.

The 2004 IMF ROSC observed that both the NSL and POCL empower Japanese authorities to confiscate, freeze and seize the proceeds of crime. Specifically, the NSL provides the power to confiscate illegal profits gained through drug crimes, and the POCL extends these confiscation powers to money laundering predicate offenses. According to the ROSC, the Law on Punishment of the Financing of Offenses of Public Intimidation of 2002 provided for the freezing of funds used for terrorist financing. Furthermore, in accordance with the UN International Convention for the Suppression of the Financing of Terrorism and other UN international conventions on terrorism, Japan's MoF and the FSA actively list on and distribute the UN 1267 Sanctions Committee's consolidated list of suspected terrorists and organizations. Such freezing is provided for under the Foreign Exchange and Foreign Trade Law. In 2006, Japanese law enforcement seized 6.07 billion yen (U.S. $52 million) in forfeited assets due to money laundering and terrorism financing, up from 4.46 billion yen (U.S. $39 million) in 2005.

Japan's financial intelligence unit (JAFIO), until April 2007, was under the Financial Services Agency (FSA). According to the JAFIC 2007 Annual Report, on April 1, 2007, per the 2007 Act on Prevention of Transfer of Criminal Proceeds, JAFIO was renamed the Japan Financial Intelligence Center (JAFIC) and was established within the National Police Agency under the administration of the National Public Safety Commission. The JAFIC 2007 Annual Report notes that the JAFIC receives STRs submitted by entities subject to Japan's AML/CFT laws, then analyzes the STRs, and finally disseminates this intelligence to investigative authorities such as the Public Prosecutor's Office and the Prefectural Police. According to its annual report, in 2007 the JAFIC received 158,041 STRs and disseminated 98,629 of these reports. According to the 2008 U.S. DoS report, in 2006, Japanese law enforcement seized 6.07 billion yen (U.S. $52 million) in forfeited assets due to money laundering and terrorism financing, up from 4.46 billion yen (U.S. $39 million) in 2005. When the FIU was the JAFIO, the ROSC recommended it expand its resources, hire more permanent staff and develop its analytical tools to more efficiently select STRs for further analysis. The 2008 U.S. DoS report states that one of the consequences of the new Act on Prevention of Transfer of Criminal Proceeds and the subsequent relocation of JAFIC from the FSA to the NPA is that JAFIC's staff grew from 17 to 43 personnel, adding that a stronger emphasis has since been placed on analytical functions.

According to the 2004 IMF ROSC, Japan's Criminal Procedure Code gives public prosecutors and law enforcement authorities the ability to employ a wide variety of investigative techniques and the right to compel financial institutions to produce bank accounts and financial transaction records. However, the ROSC also pointed to several weaknesses in Japan's law enforcement regime.

2. Preventive Measures - Financial Institutions

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The 2008 U.S. DoS report observes that Japan has not adopted specific due diligence or banker negligence laws to make bankers legally responsible when their institutions launder money. However, the report notes that Japan already has administrative guidelines that require such due diligence. For example, the 2004 IMF ROSC notes that the FSA and the MoF have issued guidelines on customer due diligence for financial institutions. The U.S. DoS report also states that, in addition to criminalizing money laundering, the 2007 Act on Prevention of Transfer of Criminal Proceeds also requires financial institutions to conduct customer due diligence, confirm client identity and retain customer verification records.

Regarding record keeping and wire transfer rules, the ROSC noted that the Law on Customer Identification and Record Retention of 2003 (also called the "Law Concerning the Identification of Customers by Financial Institutions and the Prevention of the Unlawful Use of Bank Accounts") provides sufficient legal basis for customer identification and record keeping procedures. The 2008 U.S. DoS report notes that, in January 2007, the Japanese Diet revised two key laws to improve Japans record keeping and wire transfer rules. A revision to the Foreign Exchange and Foreign Trade Law now requires financial institutions to ensure positive customer identification for domestic transactions and transfers abroad in amounts of more than 100,000 yen (approximately $900). Furthermore, under this revision, financial institutions are now required to maintain customer identification records for seven years. An amendment to the rule on Customer Identification by Financial Institutions requires financial institutions to identify the originators of wire transfers of over 100,000 yen. Also, Japan has no secrecy laws that prevent the disclosure of client and ownership information to law enforcement authorities.

Pertaining to suspicious transaction reports, the 2008 U.S. DoS report points out that, in addition to criminalizing money laundering, the 2007 Act on Prevention of Transfer of Criminal Proceeds (and the preceding POCL) requires financial institutions to report STRs to the JAFIC. According to its annual report, in 2007 the JAFIC received 158,041 STRs and disseminated 98,629 of these reports.

Regarding Japan's supervisory and oversight system, the 2004 IMF ROSC noted that "supervisors ha[d] sufficient enforcement powers to enforce compliance with the AML/CFT requirements" (p. 8). The major players in Japan's financial sector supervisory and oversight regime are the FSA, which supervises all financial institutions, the Securities and Exchange Surveillance Commission, which supervises securities transactions, the MoF, which oversees private financial institutions for some terrorist financing issues under the Foreign Exchange and Foreign Trade Law, and the Ministry of Public Management, Home Affairs, Posts and Telecommunications (MPHPT, now called Ministry of Internal Affairs and Communications), which supervises Japan Post, the world's largest postal savings system. However, the ROSC pointed to the lack of information-sharing between the FSA, MOF, and the MPHPT on AML/CFT issues, and recommended that these authorities increasingly "cooperate and share information and experience on financial institutions' compliance on an ongoing basis" (p. 8). Despite the above descriptive information, none of the sources quoted, directly address Japan's compliance with the FATF's requirements for this principle.

3. Preventive Measures - Designated non-Financial Business and Professions

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According to the 2008 U.S. DoS report, the new Act on Prevention of Transfer of Criminal Proceeds of 2007 extends Japan's money laundering statutes to several more non-financial businesses, such as real estate agents, private mail box agencies, dealers of precious metals and stones, and certain types of trust and company service providers. Furthermore, in addition to criminalizing money laundering, the new law also requires that these non-financial businesses conduct customer due diligence, file STRs, confirm client identity and retain customer verification records. In addition, the new law now covers legal and accounting professionals like judicial scriveners and certified public accounts, which are now required to conduct customer due diligence and record keeping, but not STR reporting. Despite the above descriptive information, none of the sources address Japan's compliance with the FATF's requirements for this principle.

4. Legal Person and Arrangements & Non-Profit Organizations

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There is insufficient information publicly available as to Japan's compliance with this principle.

5. National and International Co-operation

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There is insufficient information publicly available regarding Japan's compliance with the FATF's recommendations relating to this principle. Regarding the ratification and implementation of Conventions and United Nations Special Resolutions, the 2008 U.S. DoS report observes that, since June 11, 2002, Japan is a party to the UN International Convention for the Suppression of the Financing of Terrorism. Also, Japan is party to the 1988 UN Drug Convention and has signed but not ratified the UN Transnational Organized Crime Convention. Japan's new financial intelligence unit, the JAFIC, became a member of the Egmont Group of FIUs in May 2007. Japan is one of the founding members of the FATF and has been an active contributor to its work. Japan is also one of the founding members of the Asia Pacific Group on Money Laundering (APG).

The 2004 IMF ROSC noted that "Japan's legal framework for and implementation of mutual legal assistance (MLA) show[ed] no deficiencies, or at least no significant shortcomings, in relation to international standards" (p. 12). The ROSC also stated that Japanese authorities adequately respond to MLA requests from foreign countries. According to the 2008 U.S. DoS report, Japan completed a Mutual Legal Assistance Treaty (MLAT) with the Republic of Korea in 2006 and one with the United States in 2003, which took effect in 2006. In terms of exchange of information, the JAFIC's 2007 Annual Report notes that the JAFIC has signed memoranda of understanding (MoUs) with FIUs of 12 countries and regions as of the end of 2007.

Regarding extraditions, the 2004 IMF ROSC stated that the Law for International Assistance in Investigations enabled Japan to "execute a request for legal assistance in criminal cases from a foreign country even in the absence of a bilateral mutual legal assistance treaty" (p. 9). However, the ROSC noted that such requests for assistance had to be sent via established diplomatic channels, adding that Japan's "diplomatic channels are complex and lengthy" (p. 9).