Significance of AML/CFT measures
Money Laundering is generally defined as the process of concealing the illicit origin of criminal proceeds, by which criminals try to avoid the detection or the arrest by the investigative authorities. In Japan, it is criminalized in the Act on Punishment of Organized Crimes and the Anti-Drug Special Provisions Law. It is a highly covert activity and therefore is extremely difficult to detect.
Terrorist financing involves the solicitation, collection or provision of funds with the intention that they may be used to support terrorist acts or organizations. The primary goal is not necessarily to conceal the sources of the money but to conceal both the financing and the nature of the financed activity.
The international society has been enhancing and developing systems to prevent and detect money laundering and terrorist financing, as well as cooperating with each other to deal with these issues. Japan is also reinforcing AML/CFT measures in line with international initiatives.
AML/CFT Regime in International Society
- (1) Anti-Money Laundering Measures as International Countermeasures against Narcotic Drugs in the 1980s, the global spread of narcotics abuse was taken as a crisis in the international society. One of the main causes was the existence of transnational drug-trafficking organizations linking the production of narcotics to the consumption of them. It was recognized as important to inflict damage on the source of their funds, by all measures, such as confiscating illegal proceeds from drug manufacturing and trafficking and effectively preventing their money laundering activities. In this context, “the United Nations Convention against Illicit Traffic in Narcotic Drugs and Psychotropic Substances” (hereinafter referred to as “UN New Narcotics Convention”) was adopted in December 1988 and required each state to criminalize activities such as hiding proceeds of drugcrimes and to establish relevant regulations to confiscate such proceeds, which made clear an internationally consistent effort.
In addition, at the Arch Summit in July 1989, the major developed countries decided to establish the FATF to take concerted actions for anti-money laundering. In April 1990, urged by the need for standardizing measures in different countries, the FATF proposed “The 40 Recommendations”, as standards for anti-money laundering measures to be applied in the fields of law enforcement, criminal justice, and the financial system. “The 40 Recommendations” required early ratification of “the UN New Narcotics Convention”, development of domestic laws stipulating anti-money laundering measures, and establishment of measures such as obligations to conduct customer identification and the report of suspicious transactions by financial institutions.
- (2) AML/CFT Measures as Countermeasures against International Organized Crime and TerrorismIn the 1990s, the international expansion of organized crime was recognized as a phenomen on which could threaten each country’s security, and therefore an international convention against international organized crimes was considered mainly by the United Nations. At the Halifax Summit in June 1995, it was pointed out that effective measures to prevent the hiding of proceeds not only from drug-trafficking but also from serious crimes were necessary for successful countermeasures against transnational organized crimes. In accordance with these movements, the FATF revised a part of “The 40 Recommendations” in June 1996 and recommended that the scope of predicate offences be extended from drug crimes to serious crimes.
Further, at the Birmingham Summit in May 1998, it was agreed by the participating countries to create FIUs (Financial Intelligence Units), which are dedicated to collect, analyze and disseminate money laundering information, as a measure to utilize the suspicious transaction reports for criminal investigation effectively.
Later, in response to the terrorist attacks in the US in September 2001, the FATF held an emergency session, where it issued “The 8 Special Recommendations” including criminalizing terrorist financing and freezing terrorist assets after considering it necessary to include anti-terrorist financing measures within the scope of anti-money laundering measures. In 2004,a new recommendation related to the measure to prevent the physical cross-border transportation of funds was added to the exiting recommendations, which made them “The 9 Special Recommendations”.
- (3) Countermeasures to Sophistication of Modus Operandi of Money Laundering In accordance with development of anti-money laundering measures, the trend of money laundering itself has also been changing. The FATF put the highest emphasis in its consideration on the hiding of funds using business sectors other than financial institutions. As a result, the FATF revised again in June 2003 “The 40 Recommendations” by extending the scope of operators required to take measures including customer identification etc.
Furthermore, in February 2012, the FATF revised the 40 Recomendations by integrating the 9 Special Recommendations into the existing FATF 40 Recommendations in order to address new issues; e.g. to deal with the emerging threats such as financing of proliferation of weapons of mass destruction and corruptions by methods of effectively distributing the limited resources.
AML/CFT Regime in Japan
- (1) Enforcement of “the Anti-Drug Special Provisions Law”
Anti-money laundering measures in Japan have been developed step by step in accordance within itiatives of the international society. Firstly, “the Law concerning Special Provisions for the Narcotics and Psychotropics Control Law etc. and Other Matters for the Prevention of Activities Encouraging Illicit Conduct and Other Activities Involving Controlled Substances through International Cooperation” (hereinafter referred to as “the Anti-Drug Special Provisions Law”) was enforced in 1992 as one of the domestic laws implementing “UN New NarcoticsConvention”, aiming mainly at dealing with proceeds of drug crimes. This law criminalizes money laundering activities connected with drug crimes for the first time in Japan and establishes the suspicious transaction reporting system (regarding proceeds of drug crimes) by financial institutions etc. in response to “the FATF 40 Recommendations.”
- (2) Enforcement of the Act on Punishment of Organized Crimes
The FATF mutual evaluation of Japan in 1994 pointed out a negative view on the limit of predicate offences for money laundering to illegal drug crimes. It should be noted that it was difficult for financial institutions etc. to determine if each transaction was actually related to drug crimes which require the report of suspicious transaction, resulting in the fact that the suspicious transaction reporting system did not work effectively. To rectify these problems, the”Act on Punishment of Organized Crimes and Control of Crime Proceeds” ( hereinafter referred to as “Act on Punishment of Organized Crimes”) was enacted (enforced in Feb. 2000) in Japan based on the FATF recommendations revised in June 1996. This legislation showed some progress of regulations against criminal proceeds on several points. For example, the scope of predicate offences for money laundering was extended and the scope of the crimes which are subject to the suspicious transaction reports regime was also extended to include other serious crimes besides illegal drug crimes. In addition, the law designated the Financial Supervisory Agency (later, the Financial Services Agency) as the FIU of Japan, where money laundering information shall be collected, arranged and analyzed to be disseminated to investigative authorities etc.
- (3) Enforcement of “the Act on Punishment of Financing of Offences of Public Intimidation” and “the Customer Identification Act”, and Revision of “the Act on Punishment of Organized Crimes”
As a major development after the terrorist attacks in US, “the Act on Punishment of Financing of Offences of Public Intimidation” was enacted (enforced in July 2002) as a domestic law to implement “the International Convention for the Suppression of the Financing of Terrorism”. At the same time of the enactment of the abovementioned Act, “the Act on Punishment of Organized Crimes” was partly revised, so that the terrorist financing offence was included into predicate offences. Moreover, terrorist funds were stipulated as criminal proceeds, so financial institutions etc. shall report suspicious transactions pertaining to assets suspected of terrorist financing. And to implement the customer identification regime required under the said Convention and the FATF Recommendations, “the Law on Customer Identification by Financial Institutions etc.” was enacted (enforced in Jan. 2003). Because of frequent abuse of bank accounts under other or fictitious names for offences such as “Furikome” Fraud, the Law on Customer Identification by Financial Institutions etc. was revised in Dec. 2004 and its title was changed to “the Act on Confirmation of Customers Identification by Financial Institution etc. and Prevention of Unauthorized Use of Deposit Account etc.” (hereinafter referred as “the Customer Identification Act”), which provides sanctions to the acts of selling and buying of passbooks etc. soliciting, or the like.
- (4) Enforcement of “the Act on Prevention of Transfer of Criminal Proceeds”
Based on the fact that the FATF revised “The 40 Recommendations” again in 2003 to extendthe scope of business operators required to implement customer identification etc. to business operators other than financial institutions, “the Headquarters for Promotion of Measures Against Transnational Organized Crime and International Terrorism”, with the Chief Cabinet Secretaryas head thereof, publicized “the Action Plan for Prevention of Terrorism” including theimplementation of the re-revised Recommendations in December 2004. In November 2005, “the Headquarters for the Promotion of Measures Against Transnational Organized Crime and International Terrorism” decided that the National Police Agency would make a draft of law for implementation of the re-revised Recommendations and that the FIU would be transferred from the Financial Services Agency to the National Public Safety Commission / the National Police Agency. The National Police Agency drafted a bill in cooperation with relevant ministries and agencies and submitted it to the 166th National Diet session in February 2007. “The Act on Preventionof Transfer of Criminal Proceeds” was then enacted in March of that year. Partial enforcement of the law stipulating the transfer of the FIU was carried out in April of the same year, while the remaining, such as the extension of the scope of application to business operators required to implement customer identification, was enforced in March, 2008.
- (5) Amendment of the Act on Prevention of Transfer of Criminal Proceeds
The government has repeatedly considered working on the flaws pointed out by the Third FATF Mutual Evaluation conducted on Japan between 2007 and 2008. As for the recommendation regarding customer due diligence, various discussions were made in the meeting of business operators on customer due diligence for measures against money laundering, which was participated by experts and business people and was established in the National Police Agencyin January 2010. The results of the discussions were subsequently reported in July of the same year. Meanwhile, a close look at the damage of Furikome Fraud that remains at a high level reveals the frequent use of call forwarding service providers (described later) in the crimes and ongoing issues of illicit transfers of savings passbooks as tools for such crimes. Taking into account the abovementioned report and recent trends in the damage of Furikome Fraud and other crimes in the country, a bill on amendments to the Act on Prevention of Transfer of Criminal Proceeds was submitted to the 177th session of the Diet in April 2011, and a law for the amendment of the Act on Prevention of Transfer of Criminal Proceeds was enacted on the 27th of the same month, which was promulgated on the following 28th. It was fully enforced on 1st April 2013.
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