January 2023
No.A&S_021

In 2022, Atsumi & Sakai has held seminars on some 25 themes for Japanese financial institutions.
Following the seminars, we are publishing a series practice notes discussing some of the topics coveredthat may be useful for overseas readers. In this edition, we outline a lecture that explores the anti-moneylaundering in Japan.

Anti-Money-Laundering in Japan
1. Cases of money laundering through financial institutions in JapanOn December 1, 2022, The National Public Safety Commission published the “National Risk AssessmentFollow-up Report (2022)” which reported recent cases of money laundering in Japan.
(1) Deposit and savings accounts misused for money laundering.
In one case accounts belonging to deceased persons or foreign nationals who have returned to their homecountries without closing their Japan bank accounts were used to conceal criminal proceeds from fraud,
theft, etc. There was also a case in which hundreds of passbooks were seized from the base of criminal
operations of a foreigner visiting Japan, who was arrested for illegally soliciting the transfer of accounts
through social media, such as buying bank accounts, passbooks, cards, etc.
(2) Deposit transactions misused for money laundering.
Cases included:⁃An offender withdrawing criminal proceeds derived from fraud conducted overseas and transferring
them to an account in Japan by disguising them as legitimate business proceeds.

⁃The depositing of a large number of stolen coins into a third party’s account at an ATM operated by afinancial institution and then withdrawing it in bills at another ATM.

⁃A Vietnamese individual transferring proceeds from underground banking into the account of a relative
who had become a naturalized Japanese citizen with a Japanese name.

(3) Domestic exchange transactions misused for money laundering.
Cases included:⁃An offender accepting requests from more than one client and having them remit cash for an illegal
foreign transfer of money into an account that the offender had purchased from a Vietnamese national
who had returned to Vietnam⁃

A Chinese offender engaging in agriculture in Japan obtained criminal proceeds by forcing a Chinese
worker without a work permit to work illegally and remitted the proceeds to an account under the nameof a Chinese person whom they had previously hired.

1©Atsumi & Sakai 2023

January 2023
No.A&S_021⁃A staffing agency made its subsidiary staffing agency remit money to an account under the name of athird party, knowing that the money was part of the income of the subsidiary agency derived fromdispatching Vietnamese nationals without work permits to factories.

As can be seen, many cases involving foreign nationals were noted, so international anti-money-laundering
measures are becoming increasingly important. The next section provides an overview of the international
assessment of Japanese financial institutions' anti-money-laundering measures.

2. Summary of the FATF 1 Fourth Round Mutual Evaluation Report of Japan
On August 30, 2021, the Financial Action Task Force (FATF) published the Fourth Round MutualEvaluation Report of Japan. As a result of the Mutual Evaluation, Japan was placed into enhanced followup and is required to improve its anti-money-laundering (AML) and counter‐terrorist-financing (CFT)
measures by the follow-up assessment to be held five years later.
The Mutual Evaluation included 40 items for the evaluation of the status of technical compliance and 11items for the evaluation of the effectiveness of such measures. Each item is rated in 4 levels, and the overall
evaluation results are classified as "regular follow-up," "enhanced follow-up," or "subject to monitoring.”“Normal follow-up" is the so-called "sufficient level," which means satisfactory. “Enhanced follow-up”
indicates that the jurisdiction will be required to submit reports three separate times prior to the regularfollow-up assessment five years later. The FATF's fourth round of mutual assessment resulted in Japan
being placed in the "enhanced follow-up" category.
In the technical compliance ratings, the following 11 out of 40 FATF Recommendations were rated
insufficient:
⁃⁃⁃
⁃
⁃⁃⁃⁃
⁃⁃
⁃

National cooperation and coordination
Terrorist financing offence
Freezing terrorists’ assets
Prevention of and sanctions against proliferation of weapons of mass destruction
Prevention of misuse of non-profit organizations (NPOs);
Handling of politically exposed persons (PEPs)
Customer due diligence (CDD) for designated non-financial businesses and professions (DNFBPs)
Suspicious transaction reporting from DNFBPsBeneficial ownership (BO) of legal persons
BO of legal arrangements
Supervision of DNFBPs.

For evaluation of effectiveness, the 8 (out of 11) areas below were deemed insufficient:
⁃⁃⁃⁃⁃
⁃⁃⁃

Supervision
Preventive measures
Prevention of misuse of legal persons, etc.
Money laundering investigation, prosecution and sanctions
Confiscation of proceeds of crime
Terrorist financing investigation, prosecution and sanctions
Freezing terrorist assets and prevention of misuse of NPOs
Proliferation financing.

The main finding related to financial institutions is the assessment that a certain number of financial
institutions and fund transfers service providers, including large banks (e.g., GSIBs, which are consideredhigher risk), have an adequate understanding of money laundering and terrorist financing risks(AML/CFT). However, The FATF points out that, compared to bigger banks, other financial institutions(including regional financial institutions) do not have a sufficient level of understanding of and actions
1 The FATF is an inter-governmental body that develops global AML and CFT standards (FATFRecommendations) and mutually evaluates the status of implementation. The FATF currently comprises
37 member jurisdictions, including the G7, and two regional organizations and together with 9 FATF-style
regional bodies; the FATF Recommendations apply to 205 jurisdictions around the world.

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January 2023
No.A&S_021

taken towards AML. It has been also pointed out that financial institutions are taking a uniform approachand that risk assessment and the application of risk mitigation measures tailored to the circumstances ofeach financial institution are insufficient. In addition, it was requested that the standards in the guidelinesof the Financial Services Agency, which set common minimum standards for all financial institutions, beraised. Financial institutions other than large financial institutions are requested to further strengthen
their AML/CFT efforts.

3. The action plan by the government
On the same day as the release of the FATF Recommendations, the Ministry of Finance published the"Anti-Money Laundering, Counter‐Terrorist Financing and Counter-Proliferation Financing Action Plan
(AML/CFT/CPF Action Plan) ". The action plan is divided into the following six categories with clearlystated deadlines for compliance by Japanese financial institutions within the next three years.
⁃⁃⁃⁃⁃⁃

Identification of risks and cooperation regarding AML/CFT and counter-proliferation financing (CPF)
AML/CFT/CPF measures and supervision by financial institutions and VASPs
AML/CFT/CPF measures and supervision by DNFBPs
Prevention of the misuse of legal persons and trusts
Money laundering/terrorist financing investigation and prosecution, etc.
Asset freezing and NPOs.

4. Responses required from Japanese financial institutions
The deadline for implementation of the FSA's Money Laundering Guidelines has been set for March 2024,
and full implementation is required. In addition, it is also necessary to follow the AML/CFT/CPF Action
Plan. In doing so, the following two points are critical issues for Japanese financial institutions.
First of all, it is essential to implement appropriate risk assessment and risk mitigation measures. Risk
assessment and risk mitigation measures depending on the situation of the entire industry and eachindividual institution will be a key point to be noted moving forward. This is pointed out in the risk based
approach section in the Money Laundering Guidelines. Financial institutions will be required tocontinuously and thoroughly analyze their own products, services, customers, etc. and to understand andtake measures against the risks by referring to the National Risk Assessment-Follow-up Report or otherrelevant sources.
The second key point is ongoing Customer Due Diligence (“CCD”) in actual business operations. This pointis also mentioned in detail in the Money Laundering Guidelines. The processes of CDD may be expediently
categorized into three stages: the start, continuation, and end of the business relationship. Each financial
institution should determine and implement appropriate risk mitigation measures at each of the stages
according to the level of risk posed by the individual customer and their transactions. With ongoing CCD,
misuse of deposit accounts, as in the example at the beginning of this section, is expected to decrease.
---------------------------------------------------------------------------------------------------------------------------THIS NEWSLETTER IS PROVIDED FOR INFORMATION ONLY; IT DOES NOT CONSISTUTE ANDSHOULD NOT BE RELIED UPON AS LEGAL ADVICE.
----------------------------------------------------------------------------------------------------------------------------3©Atsumi & Sakai 2023

January 2023
No.A&S_021Authors/Contacts
Yukihito Machida
Partner
E: yukihito.machida@aplaw.jp

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Atsumi & Sakai is a multi-award-winning, independent Tokyo law firm with a dynamic and innovative approach to legal
practice; it has been responsible for a number of ground-breaking financial deal structures and was the first Japanese law
firm to create a foreign law joint venture and so admit foreign lawyers as full partners. Expanding from its highly regarded
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Atsumi & Sakai has an outward-looking approach to its international practice, and has several foreign lawyers with extensive
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We are the only independent Japanese law firm which is located in New York, London and Frankfurt which together withour Tokyo head office enables us to provide real-time advice on Japanese law to our clients globally.

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Atsumi & Sakai is a partnership consisting of Atsumi & Sakai Legal Professional Corporation, a Japanese professional corporation, a foreign law joint venture underthe Act on Special Measures Concerning the Handling of Legal Services by Foreign Lawyers with certain Registered Foreign Lawyers of our firm, a Japanese Civil Codepartnership among Japanese lawyers, represented by Yutaka Sakai, a lawyer admitted in Japan, and a foreign law joint venture with Janssen Foreign Law Office,represented by Markus Janssen, a foreign lawyer registered in Japan to advise on the laws of the Federal Republic of Germany. In addition to lawyers admitted inJapan, our firm includes foreign lawyers registered in Japan to advise on the laws of the US States of New York and California, India, England and Wales, and the Stateof Queensland, Australia. Foreign lawyers registered in Japan to advise on state laws also are qualified to provide advice in Japan on the federal laws of their respective
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Atsumi & Sakai has established an office in London operating as Atsumi & Sakai Europe Limited (a company incorporated in England and Wales (No: 09389892); sole
director Naoki Kanehisa, a lawyer admitted in Japan), and has established an affiliate office in New York operating as Atsumi & Sakai New York LLP (a limited liability
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law on which one of our foreign lawyers is registered in Japan to advise, may be provided by such a Registered Foreign Lawyer. None of Atsumi & Sakai Legal
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will undertake any reserved legal activity as defined in the United Kingdom Legal Services Act 2007. Advice provided in Germany on the laws of Germany will beprovided by a lawyer admitted in Germany, and advice provided in New York on the laws of New York will be provided by a lawyer admitted in New York.

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