Nov 22, 2022
Question On Information Sharing Regarding AML
Question:

Money Laundering Bulletin

Answer: Ryu Nakasaki (Attorney At Law in Japan)
1 - Are obliged entities in Japan encouraged to share information and, if so, how are thefinancial authorities encouraging more sharing? More frequent reporting? Promotion
campaigns? Seminars on compliance?
Answer to 1:
There are basically two situations for information sharing among specified businesses:
information sharing with the government and with other private entities.
(1) Information Sharing with Government(a) Suspicious Transaction ReportThere is an obligation to report suspicious transactions for obliged entities excludingprofessionals.
Amendments to the law that would introduce the obligation to report suspicious transactions for
professionals other than lawyers have been submitted to the current session of the Diet. If
passed, they will also be obliged to report suspicious transactions.
Lawyers are the last ally in a criminal case when a defendant fights against a powerful state
power, and if lawyers are obliged to report suspicious transactions, they cannot provide aneffective criminal defense. The bar association and others strongly oppose imposing theobligation on lawyers to report suspicious transactions. The United States, too, does not impose
on lawyers the obligation to report suspicious transactions, as I understand.
(b) Cooperation with Investigative Inquiries
The National Police Agency's interpretation is that financial institutions and other entities areobligated to respond to investigative inquiries by the police (Article 197 of the Code of CriminalProcedure). Although there is no penalty for violation of this provision, and there is some debate1as to whether such an interpretation is constitutional, many financial institutions and otherobliged entities have responded to investigative inquiries in accordance with the NPA'sinterpretation.
(2) Information sharing between Private Parties(a) Intra-group information sharing
There is no provision in the Act on Prevention of Transfer of Criminal Proceeds (hereinafter“Criminal Proceeds Act”) that obligate intra-group information sharing. It may violate theprohibition clause against tipping off (Paragraph 3, Article 8 of the Criminal Proceeds Act), andI have heard of financial institutions being told that they have been refused by their EU sub toprovide STR by their group companies due to GDPR and such.
I am proposing that the Criminal Proceeds Act be amended to (1) create an exemption to theprovision prohibiting tipping off, and (2) include a provision requiring financial institutions toshare information within their groups. (This is unlikely to happen in the near future.)
The FSA has established guidelines, and although there may be some doubt as to whether theguidelines can prevail over law, I believe that information sharing within a group is possible
because it is considered "an act in the legitimate course of business" (Article 35 of the PenalCode), which precludes illegality, and I have strongly encouraged my past clients to share
information in accordance with the FSA guidelines.
(b) Information sharing across groups
In this regard, unless there is a clear provision in the law, such as a merchant informationexchange system under the Installment Sales Act, there is a question of whether it is really
acceptable to provide such information, partly because of the relationship with the prohibitionof tipping-off and because of the provisions of the Personal Information Protection Act. My
impression is that financial institutions are quite reluctant to share information across groups.

In order to promote this, I believe it would be necessary to amend the law, as in the U.S., butthere is no such movement.
In the additional questions, I discuss a joint monitoring system among banks.

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Question 2
2 - Are obliged entities actually complying and sharing information more frequently than in thepast? If not, why not?
(1) State - private parties
Yes, they are complying with the Criminal Proceeds Act and are reporting appropriately
according to my understanding.
In terms of information sharing with the government, information has been shared quite a bitwith them in the past. I do not think the FATF has pointed out any major problems in relation to
the number of reporting to the government.
Rather, I recognize that improving the accuracy of reporting suspicious transactions is an issue.
In this regard, I expect that the introduction of a joint monitoring system among banks will help
to improve the accuracy.
(2) Private parties
It is my impression that information sharing among group companies has been promoted
considerably more than before the establishment of the guidelines, due in part to the FSA
guidelines, etc. However, there are some subsidiaries that refuse to share information due to theexistence of the GDPR, etc. My personal opinion is that information sharing among groupcompanies would increase if the Criminal Proceeds Act stipulated the sharing of information
within a group as an obligation.
For information sharing across groups, I think it is not advancing much, but I am not sure about
the factual figures.
3 - Is this a very onerous requirement for obliged entities? Is it complicated and timeconsuming?
The first thing that must be cleared up is the legal aspect.
If the information is provided beyond the company, there are the issues of (1) provision ofpersonal information to a third party, (2) confidentiality of customer information (especially inrelation to confidentiality clauses with other companies), (3) privacy issues, and (4) Tipping
Off issues, and (iv) overseas law issues such as U.S. law and European law (GDPR). Multiple
issues arise. These issues must be considered, but there are various obstacles in the area of3

clearing legal issues, partly because there are no explicit provisions in Japan's CriminalProceeds Act.
Second, on the practical side, there is the issue of name identification. In Japan, National IDs(“My Number”) cannot be used by financial institutions for anti-crime purposes. For this reason,
names, addresses, and dates of birth are generally used for name identification, but names canbe changed by marriage or adoption, and addresses can be easily changed. However, since there
are many people with the same date of birth, the process of name identification is very difficult
in many ways. Since it would be troublesome if there is a case of mistaken identity, a great dealof system development and effort is required for name identification.

The degree of difficulty in sharing information within a group differs depending on the depth of
information sharing. If it is simply a matter of sharing an Excel file of customers who havereported suspicious transactions, there is little need to reconstruct the system, but if information
is to be shared at a deeper level, there are various system reconstruction costs.
In summary, the above suggests that the obligation to share information is a rather difficult issue
for financial institutions to deal with. At the very least, I personally believe that information
sharing will not make much headway until the government amends the legal system andclarifies the interpretation of the law, referring to the U.S. law and other laws.

4 - Are there added complications with international transactions that make Japanese companies
reluctant to comply?
FSA provides in section III-4 of the FSA AML Guideline(https://www.fsa.go.jp/common/law/amlcft/211122_en_amlcft_guidelines.pdf) to establish
internal control to ensure information sharing among obliged entities in the samegroup. However, it is only in the above guideline and not in the Criminal Proceeds Act.
In the Banking Act, there is a provision that requires banks to ensure sound operation of banks
and to establish internal control to ensure compliance, but there is no express provision that
requires sharing of STRs and such.

4For the above reasons, I have the impression that it may be difficult for Japanese parent
companies to enforce their subs to share STRs and such to themselves when the sub refuses todo so.
5 - What new legislation on this has been introduced by the Japanese authorities in the last year?
I do not recognize any.
6 - What new legislation is presently being considered or planned?
In October, a new bill to deal with the issues that FATF has pointed out has been proposed.
It is under discussion at the Diet and will likely be passed within a month or two.
The documents relating to the bill can be found below.
https://www.cas.go.jp/jp/houan/210.html
The bill includes the following content:(1) Criminal Proceeds Act (“Hanzai Shueki Iten Boushi Hou”)
For professionals that fall under legal scrivener (Shiho Shoshi), administrative scrivener(gyosei-shoshi), tax accountant (zeiri-shi), they would be required to conduct CDD on theBeneficial Owner of the customer, and would be subject to obligation to file suspicioustransaction report (“STR”). In relation with lawyers, the filing obligation of STRs will not beimplemented.
For virtual asset service providers (“VASP”), they would be subject to (i) confirmation
obligation similar to those imposed on correspondent banks, and (ii) travel rule (Article 10-4
and 10-5 of the Criminal Proceeds Act).
(2) Act on Criminalization of TF (“Tero Shikin Teikyo Shobatsu Hou”)
The Act on Criminalization of TF would be amended to criminalize acts of financing terrorist
acts. Before only those terrorist act those were done to threaten the government or public were
the subject of TF, but other acts defined as terrorist act under FATF Recommendations wouldbecome subject of TF (Article 2).
5On the other hand, the act of making finance to terrorist or terrorist group will not be subject toTF crime unless the financing is conducted to facilitate terrorist act as specified above. TheFATF recommended Japan to criminalize the financing to terrorist or terrorist group even incases where there is no direct relation to terrorist act, but this was not implemented.
(3) Organized Crime Act (“Soshiki Hanzai Shobatu Hou”)
The crime of money laundering is punishable by imprisonment upto five years now and this will
be raised to ten years (Article 10).
Under current law, confiscation of criminal proceeds, etc. is permitted only for real estate, cashand claims (Article 13). Virtual asset and other assets can not be confiscated.
This will be amended. This means that the government would be able to confiscate all kinds ofassets including virtual asset and stable coins and such.
(4) Act on Foreign Exchange and Foreign Trade Act (“FEFTA”, or ”“Gai Tame Hou”)
Under the FEFTA, regulations on stable-coin exchanges would be introduced as follows.
- Prohibition of handling payment transaction with designated terrorists and such other person
listed (Article 16-2);- Obligation to confirm the legality of the underlying transaction when handling paymenttransaction (Article 17)- Obligation to conduct customer verification (Article 22-2)- Obligation to report financial transaction (Article 55-3)
Also, certain types of financial institutions would be obligated to establish internal control toensure compliance with the FEFTA (Article 55-9-2).

(5) The Act on Freezing of Assets of Designated Terrorists
The name of the act would be amended and it would be applicable to those persons listed on theUN sanction list for PF in addition to TF.

67 - Are there any examples of how efforts to increase information-sharing have had a positiveimpact on anti-money laundering efforts?
Not that I know of.

Additional Question(1) Does the FSA have anything on its web site about recent laws/recommendations onAML/CFT obliged entities sharing information with other obliged entities and making
voluntary filings to law enforcement and the financial intelligence unit?
Answer:
The FSA guideline that I mentioned above obligates financial institutions to ensure
information sharing within obliged entities belonging to the same group.
On the other hand, I cannot find any provision requiring financial institutions to ensureinformation sharing among financial institutions across groups.
However, collective monitoring scheme is planned to be implemented for the banking sector
and this would enable banks to effectively detect those transactions with persons on sanction
lists or related parties thereto, and to detect suspicious transactions.
To facilitate this, the Payment Services Act was amended this year and the amended act
requires license for those institutions that would process the monitoring services for manybanks.
Please note that this amendment does not permit banks to transfer STR data to other banks
belonging to other groups.
The judgment to file STR or not should be made by each participating bank and sharing ofSTRs among participating banks are not basically anticipated.
There is an article prohibiting tipping off in the Criminal Proceeds Act of Japan, but there is
no exemption clause. I think Japan should amend its law and clarify certain information
sharing among financial institutions and DNFBP would not be subject to that prohibition oftipping off.

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In relation with credit card transactions, Japan Consumer Credit Association (“JCA”) which is aself-regulatory body, operates an information sharing scheme called JDM.
Under this scheme, registered credit card acquirers and registered PSPs are obligated to register
those merchants that are suspicioned to be conducting crime and such. The registeredinformation are shared with all the participants of the scheme, so all the registered cardcompanies and registered PSPs in Japan would be able to detect those crime related merchants.
I have proposed to a Japanese government official to implement similar legislation, but it isvery unlikely that such legislation would be implemented.

(2) If there is a web page with this information (even if it is in Japanese!), that would be a big
help..... Also, have there been any media reports on this issue in specialist media in Japan?
And, if so, might it be possible to get a link?

My presentation I made at a scholar meeting (“Kokusai Shoutorihiki Hou Gakkai”) might beuseful. “犯罪対策とプライバシー”
The file can be found below, but it is in Japanese. You might want to change the file to word
file and then auto-translate.
https://nakasaki-law.com/wp-content/CBDC.pdf
I have made 100 pages proposal to the government to deal with FATF and the below mightinterest you on Nov 7, 2021 and some proposals were implemented by the government, but thisis in Japanese as well.
https://nakasaki-law.com/wp-content/aml211107.pdf
The Japanese translation of the FATF recommendation is disclosed on FATF’s website, but it isold.
The newest version of my translation can be found on my website below.
https://www.nakasaki-law.com/FATF
I am writing a book with the former head of AML Division of JFSA and a government official
who was engaging in the negotiation with the FATF.

8The book is a Japanese commentary of the FATF Recommendations that describes (i) how theJapanese government is complying with the FATF Recommendations and (ii) what the Japanese
government does not comply with and (iii) legislative proposals to deal with those issues
pointed out by the FATF mutual evaluation team.
Other than the above, there is nothing I know of that might benefit you about Japan’s legislation
surrounding this issue.

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