Anti-money laundering andcounter-terrorist financing
measuresJapan

Follow-up report

Follow-up Report &Technical Compliance Re-Rating
October 2023

November 2021

The Financial Action Task Force (FATF) is an independent inter-governmental body that develops andpromotes policies to protect the global financial system against money laundering, terrorist financing
and the financing of proliferation of weapons of mass destruction. The FATF Recommendations
are recognised as the global anti-money laundering (AML) and counter-terrorist financing (CTF)
standard.
For more information about the FATF, please visit the website: www.fatf-gafi.org

This document and/or any map included herein are without prejudice to the status of or sovereignty
over any territory, to the delimitation of international frontiers and boundaries and to the name ofany territory, city or area.
The FATF Plenary adopted this report by written process in October 2023.

Citing reference:

FATF (2023), Anti-money laundering and counter-terrorist financing measures – Japan,
2nd Enhanced Follow-up Report, FATF, Paris
https://www.fatf-gafi.org/content/fatf-gafi/en/publications/Mutualevaluations/japan-fur2023.html© 2023 FATF. All rights reserved.
No reproduction or translation of this publication may be made without prior written permission.
Applications for such permission, for all or part of this publication, should be made to
the FATF Secretariat, 2 rue André Pascal 75775 Paris Cedex 16, France(fax: +33 1 44 30 61 37 or e-mail: contact@fatf-gafi.org).

|1Japan’s 2nd Enhanced Follow-up Report
Introduction
The FATF Plenary adopted the mutual evaluation report (MER) of Japan in June 2021 1.
Based on the MER results, Japan was placed in enhanced follow-up. Japan’s 1st Enhanced
Follow-up Report (FUR) with technical compliance re-ratings was adopted in June 2022 2.
This 2nd enhanced FUR analyses Japan’s progress in addressing the technical compliancedeficiencies identified in its MER, relating to Recommendations 5, 6, 8, 24, 25, and 28. Reratings are given where sufficient progress has been made.
Overall, the expectation is that countries will have addressed most, if not all, technicalcompliance deficiencies by the end of the third year from the adoption of their MER. This
report does not address what progress Japan has made to improve its effectiveness.

The following experts, supported by Mr. Panagiotis PSYLLOS and Ms. Lisa KILDUFF, Policy
Analysts from the FATF Secretariat, assessed Japan’s request for technical compliance reratings:
•

•

Ms.
SameeraDawood-Bhagwan,
Divisional
Head,
AML/CFT
Financial Conglomerate Supervision Department, South African Reserve Bank,
from South Africa; andMr. Sauod Almutawa, Head of Criminal Analysis Centre, Dubai Police from
United Arab Emirates.

The second section of this report summarises Japan’s progress in improving technicalcompliance. The third section sets out the conclusion and includes a table showing Japan’s
MER ratings and updated ratings based on this and previous FURs.

Progress to improve Technical ComplianceThis section summarises Japan’s progress to improve its technical compliance byaddressing most of the technical compliance deficiencies identified in the MER or any
previous FUR (R.5, 6, 8, 24, 25 and 28).

1
2

www.fatf-gafi.org/content/fatf-gafi/en/publications/Mutualevaluations/Mer-japan-2021.html
www.fatf-gafi.org/content/fatf-gafi/en/publications/Mutualevaluations/Fur-japan-2022.html

JAPAN SECOND ENHANCED FOLLOW-UP REPORT

2|Progress to address technical compliance deficiencies identified in the MERJapan has made progress to address the technical compliance deficiencies identified in the
MER in relation to R.5, 6, 8, 24, 25 and 28. Because of this progress, Japan has been rerated on Recommendations 5, 6, 8, R.24, and 28. The FATF welcomes the progressachieved by Japan to improve its technical compliance with R.25. However, insufficient
progress has been made to justify an upgrade of this Recommendation’s rating.

Recommendation 5

a)

b)
3

MER

Year
2021

Rating
PC

FUR1
FUR2

2022
2023

PC (not re-assessed)↑ LC

Criterion 5.1 (Met) Japan did not fully meet the requirement of this criterion
at the time of the MER because the Act on Punishment of Financing to Offencesof Public Intimidation (TF Act) criminalised the financing of various criminal
acts “conducted with the intent of intimidating the public, national, or local
governments, or foreign governments and other entities, whereas Art.2(1) (a)of the convention does not have such a requirement. Although Japan’s Penal
Code and other statutes criminalise conspiracy, attempt, and substantive
violations that would include those contemplated by the annexed treaties,
these general statutes did not constitute criminalisation of TF consistent with
the UN TF Convention. Since the MER, Japan revised its TF Act on 9 December
2022 and further clarified that intent is not required for the offences identified
in the treaties listed in the UN TF Convention annex. Japan defines its TF
Offence as when a person who intends to commit an act of public intimidation
or “a specified act” 3 has funds or other benefits provided with the aim ofutilizing them for its commission, by inducing or requesting the provision of
those funds or other benefits (meaning benefits other than funds including,but not limited to, land, building, goods and services) that may facilitate its
commission, or by any other means and the term “specified act” is meant tocover specific criminal acts, such as: (a) killing an internationally protected
person; (b) killing a person or causing bodily injury by using a weapon or any
other means to cause serious bodily harm when involving a civil aircraft, civil
ship, international airport, fixed platforms and public facilities; and (c) any act
that kills a person or causes bodily injury by using a weapon or any othermeans to cause serious bodily harm when involving explosives, Molotov
cocktails biological weapons toxins, chemical weapons, among others (TF Act,art. 2 (1)). In addition, the TF Act criminalises the conspiracy and facilitationof the aforementioned offences and provides for more severe penalties (art. 2to 6).

Criterion 5.2 (Mostly met) Japan did not fully meet the requirement of thiscriterion at the time of the MER because the information presented at the timeof the MER led to the conclusion that the TF Act did not criminalise theJapan updated its translation along with the change in legislation to include “specified act”
to avoid a misunderstanding that intent is required to be proven.

JAPAN SECOND ENHANCED FOLLOW-UP REPORT

|3

c)

d)

e)
f)

4

financing of a terrorist organisation or individual terrorist in the absence of alink to a specific “act of public intimidation”. In addition, the TF Act did not
apply to self-funding (although, as a general matter, Japan’s Penal Code andother statutes criminalise “preparations”, including financial “preparations”
for acts identified in the annexed treaties of the UN TF Convention with theadditional necessary element of terrorist intent).

Regarding the first deficiency, Japan issued a notice to all Public Prosecutors
Offices across Japan to clarify the interpretation that prosecutors should giveto the TF Act when directing investigations and prosecutions, clarifying thatthe financing of a terrorist organisation in the absence of a link to a specificterrorist act was and is criminalised (Official Notice regarding crimes underart. 5 of the TF Act on Punishment of Financing to offence of Public
Intimidation, Ministry of Justice Criminal Law No. 136, 22 December 2022).
The Official Notice is directed to prosecutors because public prosecutors haveinvestigative powers over all criminal cases (including TF) and can initiate
and conduct investigations independently. Where the police initiates
investigations, all cases must be referred to prosecutors who will at that stage
assume active involvement in the investigation and give instructions to thepolice during investigations where necessary. Public prosecutors can advise
police regarding the interpretation of the TF Act as needed and this continues
through the investigative process. 4

The Official Notice refers to Japan’s 2021 MER explicitly, which indicated that“Deficiencies in the Terrorism Financing Punishment Act restrict thepossibility of prosecution, as funding of terrorists or terrorist organisations
without a link to a specific attack is not an offence”, and recommended Japan“Adopt binding and enforceable methods or amend the Terrorism Financing
Punishment Act to ensure that the financing of individual terrorists or
terrorist organizations is criminalized…when it is not connected withterrorist acts.” The Official Notice was issued by Japan as a response to thisissue and to the recommended action identified in its MER, as a way of
expanding the TF offence, and seeks to explain that crimes under article 5 of
the Terrorism Financing Punishment Act do not require a link to a specificterrorist act or incident.
Lastly, the Official Notice mentions that Japan revised the English translationof article 5 of the TF Act in the Japanese Law Translation Database to better
convey the intent of the Article and to avoid any misunderstanding.

According to the notice, the excerpt, “with the intention or the knowledge thatsuch funds or other benefits could be used for the commission of an act ofpublic intimidation”, of the Ministry of Justice’s Official Notice No. 214 (9December 2014) should be interpreted as “under the condition that there is apossibility (risk) that an act of public intimidation may be carried out and withthe awareness that funds to be provided may be used to carry out suchcriminal acts”. This remedies the identified gap regarding the absence of a link

Under the Act on Public Prosecutors Office (Art. 4), public prosecutors have the power torequest the courts to apply the law justly in criminal cases, and they state opinions on facts
or application of the law during proceedings. They can also appeal to the court of second
instance when there was an error in the application of laws and regulations and it is clearthat the error has affected the judgment.

JAPAN SECOND ENHANCED FOLLOW-UP REPORT

4|

g)

h)

i)

j)

k)
l)

5

to a specific “act of public intimidation”. The notice is legally binding andenforceable for all prosecutors as it is an official document in which a superior
administrative organisation orders subordinate administrative organisations
and personnel to follow a certain interpretation and/or application of the law
in relation to their duties.
Regarding the second identified deficiency on the application of TF Act to selffunding, the legal framework remains unchanged. Japan provided multiple
provisions from several acts relating to self-funding (Penal Code, art. 78, 93
and 113) that were examined by the assessment team at the time of the MER.
These provisions do not rectify the identified gap.

Criterion 5.2 bis (Met) Japan did not fully meet the requirement of thiscriterion at the time of the MER, as the TF Act did not criminalise the financingof travel for the purpose of providing or receiving of terrorist training without
a link to a specific terrorist act (i.e., “act of public intimidation”). Since the
MER, Japan issued a notice to the Public Prosecutors Offices across Japan
about the interpretation of the TF Act that rectifies the identified gap (seeanalysis in criterion 5.2 above) and therefore renders this criterion “Met”.

Criterion 5.3 (Met) As set out in the MER, TF offences under the TF Act extend
to financing that involves “funds or other benefits… including, but not limited
to, land, building, goods and service[s]” (Art. 2(1)). TF offences appear toextend to “funds or other benefits” regardless of whether they are derived
from legitimate or illegitimate sources (see, e.g., Penal Code, art. 236, which,unlike the TF Act, affirmatively specifies “illegal property benefits”). This subcriterion remains unchanged from the MER (See 2021 MER, c.5.3).
Criterion 5.4 (Met) As noted in the MER, the TF Act does not require thatfunds or other assets were used to carry out or attempt a terrorist act (i.e., actof public intimidation). The TF Act requires that “a person who intends tocommit an act of public intimidation” attempted to provide or collect “funds
or other benefits” “with the aim of utilising them for [] commission [of the actof public intimidation]” (Art. 2(4), etc.). Japan did not fully meet therequirement of this criterion at the time of the MER, because the TF Act did
not establish criminal offenses for financing a terrorist organisation orindividual terrorist in the absence of a link to a specific terrorist act a gap thathas been remedied (please see analysis in criterion 5.2 above).

Criterion 5.5 (Met) As noted in the MER, intent and knowledge required toprove a given TF offence may be inferred from objective factual circumstances(see, e.g., Tokyo District Court (July 1, 2015) and Tokyo District Court (March
25, 1999)). 5 This sub-criterion remains unchanged from the MER.

Criterion 5.6 (Met) Japan did not fully meet the requirement of this criterion
at the time of the MER, as proportionate and dissuasive criminal sanctions
available did not apply to natural persons convicted of TF for all types of TF
offences. Criminal sanctions for natural persons convicted of indirect TF wereneither proportionate nor dissuasive. The more severe penalties available forthe more direct forms of TF also did not allow for dissuasive or proportionate
sanctions to be applied, given they were not consistent with other serious

Japan provided translations of these documents to the assessment team. At the time of theon-site visit, online sources or English translations were not available.

JAPAN SECOND ENHANCED FOLLOW-UP REPORT

|5

m)

n)

o)

p)

q)

offences in Japan. In addition, there was a gap identified in the MER regarding
the mutual exclusivity of custodial and monetary penalties.

Since the MER, Japan amended the TF Act to introduce more severe criminal
sanctions considering the directness of the TF. For direct provision orcollection, a punishment of up to 12 years imprisonment or JPY 12 million(EUR 77 304) fine, or both is possible (art. 2). This goes beyond penalties
available for crimes like theft and deals with the deficiency in the MER thatpenalties available for direct TF were lower than crimes like theft. For wilful
but indirect provision or collection, the maximum sentences are now 10 years
or JPY 10 million (EUR 64 420), or both. The current level of sanctions forthese offences is equal or above the sanctions’ level for other significant
crimes such as theft. Regarding the lower end of sentences for indirect TF, thelevel of sanctions increased to 5 years from 2 years of imprisonment or JPY 5
million (EUR 32 210 increased from JPY 2 million), or both.

Overall, Japan increased the severity of sanctions for both imprisonment
terms and fines and rectified the gap concerning the mutual exclusivity of thecustodial and monetary penalties. Therefore, criminal sanctions for natural
persons convicted of indirect TF appear proportionate and dissuasive.

Criterion 5.7 (Met) As at the time of Japan’s 2021 MER, legal persons are
criminally liable and fines apply to them, independently of sanctions applied
to natural persons involved. Japan did not fully meet the requirement of thiscriterion at the time of the MER, because the sanctions applied to legal persons
were equivalent to those available for natural persons, and these wereinsufficient to be considered proportionate and dissuasive, and especially sofor indirect provision or collection (TF Act, art.5(1), etc.). Since the MER, Japan
amended the TF Act to introduce more severe criminal sanctions on both legal
and natural persons to the same extent (See analysis of criterion 5.6) andtherefore addressed this issue.
Criterion 5.8 (Met) As noted in the MER (a-d):

The TF Act establishes criminal offenses for attempts to commit financing ofacts of public intimidation (i.e., terrorist acts) (Articles 2(2), 3(4), 4(2), and5(3)). As applicable to the TF Act (pursuant to Art.8 of the Penal Code), thePenal Code provides that participation as an accomplice in a TF offence or
attempted offence is itself an offence (Penal Code, articles 60, 61(1), and62(1); see, also, TF Act, art.8). As applicable to the TF Act, the Penal Codeprovides establishes criminal liability for “induc[ing] another to commit acrime” and that such a person “shall be dealt with in sentencing as a principal”(Art.61(1)). In addition, the Penal Code establishes criminal liability forindirectly “induc[ing] another to induce” another person to commit a crime(Art.61). This is considered equivalent to organising or directing others tocommit a TF offence or attempted offence.

The TF Act, taken with relevant articles of the Penal Code, provides that
contribution or attempted contribution to a TF offence or attempted offence
is also an offence (TF Act art. 2(1), 3(1), 3(2), 3(3), 4(1), 5(1), and 5(2)) (Penal
Code, art. 60, 61(1), and 62(1)). This includes attempted facilitation orcontribution towards an offence (TF Act art.2(2), 3(4), 4(2), and 5(3)). This
sub-criterion remains unchanged from the MER.

JAPAN SECOND ENHANCED FOLLOW-UP REPORT

6|
r)

s)

t)

Criterion 5.9 (Met) As noted in the MER, the Act on the Punishment ofOrganised Crime and Control of Criminal Proceeds (APOC) establishes various
predicate offences for ML, which include all substantive and attempted TF
offences established pursuant to the TF Act (APOC, art.2(2)(i)(a)). This subcriterion remains unchanged from the MER.

Criterion 5.10 (Met) As noted in the MER, TF offences apply regardless ofwhether the person who committed the offence(s) is in the same or different
country from the country in which the terrorist/terrorist
organization/terrorist act would occur (TF Act, art.7; Penal Code, art. 3 and4(2)). This sub-criterion remains unchanged from the MER.

Weighting and conclusion: Since the MER, Japan amended the TF Act toensure the TF offence was in line with the UN TF Convention (art. 2). The
revised act covers the provision and collection of assets for a terrorist
organisation or individual terrorist in the absence of a link to a terrorist act or
acts and increased the severity of sanctions against natural persons. Someshortcomings remain, although of minor nature given Japan’s risk and context,
namely the non-application of the TF Act to self-funding.
Therefore, Recommendation 5 is re-rated as Largely Compliant.

Recommendation 6

a)

b)

MER
FUR1

Year
2021
2022

RatingPC
PC (not re-assessed)

FUR2

2023

↑ LC

Criterion 6.1 (Met) (c.6.1(a)) As noted in the MER, the Ministry of Foreign
Affairs (MoFA) is the competent authority for proposing persons or entities tothe 1267/1989 and 1988 Committees (Committees) for designation (Act on the
Establishment of MoFA, Articles 3, 4(1)(a), 4(3), and 4(5)). This sub-criterion
remains unchanged from the MER. (c.6.1(b)) As also noted in the MER, theInteragency Meeting on Terrorist Asset-Freezing (IAM) is the mechanism bywhich Japan identifies targets for designation based on designation criteria in
relevant UNSCRs (Memorandum of Agreement: Establishment of Interagency
Meeting on Terrorist Asset-Freezing, May 2002). This sub-criterion remains
unchanged from the MER. (c.6.1(c)) Japan did not meet the requirement of thissub-criterion at the time of the MER, as it did not demonstrate that anevidentiary standard of proof of “reasonable grounds” or “reasonable basis” isapplied in deciding whether to propose designations. Since the MER, Japan
adopted the “Rules of Procedure on the operation of the Inter-Agency Meeting(hereinafter Rules of Procedure)” (March 2023), which clarified that evidentiarystandard of proof of “reasonable grounds” in deciding whether to propose
designations pursuant to including UNSCR 1267/1989 (Al Qaida) and 1988
sanctions regimes.
(c.6.1(d)) Japan did not meet the requirement of this sub-criterion at the timeof the MER, as it did not demonstrate that relevant authorities follow theprocedures and standard forms for nominations to the Committees (“UNProcedures”), and Japan had not submitted any nominations of its own (vice cosponsoring other countries’ nominations). In addition, Japan did not provide

JAPAN SECOND ENHANCED FOLLOW-UP REPORT

|7formal domestic procedures regarding adherence to the UN Procedures. Since
the MER, Japan adopted the “Rules of Procedure” that instruct relevant
authorities to follow the UN procedures and standard forms for nominations(Guidelines of 1267/1989/2253 Sanctions Committee and 1988 Sanctions
Committee) 6.

c)

d)

e)

f)

6

(c.6.1(e)) Japan did not meet the requirement of this sub-criterion at the time of
the MER, as it did not demonstrate that relevant authorities provide as much
relevant information as possible in support of nominations to the Committees,
and as Japan has not submitted any nominations of its own (vice co-sponsoringother countries’ nominations). In addition, Japan did not provide formal
domestic procedures regarding the provision of such information. Since the
MER, Japan adopted the “Rules of Procedure” that address these gaps. The Rulesof Procedure stipulate that when making a proposal of the designation, theMoFA should provide to the Sanctions Committees as much relevant
information as possible, based on the information provided by the relevant
ministries and agencies using detailed forms on: (1) individuals, (2) entities, and(groups) of each Sanctions Committee serving as a template to provide as much
relevant information as possible on the proposed name; a statement of casewhich contains as much detail as possible on the basis for the listing.

Criterion 6.2 (Met) (c.6.2(a)) As noted in the MER, the IAM has responsibility
for designating persons or entities under UNSCR 1373, either responsive torequests from other countries or on Japan’s own motion. This sub-criterion
remains unchanged from the MER. (c.6.2(b)) As noted in the MER, the IAM is themechanism for identifying targets for designation under UNSCR 1373. This subcriterion remains unchanged from the MER.

(c.6.2(c)) Japan did not meet the requirement of this sub-criterion at the time of
the MER, as it was unclear whether the IAM made a prompt determination basedon the information provided to it by the MoFA. Since the MER, Japan updated
the Rules of Procedure to address the identified gap. The Rules of Procedure
stipulate that “MoFA shall promptly request the members of the IAM to hold ameeting, which also promptly decides whether or not to make a designation” when receiving a request from another country for designating the targets for
sanctions (par.2).

(c.6.2(d)) Japan did not meet the requirement of this sub-criterion at the timeof the MER, as the Foreign Exchange and Foreign Trade Act (FEFTA) did notdemonstrate whether an evidentiary standard of proof for designation applies,
and Japan did not demonstrate that the IAM and other relevant authorities apply
an evidentiary standard of proof of “reasonable grounds” or “reasonable basis”
in deciding whether to designate individuals or entities. Since the MER, Japan
adopted the “Rules of Procedure” that address the identified gap. These “Rules ofProcedure” clarify the application of an evidentiary standard of proof of“reasonable grounds” or “reasonable basis”. In addition, they indicate that the
IAM should apply an evidentiary standard of proof of “reasonable grounds” or

The “Rules of Procedure” are adopted proactively at the Director-General level of theministries and agencies responsible for Japan’s TFS regime. Once the ministries/agencies
agree to an arrangement in writing, they commit to abide by that agreement. All theparticipating ministries/agencies have agreed to follow these rules and they are therefore
binding in practice.

JAPAN SECOND ENHANCED FOLLOW-UP REPORT

8|

g)

h)

i)

j)

k)

“reasonable basis” in deciding whether to designate individuals or entities (par.
1 – 2).

(c.6.2(e)) Japan did not meet the requirement of this sub-criterion at the time of
the MER, as it did not demonstrate that relevant authorities provide as muchidentifying and other specific information as possible to support a designation
request to another country, and as Japan did not make any such requests. Japan
also did not provide formal domestic procedures regarding the provision ofsuch information. Since the MER, Japan adopted the above noted “Rules ofProcedure” to address this gap, and which stipulate that when requesting
another country to designate the targets for sanctions, the MoFA should provide
as much relevant information as possible, based on the information provided by
the relevant ministries and agencies (See analysis under criterion 6.1 (e)).

Criterion 6.3 (Met) (c.6.3(a)) As noted in the MER, the National Police Agency(NPA) and the Public Security Intelligence Agency (PSIA), which are membersof the IAM, have legal authorities and mechanisms to collect information to
identify persons and entities for designation under relevant UNSCRs, such as
information relating to terrorism and TF. This sub-criterion remains unchanged
from the MER. (c.6.3(b)) As noted in the MER, competent authorities canoperate ex parte against individuals or entities whose designations are being
considered by using the provisions in the TAFA (Arts. 4(4) and 8(1)-(9)). This
sub-criterion remains unchanged from the MER.

Criterion 6.4 (Met) Japan did not fully meet the requirement of this criterion at
the time of the MER because it implemented targeted financial sanctions (TFS)
related to TF with delay. Since the MER, Japan revised its administrative
procedures to implement TF-TFS within 24 hours. Japan abolished theprocedural step that required to coordinate the draft among relevant MoFA
divisions and other ministries and agencies. Japan provided a list of UN
designations and updates covering the period between June 2021 and January2023, which demonstrates that Japan has implemented all the cases of TF-TFS
without delay and proves that the framework for implementing TF-TFS in Japanworks in line with the requirements of R.6. In addition, to ensure theeffectiveness of the asset-freezing measures, the Ministry of Finance (MoF)
notifies the financial institutions, including virtual assets services providers(VASPs), and other operators of the targets designated by the UN Sanctions
Committees through e-mail distribution service prior to the public notice in the
Official Gazette. Moreover, the MoFA, the MoF, and the Minister of Economy,
Trade and Industry (METI) jointly issue a press release on the day of the public
notice, and the list of the targets is updated on the websites of the NPA, the MoF,
and the MoFA to inform the widest audience possible. The measures taken by
Japan since its MER demonstrate that implementation of TF-TFS takes place
without delay, within 24 hours as required by R.6.

Criterion 6.5 (Partly met) (c.6.5(a)) As set out in the MER, Japan requires all
natural and legal persons within the country to freeze, without delay andwithout prior notice, the funds or other assets of designated persons andentities (FEFTA art. 16 and 21, etc. and TAFA art.3 &4). This sub-criterion
remains unchanged from the MER.

(c.6.5(b)) Japan does not meet the requirement of this sub-criterion and it
remains unchanged since the MER. At the time of the MER, Japan did notdemonstrate that the asset-freezing obligations extended to (i) all funds or otherJAPAN SECOND ENHANCED FOLLOW-UP REPORT

|9

l)

m)

n)

assets that are owned or controlled by the designated person or entity; (ii) funds
or other assets that are wholly or jointly owned or controlled, directly or
indirectly, by designated persons or entities; (iii) funds or other assets derived
from or generated from or other assets owned or controlled directly or
indirectly by designated persons or entities; and (iv) funds or other assets ofpersons and entities acting on behalf of, or at the direction of designated persons
or entities. Since the MER, Japan rectified the scoping gap regarding thedefinition of “payments” to bring it in line with the FATF definition of “funds andother assets” (Interpretive Note for Implementing FEFTA, 20 October 2020).
According to the 2021 MER, this notice defines “payments” as used in Article 16of the FEFTA in the same terms as “funds or other assets” in the FATF Standards(footnote no. 4, pg.83). In addition, Japan initiated the process of issuing several
public notices of MoF and a ministry notification detailing the interpretation of
the TAFA relevant to the identified gaps for point (i) to (iv) of criterion 6.5 (b),however these came into force only on 1 June 2023, after the FUR reporting
deadline (20 April 2023) and were therefore not available for analysis, andcould not be considered in this FUR.

(c.6.5(c)) Japan did not meet the requirement of this sub-criterion at the time of
the MER, as it was unclear whether the prohibitions under FEFTA and TAFA
extended to transactions indirectly involving designated parties, including
entities acting on behalf or at the direction of designated parties. Since the MER,
Japan initiated work on several measures that aim at addressing the identified
deficiency. However, the public notices of MoF and a ministry notification
detailing the interpretation of the TAFA that set out these measures came into
force only on 1 June 2023, after the FUR reporting deadline. The identified
deficiency therefore remains for c.6.5(c).

(c.6.5(d)) Japan did not meet the requirement of this sub-criterion at the timeof the MER, as it was unclear when supervisors, other than MoF and the National
Public Safety Commission (NPSC), distribute corresponding notices to DNFBPs,
and whether these notices reach all DNFBPs. Since the MER, Japan conducted areview that confirmed that corresponding notices to DNFBP supervisor reach
all DNFBPs, principally within one working day after the issue of the public
notice (March 2023). However, these notices reach DNFBPs with delay when
notices are issued in weekends and public holidays.

(c.6.5(e)) Japan did not meet the requirement of this sub-criterion at the time of
the MER, as it did not require DNFBPs to report frozen assets or other actions
taken. Also, the TAFA did not require FIs or DNFBPs to report frozen assets.
These gaps remain as the TAFA has not clarified whether DNFBPs are obliged toreport frozen assets. DNFBPs in Japan are not expected to take custody of assets
from their customers in most cases and FEFTA does not require DNFBPs toreport the status of capital transactions between DNFBPs and designatedpersons or entities, requiring only a permission before making payments orother capital transactions to designated persons or entities. Although taking
custody of assets by DNFBPs is not expected and thus not subject to reporting
as per domestic procedures, Japan did not demonstrate that such custody ofassets by DNFBPs is in fact reported upon enforcement. Moreover, the reporting
requirement is limited to making transactions, payments or other capitaltransactions by both FIs and DNFBPs, whereby the requirement is to report
custody of assets or actions taken in compliance with the prohibition
requirements of the relevant UNSCRs.

JAPAN SECOND ENHANCED FOLLOW-UP REPORT

10 |
o)
p)

q)

r)

s)

t)

(c.6.5(f)) As noted in the MER, Japanese authorities take measures sufficient toprotect the rights of bona fide third parties (See 2021 MER, c.6.5, FEFTA art.16
and TAFA art.24). This sub-criterion remains unchanged from the MER.

Criterion 6.6 (Mostly Met) (c.6.6(a)) Japan did not meet the requirement of thissub-criterion at the time of the MER as it did not have publicly known
procedures to submit de-listing requests to the relevant UN Sanctions
Committee in case of designated persons and entities that do not continue tomeet the criteria for designation. Since the MER, Japan adopted the “Rules ofProcedure”, which provide that the IAM shall review the lists of the persons andentities designated by the relevant Sanctions Committees (1267/1989 & 1988)
at least once per year (par.1), and that the MoFA submits the request in case of
proposal. This process is available on MoFA’s public website.

(c.6.6(b)) As noted in the MER, the NPSC is obligated to revoke designation
under UNSCR 1373 when the person is no longer designated (TAFA, Art.7(ii)).
With respect to designations pursuant to the FEFTA, the MoFA initiates aninformal process to publish de-listing updates via Official Gazette. This subcriterion remains unchanged from the MER. (c.6.6(c)) As noted in the MER, theAdministrative Case Litigation Act provides for review of designations pursuant
to UNSCR 1373 before a court. In addition, except in cases where authorities
determine there is risk of asset flight, a public hearing occurs prior to
finalization of designations under UNSCR 1373. This sub-criterion remains
unchanged from the MER.
(c.6.6(d)) Japan did not meet the requirement of this sub-criterion at the timeof the MER, as it did not have formal procedures to facilitate review ofdesignations pursuant to UNSCR 1988 by the 1988 Committee, in accordancewith applicable Committee guidelines and procedures. Since the MER, Japan
adopted the “Rules of Procedure” that rectify the identified gap and stipulate thatwhen the IAM decides to propose amendment or de-listing to the relevant
Sanctions committees, MoFA shall submit the request in line with procedures
adopted by the UN 1988 Sanctions Committee (annex 6-2, par.4). (c.6.6(e)) As
noted in the MER, Japan provides a description of and links to the United Nations
Office of the Ombudsperson regarding designations on the Al-Qaida Sanctions
List on the MoFA public website. This sub-criterion remains unchanged from
the MER.

(c.6.6(f)) As noted in the MER, the requirements under FEFTA and TAFA to seek
governmental approval before making certain transactions involving adesignated party constitutes publicly known procedures to unfreeze funds orother assets of persons or entities with the same or similar name as designatedpersons or entities who are inadvertently affected by a freezing mechanism.
This sub-criterion remains unchanged from the MER.
(c.6.6(g)) Japan did not meet the requirement of this sub-criterion at the time of
the MER, as it did not provide information demonstrating that authorities
provide guidance to FIs and DNFBPs regarding obligations to respect de-listing
and unfreezing actions. Since the MER, Japan took measures to ensurecommunication of designations/updates to FIs and DNFBPs within 24 hours.
However, Japan does not provide guidance in relation to de-listing or unfreezing
action, other than a reminder to screen the customers against the relevant UN
sanctions lists to unfreeze assets of individuals or entities that have been delisted.

JAPAN SECOND ENHANCED FOLLOW-UP REPORT

| 11
u)
v)

Criterion 6.7 (Mostly met) Japan did not fully meet the requirement of thiscriterion at the time of the MER, as the application of the mechanism for
exemptions it had, had not been tested in practice. The identified gap remains.
Weighting and conclusion: Since the MER, Japan took several positive
measures such as the adoption of the “Rules of Procedure” that addressed all
identified gaps in criteria 6.1, 6.2 & 6.4. Criteria 6.3 and 6.7 were rated met andmostly met respectively in the 2021 MER. In Japan’s context, these positive
measures are weighted heavily, in particular, addressing the need to implement
TFS without delay. Other aspects of the TFS regime relevant to criterion 6.5
remain unclear (therefore more minor), including: a) whether TFS applies tofunds or other assets per se; irrespective of transactions or actions involved(which is not a full scope gap), and (b) whether both FIs and DNFBPs report
custody of assets per se. Therefore, Recommendation 6 is re-rated as Largely
Compliant.

Recommendation 8

a)

b)

MER

Year
2021

Rating
NC

FUR1
FUR2

2022
2023

NC (not re-assessed)↑ PC

Criterion 8.1 (Mostly met) (c.8.1(a)) Japan did not meet the requirement of
this sub-criterion at the time of the MER, as it did not identify NPOs that are
not legally incorporated or that fall outside of its six categories’ legal
framework of NPOs (e.g., ad hoc collection of donations in response to a
specific natural disaster). Such NPOs, were not required to register these,
which nonetheless may fall within the FATF definition. The MER noted thatthe assessment did not consider significant necessary information (including
basic necessary information, such as geographic areas of operation) andreached only general conclusions without significant bearing of TF risk. Since
the MER, Japan updated its NRA (2022) elaborating further on NPOs. MoFA
and the Japan NGO Center for International Cooperation (JANIC) issued the“Data Book on NPOs in Japan 2021”, which used relevant sources of
information (i.e., basic information, financial data, project sites,
questionnaires, surveys, etc) to identify organisations that engage in thenexus of “good works” by virtue of their activities or characteristics. However,NPOs that are not legally incorporated and engaging in the nexus of “goodworks” other than the predefined categories in Japan’s NPO legal framework,
which may fall within the FATF definition, are still not identified.

(c.8.1(b)) Japan did not meet the requirement of this sub-criterion at the timeof the MER, as it did not identify the nature of threats posed by terrorist
entities to Japanese at-risk NPOs or how terrorist actors abuse those NPOs.
Since the MER, Japan identified the nature of threats posed by terrorist
entities to Japanese at-risk NPOs or how terrorist actors abuse those NPOs in
its 2022 NRA (e.g., diversion of funds of NPOs; affiliation with a terrorist
entity; abuse of Programming of NPOs; support for recruitment; false
representation and sham NPOs). However, these threats are based on the
conclusions of the 2019 FATF Guidance on TF Risk Assessment, rather thanbased on information pertaining to the NPO sector of Japan. This is a minor

JAPAN SECOND ENHANCED FOLLOW-UP REPORT

12 |

c)

d)

e)

f)

g)

gap, as there is no case indicating that NPOs in Japan were abused for TF
purposes.

(c.8.1(c)) Japan did not meet the requirement of this sub-criterion at the timeof the MER, as it did not recently and substantially review the adequacy ofmeasures to respond appropriately to TF risk in the NPO sector. Since the
MER, Japan has taken some positive steps to approach measures that relate
to at-risk NPOs of TF abuse (i.e., issuing the “Terrorist Financing Risk
Assessment Guidelines for Corporations Engaging in Specified Non-profit
Activities”; the “CFT measures for Public Interest Corporations”), including
consultations and conferences. However, it has not reviewed the adequacy ofmeasures to respond appropriately to TF risk in the NPO sector.
(c.8.1(d)) Japan did not fully meet the requirement of this sub-criterion at thetime of the MER, as it did not provide information demonstrating that it
intended to reassess the NPO sector for potential vulnerabilities, including
those relating to terrorist activities, although TF risk in the NPO sector had
been assessed in 2019 and included in the overarching ML/TF NRA in 2018.
Since the MER, the 2022 NRA reassessed the NPO sector by reviewing new
information from several sources (please see more in c8.1(a)), including the
conduct of individual thematic risk assessments of NPOs by category.
Criterion 8.2 (Partly met) (c.8.2(a)) Japan did not fully meet the requirementof this sub-criterion at the time of the MER, because although its legal
framework provided clear policies to promote accountability and integrity, it
was unclear whether there were policies for NPOs within the FATF definition
that are not captured within Japan’s NPO legal framework. Since the MER,
Japan took some positive steps by way of guidelines and measures. However,
it is still unclear whether policies have been introduced that promoteaccountability, integrity, and public confidence in the administration andmanagement of NPOs in line with the FATF definition. Japan indicated that themateriality and risk of this sector is small and that this gap is minor. However,Japan did not provide sufficient information to support this conclusion.

(c.8.2(b)) Japan did not fully meet the requirement of this sub-criterion at thetime of the MER, as it did not appear to have undertaken outreach or
educational programmes on TF risks with some types of NPOs both within
Japan’s NPO framework or those outside of the framework. Since the MER,
competent authorities in Japan undertook surveys, held a meeting,conferences, issued educational leaflets and administrative communications
to all types of NPOs to raise and deepen awareness against TF abuse and TF
risk. However, these outreach activities did not include NPOs that fall outsideof Japan’s legal framework. It is also unclear whether outreach andeducational programmes included measures that can be taken by NPOs tosafeguard against TF abuse.
(c.8.2(c)) Japan did not meet the requirement of this sub-criterion at the timeof the MER, as it did not work with NPOs to develop and refine best practices
to address TF risk and vulnerabilities. Since the MER, Japan worked withNPOs through surveys, conferences, and study groups, which led todeveloping best practices to address TF risks and vulnerabilities, including
the production of guidelines and other measures (e.g., Terrorist Financing
Risk Assessment Guidelines for Corporations Engaging in Specified Nonprofit Activities).

JAPAN SECOND ENHANCED FOLLOW-UP REPORT

| 13
h)

i)

j)

k)

l)

m)

(c.8.2(d)) As noted in the MER, the NPO supervisors are instructed (Cabinet
Office, MEXT, and MHLW) to advise NPOs of general TF vulnerabilities (e.g.,“activities carried out in and around areas exposed to terrorism” and “foreign
remittance(s)”) and encourage NPOs to use regulated financial channels to
the greatest extent possible. This sub-criterion remains unchanged from the
MER.

Criterion 8.3 (Partly met) Japan did not meet the requirement of thiscriterion at the time of the MER, as it did not supervise or monitor NPOs basedon risk of TF abuse. Since the MER, Japan undertook several outreachactivities to enhance NPOs understanding of TF risk. Outreach is focused on
NPOs that fall within the NPO legal framework of Japan. In addition, somecompetent authorities have started to require some types of high-risk NPOs,
which conduct overseas activities, to submit a specific report regarding
overseas activities, which is risk-based. However, as mentioned in the MER,
Japan does not yet supervise or monitor all NPOs based on risk of TF abuse.

Criterion 8.4 (Partly met) (c.8.4(a)) Japan did not meet the requirement of
this sub-criterion at the time of the MER, as the supervisory measures in place
related to the governance procedures, meaning there were no risk-based forNPOs at risk of TF abuse. Since the MER, Japan issued guidelines andundertook outreach and training programmes to promote the understandingof risk of TF abuse among NPOs falling within its legal framework. However,supervision cannot be considered risk-based. (c.8.4(b)) As noted in the MER,
NPO-specific penalties combined with those provided for in the Penal Codeallow Japanese authorities to apply effective, proportionate, and dissuasive
sanctions for NPO-related violations. This sub-criterion remains unchanged
from the MER.

Criterion 8.5 (Partly met) (c.8.5(a)) Japan did not meet the requirement of
this sub-criterion at the time of the MER, as it did not ensure that effective
coordination and info sharing exists among agencies that hold relevant
information on NPOs. Since the MER, Japan established the “Inter-Ministerial
Council for AML/CFT/CPF Policy”, and other councils to improve coordination among ministries and agencies, including those hold information
on NPOs. Since 2021, the “Policy Council” has resumed four times to discuss
issues including CFT measures for NPOs. Nonetheless, it is unclear whether
prefectural and local governments effectively cooperate and share
information with relevant agencies regarding NPOs.

(c.8.5(b)) Japan did not meet the requirement of this sub-criterion at the timeof the MER, as it did not have specific investigative expertise to examine NPOs
suspected of TF. Since the MER, outreach and educational programmes are afactor in the RBA Governance framework relating to NPOs. In October 2021,
the Supreme Public Prosecutor's Office, the NPA, and the Ministry of Justiceestablished a task force that gave lectures with the aim of using the capacity
enhanced through training and other means to strengthen investigations andprosecutions. Although this is a positive measure, it is unclear the extent towhich competent authorities developed investigative expertise to examine
NPOs suspected of TF abuse.
(c.8.5(c)) As noted in the MER, while LEAs have the powers and authority to
fully access information on the administration and management of particular
NPOs suspected of abuse for TF during the course of an investigation as

JAPAN SECOND ENHANCED FOLLOW-UP REPORT

14 |

n)

o)

p)

highlighted in the MER, this is not as clear in the case of investigations
conducted by non-law enforcement authorities. This sub-criterion remains
unchanged from the MER.

(c.8.5(d)) Japan did not meet the requirement of this sub-criterion at the timeof the MER, as information sharing about suspect of TF abuse is reliant on the
Code of Criminal Procedures, and prosecutors and judicial police officers’
ability to seizure documents and records (Criminal Procedures Act, art. 197).
Since the MER, Japan established several mechanisms to improve information
sharing on NPOs (please see sub-criterion 8.5(a)). However, the identified
gap, although minor, remains outstanding.

Criterion 8.6 (Met) Japan did not meet the requirement of this criterion at
the time of the MER, as it did not identify specific points of contact andprocedures to respond to international requests for information regarding
NPOs suspected of terrorist financing or involvement in other forms ofterrorist support. Since the MER, Japan took some positive steps to identify
appropriate points of contact to respond to international requests for
information regarding NPOs suspected of terrorist financing or involvementin other forms of terrorist support. Japan has assigned MoFA, MoJ, NPA, FSA,
NTA, and MoF as specific points of contact. Japan noted that these competentauthorities have already established contacts with their foreign counterparts.
In addition, Japan adopted procedures to respond to requests pertaining toNPOs, which clarify the role of relevant ministries and agencies.

Weighting and conclusion: Since the MER, Japan took several positive steps
to address multiple deficiencies highlighted in the MER, such as updating its
NRA, developing thematic risk assessments, establishing an Inter-Ministerial
Council, conducting outreach to the NPO sector and providing educational
programmes. However, several shortcomings have been identified withrespect to: (a) review of laws and regulations in order to be able to takeproportionate and effective action to the address risks identified, (b) raise
NPO understanding of measures to be taken to protect themselves against TF
abuse, (c) have nuanced investigative expertise and capability to examine
NPOs suspected of TF abuse or exploitation; including full access of
information to all competent authorities, and (d) monitor compliance byNPOs with the requirements of R.8 including risk-based approach being
applied to them. Considering some Japanese NPO operations are present inhigh threat areas, these deficiencies are considered as moderate. A deficiency
also remains regarding identifying NPOs that are not legally incorporated andengaging in the nexus of “good works” other than the predefined categories
in Japan’s NPO legal framework, which may fall within the FATF definition.
Therefore, Recommendation 8 is re-rated as Partially Compliant.

JAPAN SECOND ENHANCED FOLLOW-UP REPORT

| 15

Recommendation 24
MER
FUR1
FUR2

a)

b)

c)

Year
2021
2022
2023

RatingPC
PC (not re-assessed)↑ LC

Criterion 24.1 (Met) As noted in the MER, the different types of legal persons
that exist in Japan are identified in the relevant, publicly available legal acts.
Stock companies and membership companies are identified in the Companies
Act, and general incorporated associations (associations) and generalincorporated foundations (foundations) are identified in the Act on General
Incorporated Associations and Foundations (GIAF Act). General descriptionsof the types and forms of legal person are available from the relevant
government agency websites 7. This sub-criterion remains unchanged from
the MER. As noted in the MER, the website of the Legal Affairs Bureau (MOJ)
contains information regarding the process for creating the different types oflegal persons. There is publicly available information regarding the process to
obtain and record basic information on legal persons through theincorporation process (Companies Act, art. 49, 579 and 911 to 914; GIAF Act,art 22, 163, 301-2and 330) and method for registering a company at theCommercial Register (Commercial Registration Act, art. 17). Information on
the process for recording basic information in relation to publicly listedcompanies is available from the relevant legislation (Financial Instruments
and Exchange Act; relevant Cabinet Office Ordinances). Publicly available
information on the mechanisms for obtaining and recording beneficial
ownership (BO) information by notaries during the company formation
process is available in the relevant Ordinance (Ordinance for the Enforcementof the Notary, Article 13-4) and from the Notary Association Website. Detailsof the process for obtaining and recording BO information by FIs and DNFBPs
are detailed in the relevant laws and guidelines which are publicly available(Act on the Prevention of Transfer of Criminal Proceeds, APTCP, article 4,paragraph 1, item (iv); APTCP Ordinance, article 11, paragraph 1-3 etc.). (Seealso R. 10 in 2021 MER). This sub-criterion remains unchanged from the MER.

Criterion 24.2 (Mostly met) Japan did not fully meet the requirement of thiscriterion at the time of the MER, as it had assessed the ML/TF risks associatedwith all types of legal person created in the country only to some extent (2014
NRA-Baseline Analysis, Section 2.2.(4); 2018 NRA-Follow-up report, Section
4.3.(5), See R.24, c.24.2 in 2021 MER). Since the MER, measures remainunchanged, and the identified gaps remains.

Criterion 24.3 (Mostly met) Japan did not fully meet the requirement of thiscriterion at the time of the MER, as the summary of company information
requested on payment of a fee (Commercial Registration Act, art.11) contained
all of the information required under 24.3, except for the names of the directors.
Since the MER, the legal framework remains unchanged, and the identified gaps
remains.

. See
http://houmukyoku.moj.go.jp/homu/touki2.html,
inJapaneseonlyandwww.jetro.go.jp/en/invest/setting_up/, both in English and Japanese. Accessed July 2023.

7

JAPAN SECOND ENHANCED FOLLOW-UP REPORT

16 |
d)

e)

f)

g)

h)

Criterion 24.4 (Mostly met) Japan did not meet the requirement of this criterion
at the time of the MER, as there was no requirement to maintain theshareholder, member and councillor information for legal persons at a locationin the country regardless of the act of incorporation of legal persons including
some information. The identified gap remains.

Criterion 24.5 (Mostly met) Japan did not meet the requirement of this criterion
at the time of the MER, as there was: (a) no requirement for the information in
the Commercial Registry to be updated, unless a company is dissolved, merges
with another, or a wholly owned subsidiary is transferred (Commercial
Registration Act, arts. 79-89); (b) no similar mechanism required for the articles
of incorporation of Membership Companies; and (c) no equivalent requirementin place for membership companies, associations or foundations. Since the MER,
Japan informed on factual errors concerning the assessment of this criterion.
Japan provided clear explanation to justify its position on this matter, which wasconsidered by the experts. This is in line with the FUR process, which stipulate
the following: “in highly exceptional circumstances, you may identify a deficiency
not assessed or incorrectly assessed due to a material or factual error in theprevious MER or FUR (e.g., an element of the criteria was not considered, a law notin force and effect was taken into account, the lack of requirements in a relevant
overseas territory has not been taken into account, etc.)”.
The FUR process identified a misunderstanding regarding the requirement for
the Registry to be updated, and that the MER did not reflect the factual situation
concerning stock companies. Thus, (a) is mostly addressed (See explanation ind. below). However, the analysis of sub-criteria (b) and (c) remains the same asin the MER. Given the facts presented on the number and types of incorporated
legal persons in Japan, stock companies are the largest and most frequently held
type of legal person in Japan, thus the remaining gaps are of minor nature.
Regarding (a), the Companies’ Act, art.915 (registration of change) specificallymentions that when there is a change to the matters listed in the items ofart.911(3) or in terms of the preceding three Articles with regards to a
Company, the registration of the change shall be completed at the Commercial
Registry, at the location of the head office within two weeks. In addition, it
specifies the detail that can be updated in respect of a Stock Company, which
includes inter alia the following (Article 911(3)): “The purpose, the trade name,the address of the head office and branch office, capital, details of the sharesissued, the total number of shares issued, the classes of issued shares, if there is an
Administrator of the Shareholder registry, the name, domicile and business officeof the Administrator, the names of the directors, the names of representative
directors etc. Section 130 further stipulates that no change to shareholding may
be affected in respect of a Stock Company, unless the details of the person
acquiring the shares is recorded in the shareholder register.”
As regards (b), the Companies’ Act is applicable to the Registration ofIncorporation of a General Partnership Company, the Registration ofIncorporation of a Limited Partnership Company, and the Registration ofIncorporation of a Limited Liability Company (art.915). Thus, where there arechanges to the information described under Articles 912, 913 and 914, these arealso to be updated within two weeks (at the location of the head office) for
membership companies. There is no specific equivalent s130 of the Companies’
Act requirement for membership Companies. However, the Act dictates what
JAPAN SECOND ENHANCED FOLLOW-UP REPORT

| 17

i)

j)

k)

must be specified in the articles of Incorporation of Membership Companies,
including the names and addresses of all members, the details as to themembership (limited/unlimited liability), and it speaks to the requirements formembership companies to admit new members (article 576 & 604). The
admission of members only takes effect when a change is done in the articles ofincorporation. This mechanism, if utilised can contribute to ensuring that the
information is accurate and up to date.

Regarding (c), Associations, the Act on General Incorporated Associations andGeneral Incorporated Foundations states (art.303): “If there is a change to thematters listed in the items of Article 301, paragraph (2) or in any of the items ofparagraph (2) of the preceding Article with regard to a general incorporated
association, etc., the registration of that change must be completed at the locationof the principal office within two weeks.” However, the Act does not refer to detailof members being required to be updated (art.301). The GIAF states that “Thegeneral incorporated association must prepare a registry (hereinafter referred toas a "member registry") of members that includes or has recorded therein thenames and addresses of members” (art.31). Whilst this is the case, there is no
explicit requirement that this information needs to be maintained and kept up
to date. Further, Japan has clarified that member registry and employee record
book have the same meaning so there is not gap in terms of updating themember registry.

Regarding (d), Foundations, the mechanism for foundations is the similar to theone for the Associations. The Act on General Incorporated Associations andGeneral Incorporated Foundations states (art.303): “If there is a change to thematters listed in the items of Article 301, paragraph (2) or in any of the items ofparagraph (2) of the preceding Article with regard to a general incorporated
association, etc., the registration of that change must be completed at the locationof the principal office within two weeks.” The Act also notes the “precedingarticle” that is linked to the General Incorporated Foundations and there is norequirement to update any member registry (art.302).
Criterion 24.6 (Mostly met) (a-b) (Non-Applicable) N/A as in the MER.
(c24.6(c)) Japan did not meet the requirement of this sub-criterion at the timeof the MER, because although it had two mechanisms to ensure access to BO
information (one based on public notaries, and one based on existing
information obtained and kept up to date by FIs/DNFBPs), these were recently
enacted, and the MER concluded that BO information might have been notalways available to competent authorities for all legal persons (though the issue
was also flagged that notaries files might have not always been available toauthorities and scope issues regarding DNFBPs). Since the MER, Japan
introduced an additional mechanism combining different elements: a list ofshareholders, a BO of legal persons list system, and ongoing CDD by
FIs/DNFBPs. The first element of the list of shareholders implies BO information
would be held in the Registry Office in certain cases (e.g., where a change inshareholders is requested, in which case it mandatorily has to go through theregister). This mechanism is only applicable to entities that are stockcompanies, but this represents most of the companies incorporated in Japan.
The second element (BO list) is a new BO registry system that Japan establishedin January 2022, applicable also just to stock exchange companies (albeit thiscovers majority of companies incorporated in Japan) and for which companies
can voluntarily apply to (The Government is actively promoting its use). Lastly,

JAPAN SECOND ENHANCED FOLLOW-UP REPORT

18 |

l)

m)

n)

o)

Japan relies on ongoing DD to the extent that FIs and DNFBPs are subject to
AML/CFT obligations (e.g., there are some remaining scoping issues regarding
lawyers which are expected to be solved fully by 2024 and therefore notconsidered for the analysis of this FUR).

Criterion 24.7 (Partly met) As in its 2021 MER, Japan does not fully meet therequirement of this criterion as: (a) not all DNFBPs were required to undertake
CDD that includes checks on the beneficial owner – in particular lawyers andlegal professional corporations (See 2021 MER, R.10 and R.22); (b) therequirement for FIs and DNFBPs (excluding lawyers and legal professional
corporations) to identify and take reasonable measures to verify the identity of
the BO was established in the Act on Prevention of Transfer of Criminal
Proceeds in October 2016, and so there was no BO information available forcustomers that were legal persons and on-boarded before October 2016; and(c) BO information was only collected by notaries when the legal person wasformed. Since the MER, Japan amended the APTCP, in December 2022, torequire that all DNFBPs undertake full CDD, including checks on the BO after
spring of 2024. Concerning lawyers, a similar amendment was made by theJapan Federation of Bar Associations. However, both requirements will comeinto force post the FUR reporting deadline and hence cannot be considered forthis FUR.

Criterion 24.8 (Mostly met) (c.24.8(a)) Japan did not meet the requirement of
this sub-criterion at the time of the MER, as there are no specific measuresrequiring a natural person resident in the country to be accountable tocompetent authorities for providing basic or BO information for legal persons,or similar measures for membership companies, associations or foundations.
(c.24.8(b)) As set out in the MER, DNFBPs in the country are authorised by thecompany, and accountable to competent authorities, for providing all basic
information and available BO information, and giving further assistance to theauthorities. This sub-criterion remains unchanged from the MER.

(c.24.8(c)) As set out in the MER, the representative director or equivalent isrequired to represent the company (Companies Act, art. 349). In addition, astock company may hire a shareholder administrator to prepare and update theshareholder register kept at the head office of the company (Companies Act,art.123). These points of contact may aid the competent authorities whenseeking for basic information on stock companies. In addition, since the MER,
Japan took some steps to address the identified gap via “other comparable
measures identified by the country” that allow for companies to cooperate withauthorities to obtain BO information (please see criteria 24.5 (information in
the Register is publicly available) and 24.6,) and which allow the overall
criterion could be re-rated to Mostly Met, even though there is still no direct
requirement for a natural person resident in the country to be accountable tocompetent authorities for providing basic or BO info for legal persons and,measures for general incorporated associations and general incorporated
foundations do not exist.

Criterion 24.9 (Met) As noted in the MER, FIs and DNFBPs are required to keeptransaction records and information obtained through CDD measures, including
BO information for 7 years after termination of the business relationship(APTCP, art.6, para.1 and 2; APTCP Ordinance, art. 19, 20 and 21, see R. 11). In
addition, information in the commercial registry should be kept for 20 years
JAPAN SECOND ENHANCED FOLLOW-UP REPORT

| 19

p)

q)

r)
s)

t)

after a company has been dissolved or liquidated (Regulation on Commercial
Registration, art.34 (4) (ii)). In terms of the basic information (including
shareholder information) kept at the head office of legal persons (See criteria
24.3), the information collected and maintained must be kept at all times. Whenlegal persons are liquidated, liquidators are required to maintain books of theliquidated entity for 10 years from the completion of the liquidation (Companies
Act, art. 508 and 672; Act on General incorporated associations and generalincorporated foundations, art. 241). This sub-criterion remains unchanged from
the MER.

Criterion 24.10 (Mostly met) Japan did not fully meet the requirement of thiscriterion at the time of the MER, as: (a) it was not clear the extent to whichshareholder information is available in the Commercial Registry; (b) there wereno specific measures in place to enable competent authorities to obtain timely
access to basic information held by companies; and (c) although Japan had
indicated that private and public sector organisations cooperative effectively
and respond swiftly to requests to provide information on basic and BO, it was
not clear how the information above may be obtained on a timely basis in every
case (except for basic information available from the company registry). The
identified gaps remain.
Criterion 24.11 (Mostly met) (a-e) Japan did not meet the requirement of these
sub-criteria at the time of the MER, as despite the prohibition, it was possiblethat bearer shares still existed in Japan. In addition, it was not clear whether theholders of bearer share options must be registered in the shareholder registeror may only be listed in the share option register without including their names
and addresses. Since the MER, Japan clarified that bearer share options aredifferent from bearer share warrants defined in the FATF glossary (i.e., bearer
share option of Japan only confers a right to subscribe for ownership in a legal
person at specified conditions, but not ownership or entitlement to ownership,
unless and until the instruments are exercised). However, it is still possible thatbearer shares exist even if prohibited, as there is no evidence to suggest thatpenalties have been enforced. It also mentioned in the MER that after theprohibition, companies with bearer shares had to provide a public notice andcall a shareholder meeting. There was no evidence of any public notice, etc. at
the time provided. No further steps were taken by Japan post the request for a
public notice and shareholder meeting. Despite the absence of a public notice asmentioned in the MER, this means that bearer shares could still exist and thelevel of effectiveness of the prohibition remains a concern.
Criterion 24.12 (a-c) (Non-Applicable) As noted in the MER, these criteria
remain non-applicable because Japanese law does not recognise the concept of
nominee ownership or directorship.

Criterion 24.13 (Mostly met) Japan did not fully meet the requirement of thiscriterion at the time of the MER, as the sanctions available for legal persons werelimited, and there were no sanctions applicable to legal persons themselves inrelation to their obligation to register and submit basic information to thecompany registry. The identified gaps remain.

Criterion 24.14 (a–c) (Mostly met) Japan did not fully meet the requirement ofthese criteria at the time of the MER, as there was no specific requirement
regarding the rapid provision of basic and BO information to foreign competentauthorities. The identified gaps remain.

JAPAN SECOND ENHANCED FOLLOW-UP REPORT

20 |
u)

v)

w)

x)

Criterion 24.15 (Mostly met) Japan did not fully meet the requirement of thiscriterion at the time of the MER, as there was no formal mechanism to monitor
the quality of assistance received from other countries in response to requests
for basic and BO information even if Japan considered and responded as needed
when the quality of assistance is unsatisfactory. Since the MER, Japan took steps
to address the identified gap. The NPA, the Ministry of Justice, and the FIU
monitor the assistance received as to its completeness, although there are no
specific criteria in place to assess quality.

Regarding the International Criminal Police Organisation (ICPO-INTERPOL)
route, Mutual Legal Assistance, and information exchange procedures of the
FIU, in March 2023, Japan established evaluation items such as whether or not
the counterpart country responded to the request, the time taken to receive theresponse, and whether the response satisfied its request. As regards theInternational Organization of Securities Commissions (IOSCO) route, Japan
provided information indicating the requirements based on which assistanceshould be provided (IOSCO MMoU, art.7 “Scope of Assistance”). However, thesecriteria are not explicitly set out to satisfy monitoring of quality of assistancereceived.

Weighting and conclusion: As at the time of the MER, basic information on
legal persons is available to competent authorities rapidly through the Registryor Companies. Since the MER, availability of BO information generally has
improved and compliance with criteria 24.8, 24.11 and 24.15 has improved tosome degree.

As per Japan’s request, the team of experts reconsidered the analysis of the 2021
MER in criterion 24.5, as there was a misunderstanding in the 2021 MER
concerning the requirement for the Registry to be updated and the MER did notreflect the factual situation concerning stock companies. Thus, the identified gap
is considered as mostly addressed. Other identified gaps remain under criteria:
24.2 (need to improve risk assessment of legal persons), 24.3 (need to include
information on directors), 24.4 (no requirement to maintain the shareholder,member and councillor information for legal persons at a location in the country
regardless of act of incorporation of legal persons including some information),24.5 (lack of requirement to update information for associations andfoundations), 24.6 (needs for improvement in some of the means to obtain BO
information which are in progress), 24.7 (gaps in ensuring information is as
accurate and up to date as possible, including obligation for all DNFBPs to keep
information up to date), 24.8 (no requirement for a natural person resident in
the country to be accountable to competent authorities for providing basic or
BO information for legal persons, or similar measures for membershipcompanies, associations or foundations, 24.10 (doubts on ability to obtain
information in a timely manner), 24.11 (gaps on preventing misuse of bearer
shares), 24.13 (gaps in sanctions), 24.14 (no specific requirement regarding the
rapid provision of basic and BO information to foreign competent authorities)
and 24.15 (gap in ability to monitor quality of assistance), although these are ofminor nature considering basic requirements in place and materiality, as statedin the MER (See para.81 of MER). Therefore, Recommendation 24 is re-rated
as Largely Compliant.

JAPAN SECOND ENHANCED FOLLOW-UP REPORT| 21

Recommendation 25
MER
FUR1
FUR2

a)

b)

c)

d)

e)

f)

Year
2021
2022
2023

RatingPC
PC (not re-assessed)
Maintained at PC

Criterion 25.1 (Mostly met) (c.25.1(a)) Japan did not meet the requirement of
this sub-criterion at the time of the MER, as there were no specific requirements
for trustees of civil trusts to obtain and hold adequate, accurate, and current
information on the identity of the settlor, the protector (if any), the otherbeneficiaries or class of beneficiaries, and any other natural person exercisingultimate effective control over the trust. The identified gaps remain.

(c.25.1(b)) Japan did not meet the requirement of this sub-criterion at the timeof the MER, as it did not require trustees of any trust governed under its law tohold basic information on other regulated agents of, service providers to, thetrust, including investment advisors or managers, accountants, and tax advisors.
The identified gaps remain. (c.25.1(c)) As noted in the MER, professional
trustees to maintain this information for at least five years (Seven to ten years;see 2021 MER, c.25.1) after their involvement with the trust ceases (APTCP,
art.6, para.1 and 2; APTCP Ordinance, articles 19, 20 and 21; and Trust Act
art.37). This sub-criterion remains unchanged from the MER.
Criterion 25.2 (Mostly met) Japan did not fully meet the requirement of thiscriterion at the time of the MER, as obligations to keep CDD informationcollected up-to-date obligations did not apply to persons settling andadministering civil trusts. Since the MER, the legal framework remains
unchanged. Therefore, the identified gaps remain.

Criterion 25.3 (Not met) Japan did not meet the requirement of this criterion
at the time of the MER, as there were no specific measures placed on trustees,of any domestic or foreign trust, to disclose their status to an FI or DNFBP whenforming a business relationship or carrying out an occasional transaction above
the threshold. Since the MER, Japan took initiatives to address the identified
gaps. However, the planned changes to Japan’s legal framework came into force
on 1 June 2023 (post the FUR reporting deadline).

Regarding the information provided, it remains unclear as to whether there isan explicit duty on trustees to disclose their status to FIs and DNFBPS whenforming a business relationship or carrying out an occasional transaction above
the threshold. The changes that took place on 1 June 2023, clarify that the
APTCP requirements on confirming customer’s purpose of transaction includes
the case of acting as a trustee of a trust, when, not but limited to, forming abusiness relationship or carrying out transaction above the threshold pursuant
to the Article 4.1.2, 3 of the APTCP. However, this requirement was not in effectat the time of submission for this FUR and cannot be considered. It is noted thatfor trusts that have trustees making transactions with real estate in a trust, thestatus of trusts and the trustees will be available due to the real estateregistration.
Criterion 25.4 (Met) As noted in the MER, there were no laws or enforceablemeans that prevent trustees from providing any information to competentauthorities relating to the trust; or from providing FIs and DNFBPs, upon

JAPAN SECOND ENHANCED FOLLOW-UP REPORT

22 |

g)

h)

i)

j)
k)

request, with information on the beneficial ownership and the assets of the trust
to be held or managed under the terms of the business relationship. This subcriterion remains unchanged from the MER.

Criterion 25.5 (Mostly met) Japan did not meet the requirement of this criterion
at the time of the MER, as there was no specific requirement to ensure that
beneficial ownership information can be obtained in a timely manner, although
law enforcement, FIU and supervisors have access to it (See 2021 MER, c.25.5).
The identified gaps remain.
Criterion 25.6 (Mostly met) (a-c) Japan did not meet the requirement of thiscriterion at the time of the MER, as there was no specific requirement or
mechanism in place in Japan to support the rapid provision of information,
including BO information, on trusts to foreign competent authorities. The
identified gaps remain, even if measures in R.37 – R.40 apply.

Criterion 25.7 (Mostly met) As noted in the MER, for trust companies andbusinesses, trustees may be legally liable for failing to perform their duties, andthere are proportionate and dissuasive sanctions for failing to comply. Japan did
not meet the requirement of this sub-criterion at the time of the MER, as thefinancial sanction for noncompliance available on trustees of civil trusts is notproportionate and dissuasive and therefore not an effective deterrent. Since the
MER, the legal framework remains unchanged. The identified gaps remain.
Criterion 25.8 (Mostly met) Japan did not meet the requirement of thiscriterion at the time of the MER, as there were no specific sanctions applicablewhen trusts do not grant timely access to information referred to in c.25.1
except for supervisors (See 2021 MER, c.25.8). The identified gaps remain.

Weighting and conclusion: Since the MER, Japan took steps to rectify some
identified gaps. However, it remains unclear whether there is an explicit dutyon trustees to disclose their status to FIs and DNFBPS when forming a business
relationship or carrying out an occasional transaction above the threshold. In
addition, Japan issued legislation to rectify issues concerning trustee
transactions on 1 June 2023 (post the FUR reporting deadline). It is noted thatfor trusts that have trustees making transactions with real estate in a trust, thestatus of trusts and the trustees (to confirm at that time if it includes all trustees)
will be available due to the real estate registration. This criterion is importantfrom a materiality perspective and the rating thus remains the same.
Recommendation 25 remains rated as Partially Compliant.

JAPAN SECOND ENHANCED FOLLOW-UP REPORT| 23

Recommendation 28
MER
FUR1
FUR2

a)

b)

c)

Year
2021
2022
2023

RatingPC
PC (not re-assessed)↑ LC

Criterion 28.1 (Met) As noted in the MER, this criterion was non-applicable.
Since the MER, Japan amended its legal framework to allow the operation ofcasinos (Act on Development of Specified Integrated Resort Districts (ADSIRD)
came into effect on 19 July 2021). (c.28.1(a)) Japan requires casinos to belicensed. Licence is granted according to the requirements of ADSIRD (art.39).
Currently there are no casinos operating in Japan. (c.28.1(b)) The ADSIRD setsout requirements that prevent criminals or their associates from holding (orbeing the beneficial owner of) a significant or controlling interest, or holding amanagement function, or being an operator of a casino (art.41). (c.28.1(c)) The
Casino Regulatory Commission (JCRC) is the supervisory authority for casinos,
including supervision on AML/CFT matters (ADSIRD art. 196-212).

Criterion 28.2 (Met) As noted in the MER, several competent administrative
authorities, as set out in the APTCP, have responsibility for regulating andsupervising DNFBPs’ compliance with AML/CFT requirements (APTCP, art. 2,
para. 2; art. 22; and APTCP Order, articles 34 to 36). This sub-criterion remains
unchanged from the MER.

Criterion 28.3 (Mostly met) Japan did not meet the requirement of this criterion
at the time of the MER, as general compliance controls for DNFBPs did notamount to AML/CFT monitoring and supervision systems. Since the MER, Japan
undertook several steps to address the identified gap. Japan’s National Action
Plan established that supervisors would update/develop supervisory
guidelines for AML/CFT, develop an appropriate supervisory regime andstrengthen risk-based supervision and inspection. Furthermore, the respective
supervisors and NPA would enhance DNFBP’s understanding on AML/CFT risks
by raising their awareness robustly on AML/CFT obligations. In addition,
strengthen the implementation of AML/CFT measures with a specific focus on
ongoing CDD requirements, enhanced due diligence (EDD) measures, andimproving the quality of suspicious transaction reporting (STR). It was evident
from the information provided by Japan for this FUR that guidelines have beendeveloped with regards to DNFBP sectors including real estate brokers, dealers
in precious metals and stones, postal receiving service providers and telephonereceiving telephone forwarding service providers and there is now specific
AML/CFT monitoring rather than general controls. The obligation forverification at the time of transactions was expanded in line with theamendment of the APTCP in December 2022 and to strengthen AML/CFT
through RBA by attorneys. The clarification that it is required to “carefully
examine whether the purpose of the instruction relates to a transfer of criminal
proceeds in view of the contents of ‘Risk Assessment of Money Laundering in
Legal Practice’ formulated by the Japan Federation of Bar Associations andother circumstances in addition to the attributes of the client, business
relationship with the client, and the details of the instruction, when Attorneys
intend to accept instructions for legal matters” has been provided. Concerning
public accountants, the APTCP was revised in December 2022. This expanded

JAPAN SECOND ENHANCED FOLLOW-UP REPORT

24 |

d)

e)

f)

g)

h)

the obligation for certified public accountants and audit firms to verify at thetime of transaction and imposed on them the obligation to report STRs.

Supervisory action was taken in the case where a trading firm in the DPMS
sector was found to be non-compliant with the APTCP (STR reporting
deficiencies, training and education of employees as well as the development of
new rules were imposed). Further supervisory action (public notice ofdisciplinary action) was taken against an individual in the legal sector where hefailed to submit annual reports for the purpose of verification of client identity
as well as retention of records for the previous year. The failures occurred forthe years 2017, 2018 and 2019. The disposition was effective from 24 June
2022.

Furthermore, the respective supervisors and NPA would enhance DNFBP’s
understanding on AML/CFT risks by raising their awareness robustly on
AML/CFT obligations. RBA guidance has been issued in respect of Legal
Professionals in March 2023. AML/CFT monitoring is conducted for judicial
scriveners and corporations in accordance with the Judicial Scriveners Act (JSA)and the obligation for judicial scriveners and corporations to conduct
verification at the time of transaction was expanded based on the APTCP wasrevised in December 2022. Similarly, the obligation for certified administrative
procedures legal specialists and corporations to conduct verification at the timeof transaction was expanded and imposed on them the STR obligation.

Inspections, guidance and awareness/outreach sessions have also begun forsome of the DNFBP sectors. It is evident from the information provided thatguidelines have been developed with regards to DNFBP sectors including realestate brokers, dealers in precious metals and stones, postal receiving service
providers and telephone receiving telephone forwarding service providers. The
obligation for verification at the time of transactions was expanded in line withthe amendment of the APTCP in December 2022 and to strengthen AML/CFT
through RBA by attorneys. A handbook on the identification of clients for theJapanese Federation of Administrative Scrivener’s Associations has also been
compiled. The information provided indicates that there is an enhanced focus
on AML/CFT requirements in respect of DNFBPs.
Criterion 28.4 (Mostly met) (c.28.4(a)) As noted in the MER, the relevantsupervisory bodies are empowered to supervise AML/CFT compliance and takerelevant measures, including general powers to perform their functions andpowers to monitor compliance (APTCP, articles 15-18, 22). (c.28.4(b)) Japan did
not meet the requirement of this sub-criterion at the time of the MER, as not all
DNFBPs were required to take measures to prevent people from holding asignificant or controlling interest or a management function. The identified gaps
remain. (c.28.4(c)) Japan did not meet the requirement of this sub-criterion at
the time of the MER, as it was unclear if all DNFBPs supervisors can impose anappropriate range of sanctions for failure to comply with all AML/CFT
requirements. Since the MER, Japan provided examples of sanctions, including
the overall number of sanctions imposed by supervisors.
Criterion 28.5 (Partly met) (a-b) Japan did not meet the requirement of these
sub-criteria at the time of the MER, as DNFBP supervisors did not implement
supervision on a risk-based approach. Since the MER, Japan conducted the 2022
NRA, which identified to some extent the level of risk from a sectoral
perspective. NRA indicators revealed that many of the higher risks presentJAPAN SECOND ENHANCED FOLLOW-UP REPORT

| 25

i)

j)

themselves when transactions are linked to anonymity. It is also evident where
DNFBPs do not take effective risk mitigating measures corresponding to theirrisks. In some instances, surveys have been issued by supervisors to establish
whether there are effective ML/TF risk mitigation controls in place. The JFBA
also conducts monitoring in respect of attorneys, and it seems inspections will
be utilised over surveys when ML/TF is apparent. There has been some
progress, however it is not clear how many institutions are in place per DNFBP
sector, how many have had inspections or undergone monitoring, and how thelevel, frequency and intensity of supervision will differ in accordance with therisk rating per entity to adequately demonstrate that supervision is conducted
on a risk sensitive basis.
Weighting and conclusion: Since the MER, Japan took several steps to meet therequirements of this Recommendation. Japan amended its legal framework toallow the operation of casinos and set out relevant requirements in the ADSIRD.
Japan also took steps towards the application of a risk-based approach tosupervision. However, it is unclear to what extent this is effectively applied
across all the institutions constituting the DNFBP sectors and there does notseem to be an indication of how often the institutions across the sectors will beassessed in line with the degree of risk posed.

The rating takes into consideration the new legal framework for casinos,
including activities undertaken by the respective authorities and supervisors,
such as the issuance of guidelines to sectors, conducting outreach/awarenesssessions and amending legislation accordingly where this enables certain DNFB
sectors to comply with STR requirements. The NRA demonstrates someunderstanding of the risk in the DNFBP sectors. However, this has not been
delved into finer detail in terms of evidencing how the institutions within the
DNFBP sectors have been risk rated, and furthermore how often the institutions
will be monitored/inspected, and the degree of intensity of supervision does notappear risk-based from the text, for the majority of the DNFBP sectors. Further
clarity is required in terms of the data provided, i.e., set out how many
institutions have been risk profiled, how many of those have beeninspected/monitored, the intensity of the supervision and the frequency etc.
Therefore, Recommendation 28 is re-rated as Largely Compliant.

JAPAN SECOND ENHANCED FOLLOW-UP REPORT26 |Conclusion
Overall, Japan has made progress in addressing technical compliance deficiencies identified
in its MER and has been upgraded on R.5, R.6, R.8, R.24 and R.28. R.25 is maintained at PC.

The table below shows Japan’s MER ratings and reflects the progress it has made, and any reratings based on this and previous FURs:

Table 1. Technical compliance ratings, October 2023

R.1

R.3

R.4

LC

LC
R.9
C

LC

R.12
PC
R.17

R.8
PC (FUR 2023)
NC
R.13
LC
R.18

R.5
LC (FUR 2023)
PC
R.10

R.14
LC
R.19

R.15
LC
R.20

LC
R.21

N/A
R.22

LC
R.23

LC
R.25

C

PC

PC

R.26

R.27

LC

LC

C

C

R.31

R.32

R.28
LC (FUR 2023)
PC
R.33

LC
R.24
LC (FUR 2023)
PC
R.29

R.34

R.35

LC
R.36
LC

LC
R.37
LC

LC
R.38
LC

LC
R.39
LC

LC
R.40
LC

LC
R.6
LC (FUR 2023)
PC
R.11
LC
R.16

R.2
LC (FUR 2022)
PC
R.7
PC

PC
R.30

Note: There are four possible levels of technical compliance: compliant (C), largely compliant (LC),partially compliant (PC), and non-compliant (NC).

Japan has six Recommendations rated PC. Japan will report back to the FATF on progressachieved in improving the implementation of its AML/CFT measures in October 2024.

JAPAN SECOND ENHANCED FOLLOW-UP REPORT

| 27

Annex to the FUR
Summary of Technical Compliance –Deficiencies underlying the ratings
Recommendations

Rating

1. Assessing risks & applying arisk-based approach

LC

Factor(s) underlying the rating•••

2. National cooperation andcoordinationPC(LC 1st FUR)•

3. Money laundering offences

LC

•
•

4. Confiscation and provisional
measuresLC

5. Terrorist financing offencePC(LC 2nd FUR)

6. Targeted financial sanctions
related to terrorism & TF••

PC
(LC 2nd FUR)

•

•

•
PC

The TF Act does not apply to self-funding.
The following deficiencies were updated in this 2nd FUR:•

7. Targeted financial sanctions
related to proliferation

Deficiencies in the NRA methodology which does not enable a comprehensive overview
of Japan’s ML/TF risks.
It is not clear that the results of the NRA have been used as a basis for a risk-based
approach at the national level and for the allocation of resources of relevant authorities.
There are technical deficiencies affecting some financial supervisors and DNFBP
supervisors’ risk-based approach to the supervision of AML/CFT obligations, and risk
assessments and risk mitigation measures required from FIs and DNFBPs.
It is unclear whether the mandate of the Council would fully satisfy the requirements ofcriterion 2.5. In particular, the Council’s mandate does not clarify itself to what extent
AML/CFT is a focus of the liaison meetings, chaired by the Chairman of the Personal
Information Protection Commission (PIPC).
There is a minor gap in the range of offences included in the category of environmental
offences.
Sanctions available to be imposed on natural or legal persons are not proportionate anddissuasive.
The minor gap in the scope of coverage of environmental offences as predicate offences
affects the scope of confiscation.
There are gaps with confiscation of proceeds when criminals who have absconded, diedor whose whereabouts is unknown.
The following deficiencies were updated in this 2nd FUR:

•
•
•
•

•
•

JAPAN SECOND ENHANCED FOLLOW-UP REPORT

Japan has not demonstrated that the asset-freezing obligations extend to (i) all funds
or other assets that are owned or controlled by the designated person or entity; (ii) funds
or other assets that are wholly or jointly owned or controlled, directly or indirectly, by
designated persons or entities; (iii) funds or other assets derived from or generated fromor other assets owned or controlled directly or indirectly by designated persons or
entities; and (iv) funds or other assets of persons and entities acting on behalf of, or at
the direction of designated persons or entities.
It is unclear whether the prohibitions under FEFTA and TAFA extend to transactions
indirectly involving designated parties, including entities acting on behalf or at thedirection of designated parties.
Japan does not require DNFBPs to report frozen assets or actions taken in relation to
TFS.
Japan does not implement TFS without delay.
Japan cannot freeze the funds of a designee in Japan between two Japanese residents
if a Japanese resident is subject to designation.
It is unclear whether freezing obligations extend to all funds or other assets in line with
the FATF definition.
Japan has not demonstrated that the asset-freezing obligations extend to (i) all funds orother assets that are owned or controlled by the designated person or entity; (ii) funds
or other assets that are wholly or jointly owned or controlled, directly or indirectly, by
designated persons or entities; (iii) funds or other assets derived from or generated fromor other assets owned or controlled directly or indirectly by designated persons or
entities; or (iv) funds or other assets of persons and entities acting on behalf of, or at
the direction of designated persons or entities.
Japan does not appear to provide specific guidance to FIs and DNFBPs as to theirasset-freezing obligations under the FEFTA.
Japan does not require DNFBPs to report assets frozen or related actions.

28 |Recommendations

RatingFactor(s) underlying the rating•••

8. Non-profit organisationsNC(PC 2nd
FUR)

The following deficiencies were updated in this 2nd FUR:•••

9. Financial institution secrecy
laws
10. Customer due diligence

Japan does not systematically monitor DNFBPs for compliance with FEFTA.
Japan has not provided guidance to FIs and other persons and entities, including
DNFBPs, that may be holding funds or other assets on their obligations to respect a delisting or unfreezing action.
It is not clear that Japan must submit prior notification to the Security Council of theintention to make or receive such payment or to authorise, where appropriate, theunfreezing of funds or other assets in relation to a payment due under a contract enteredinto prior to the listing.

C

•
•

LC

•
•

•

•
•

•
•

•

11. Record keeping

LC

•
•

12. Politically exposed persons

PC

•
•

NPOs that are not legally incorporated or that fall outside of the specific categories
provided for in the Japanese framework are not required to register. As a result, Japan
has not identified these limited types of NPOs, which nonetheless may fall within the
FATF definition.
Japan has not recently and substantially reviewed the adequacy of measures to
respond appropriately to TF risk in the NPO sector. Japan has not taken steps topromote effective supervision or monitoring such that they are able to demonstrate thatrisk-based measures apply to NPOs at risk of terrorist financing abuse.
Japan has in place a legal framework that allows the relevant authorities to demand
records, conduct on-site inspections and impose remedial actions. However, these only
relate to governance procedures and there are no risk-based measures applied toNPOs at risk of TF abuse.
It is not clear how foreign counterparts become aware of information of contact points.
All criteria are met.
There is no explicit prohibition for FIs to keep anonymous accounts or accounts in
obviously fictitious names.
The verification method of the identity of a person that claims to be acting on behalf ofthe customer is not reliable, and the exemption from verification based on the FI’s own
knowledge should be substantiated by the production of documented evidence of thisknowledge.
The required information to identify legal arrangements is not specified. Although trust
businesses and companies are subject to the APTCP and must register, there are no
similar requirements for civil trusts that are not considered trust businesses orcompanies. There is also no requirement for trustees to declare their status to FIs.
The APTCP Order and Ordinance are not explicit that the settlor, the trustee(s) and thebeneficiaries or class of beneficiaries should be identified.
There is no clear requirement for FIs either to include the beneficiary of a life insurance
policy as a relevant risk factor in determining whether enhanced CDD measures areapplicable, or to take enhanced measures including identifying and verifying any
change in the identity of the BO of the beneficiary at the time of payout.
There is no provision for FIs that are not supervised by the JFSA to apply EDD in any
situation assessed as higher risk.
FIs have some flexibility to continue to engage into the relationship or conduct thetransaction, if a customer does not respond to the request for verification (CDD
measures) at the time of transaction. In addition, FIs are not required to terminate thebusiness relationship under this scenario.
There is no legal provision that permit FIs not to pursue the CDD process in cases where
they form a suspicion of ML/TF and reasonably believe that performing the CDD
process will tip-off the customer
Small transactions are exempt from the record-keeping requirements.
There is no explicit provision that CDD information and transaction records should beavailable swiftly to competent authorities.
FIs that are not supervised by the JFSA are not required to put in place risk management
systems to determine whether a customer or the BO is a PEP.
In the case where a customer is a foreign PEP, FIs are required to obtain approval of a“senior compliance officer” who is not required to be part of the FIs’ senior management
to commence or continue the business relationship.

JAPAN SECOND ENHANCED FOLLOW-UP REPORT| 29
Recommendations

RatingFactor(s) underlying the rating
•
•
•
•
•

13. Correspondent banking

LC

•
•

14. Money or value transfer
services
15. New technologies

LC

•

LC

•
•
•
•
•
•
•
•
•
•

16. Wire transfers

LC

•
•
•
•
•
•

17. Reliance on third parties
18. Internal controls and foreign
branches and subsidiaries

N/A
LC

•
•

JAPAN SECOND ENHANCED FOLLOW-UP REPORT

FIs are required to conduct verification of the source of wealth and source of funds, but
only when the transaction involves transfer of property exceeding JPY2 million(EUR 15,837/USD 19,261)
FIs that are not supervised by the JFSA are not required to conduct enhanced ongoing
monitoring on relationship with foreign PEPs.
Domestic PEPs or persons who have been entrusted with a prominent function by aninternational organisation are not recognised as a specific category of customers.
Requirements of criteria 12.1 (a)-(d) do not apply to family members or close associatesof domestic PEPs or persons who have been entrusted with a prominent function by aninternational organisation.
There is no clear provision requiring FIs to determine if the beneficiaries and/or the BOof beneficiary of life insurance policies are PEPs
For FIs entering cross-border correspondent banking relationships, the requirement is
not specific enough regarding the need to determine if the respondent has been subject
to a ML/TF investigation or regulatory action.
There is no provision to control services for “payable-through accounts (PTA)” underJapanese legislation.
Japanese MVTS providers are not specifically required to include their agents in their
AML/CFT programmes and monitor them for compliance with these programmes.
FIs that are not supervised by JFSA are not required to analyze and evaluate ML/TF
risks before offering new products and services, or to conduct transactions using newtechnologies or those with new characteristics.
The deficiencies with respect to the understanding, assessment and mitigation of
AML/CFT risks identified in R.1 carry through to c.15.3 regarding VA/VASPs.
There is a scope deficiency in the Japanese definition of VASPs, with regard to iii) andiv) of the FATF definition.
There are no legal or regulatory measures to prevent criminals or their associates fromholding, or being the BO of, a significant or controlling interest of a VCEP.
A person who provides VC exchange services without obtaining registration is not
subject to appropriate pecuniary sanctions.
The deficiencies highlighted in the risk-based approach to JFSA supervision (c. 26. 4 to6) are also relevant for VCEPs.
The minor deficiencies identified in R.35 apply to VCEPs.
The analysis of R.9 to 21, including the deficiencies identified, applies to VCEPs.
The shortcomings identified in the TFS for TF and PF are also relevant for VCEPs.
It is not clear if the JFSA has a legal basis for exchanging information with foreigncounterparts regardless of the supervisors’ nature or status and differences in thenomenclature or status of foreign VASPs.
FIs are not required to acquire originator and beneficiary information below the thresholdof JPY 100 000 (EUR 792/USD 963)
There is no clear provision that prohibits the ordering FI to execute the wire transfer if it
does not comply with the requirements specified at c.16.1-c.16.7
There is no special requirement on intermediary FIs as specified under the FATF
Methodology c.16.12.
Beneficiary FIs are not obliged to take reasonable measures to specifically identify
cross-border wire transfers that lack required originator information or required
beneficiary information.
Beneficiary FIs are not required to take actions specified under the FATF Methodologyc. 16.15, although there is a general requirement.
There is no specific requirement applicable in cases where MVTS providers control
both the ordering and the beneficiary side of a wire transfer.
FIs senior compliance official responsible for internal compliance program is notnecessarily at the senior management level.
Financial groups are not specifically required to share account information among all
branches and majority-owned subsidiaries or implement group-wide measures tosafeguard confidentiality and use of information exchanged.

30 |Recommendations

RatingFactor(s) underlying the rating•

19. Higher-risk countries

LC

•
•
•

20. Reporting of suspicioustransaction

LC

•
•

21. Tipping-off andconfidentiality
22. DNFBPs: Customer due
diligence

C

•

PC

•
•
•

23. DNFBPs: Other measures

PC

•
•
•

•
24. Transparency andbeneficial ownership of legal
persons

PC(LC 2nd FUR)

•
•
•
•
•

•
•

•
•

There is no specific requirement that financial groups should apply appropriate
additional measures to manage the ML/TF risks besides informing the responsiblesupervisory authorities.
FIs not under the supervision of JFSA are not specifically required to applycommensurate risk mitigating measures including EDD to transactions linked tocountries for which this is called for by the FATF.
There is no express link made between higher risk countries identified by Japan andjurisdictions designated as higher risk by the FATF, and with the obligation to apply
countermeasures when called upon to do so by the FATF.
There is no general requirement for Japan to apply countermeasures for any country forwhich this is not called for by FATF.
A requirement to report attempted transaction is not explicitly covered.
The scope of the STR reporting obligation is affected by a minor gap in the predicate
offence category of environmental offences
All criteria are met.
Deficiencies highlighted in R.10, 11, 12 and 15 in relation to the provisions of the
APTCP, APTCP Order and APTCP Ordinance are also relevant for DNFBPs.
Legal professionals, certified public accountants and certified public tax accountants
and their respective corporations are not required to apply other CDD requirements
than conducting customer identification/verification.
For lawyers, there is no specific PEP requirement as required in R.12 other than strictverification of identity of the customer, and no new technologies requirement as
required in R.15.
Deficiencies highlighted in R. 18, 19 and 20 are relevant for DNFBPs.
Judicial scriveners or corporations, certified administrative procedures legal specialists
or corporations, certified public accountants or audit firms, certified public tax
accountants or corporations, as well as lawyers are not required to file STRs.
There is no clear requirement for DNFBPs to implement group-wide programmes to allbranches and majority-owned subsidiaries, nor to ensure that their foreign branches
and majority-owned subsidiaries apply AML/CFT measures consistent with the homecountry.
Lawyers are not specifically required to apply appropriate measures to transactions
linked to higher risks countries.
The following deficiencies were updated in this 2nd FUR:
Japan has not fully assessed the ML/TF risks associated with all types of legal person
created in the country.
The company registry does not record lists of company directors and this information is
not publicly available in the registry.
It is not clear whether the information kept in the register of shareholders at the company
head office of a stock company includes information on the nature of the voting rights
associated with the shareholding.
There is no requirement to maintain shareholder, member and councilor information forlegal persons in the country.
There are gaps in the mechanisms used by Japan (existing information via FIs andsome DNFBPs, notarial checks, lists of shareholders and BO of legal persons list
system) to ensure that information on beneficial ownership of a legal person is available
to law enforcement in a timely manner.
It is not clear whether competent authorities, and in particular law enforcement
authorities, can obtain basic and beneficial ownership information in a timely manner,with the exception of the basic information stored in the company registry.
Although the issuance of bearer shares was prohibited in 1990, while it is unlikely thatbearer shares are still in circulation, no specific mechanisms have been put in place inline with R.24 to prohibit any bearer shares in circulation or ensure that they are notmisused.
There are limited sanctions available for legal persons should that fail to comply with
their requirements.
The rapid provision of information on basic and beneficial ownership for international
co-cooperation is limited by the breadth and accuracy of information available in Japan.

JAPAN SECOND ENHANCED FOLLOW-UP REPORT| 31
Recommendations

Rating25. Transparency andbeneficial ownership of legal
arrangements

PC

Factor(s) underlying the rating
•

•
•
•
•
•
•
•

26. Regulation and supervisionof financial institutions

LC

•

•
•
•

27. Powers of supervisors

LC

•
•

28. Regulation and supervisionof DNFBPs

PC(LC 2nd FUR)

29. Financial intelligence units
30. Responsibilities of law
enforcement and investigative
authorities
31. Powers of law enforcement
and investigative authorities
32. Cash couriers

C
C

•
•
•

LC

•

LC

•

33. Statistics

LC

34. Guidance and feedback

LC

•
•
•

35. Sanctions

LC

•

•

•

JAPAN SECOND ENHANCED FOLLOW-UP REPORT

There are no specific requirements for trustees of civil trusts to obtain and holdadequate, accurate, and current information on the identity of the settlor, the protector(if any), the other beneficiaries or class of beneficiaries, and any other natural person
exercising ultimate effective control over the trust.
Japan does not require trustees of any trust governed under its law to hold basic
information on other regulated agents of, service providers to, the trust, including
investment advisors or managers, accountants, and tax advisors.
There are no requirements to keep the information on the beneficiary and settlor up todate for persons settling and administering civil trusts.
There are no specific measures placed on trustees, of any domestic or foreign trust, todisclose their status to an FI or DNFBP when forming a business relationship or carryingout an occasional transaction above the threshold.
There are no specific requirements to ensure that information on the basic and beneficial
owner(s) of trusts held by relevant parties can be accessed in a timely manner.
There is no specific requirement or mechanism in place in Japan to support the rapid
provision of information, including BO information, on trusts to foreign competentauthorities.
There are only fines available to trustees of civil trusts that fail to meet their obligations,which are not proportionate or dissuasive.
There are no sanctions available for failing to grant competent authorities timely
accessing to information on trusts under 25.1 apart from in the case when a trust
company or business fails to provide supervisors with a requested report or material.
Financial leasing companies and currency exchange operators are not required to beregistered nor licensed, and the requirements to prevent criminals or their associatesfrom holding a significant or controlling interest, or holding a management function do
not apply to those FIs.
There is no explicit requirement to apply consolidated group supervision for AML/CFT
purposes to Core principles FIs.
Not all financial supervisors have developed a risk-based approach to AML/CFT
supervision.
There is no clear information available regarding how the supervisory resources areallocated for FIs that are not supervised by the JFSA, as well as for the periodical reviewof the ML/TF risk profile of those FIs.
The range of sanctions applicable by the JFSA does not include financial sanctions,which is a limit to its ability to impose an appropriate range of sanctions, in line with R.
35.
It is unclear if other financial supervisors can impose a range of disciplinary and financial
sanctions, in line with R. 35.
The following deficiencies were updated in this 2nd FUR:
Not all DNFBPs are required to take measures to prevent people from holding asignificant or controlling interest or a management function.
DNFBP supervisors have not implemented supervision on a risk-based approach.
All criteria are met.
All criteria are met.
There is a minor gap of failing to have an express provision which could provide
sufficient legal basis for the competent authorities to conduct undercover operations.
Competent authorities are not empowered to stop or restrain currency or BNIs in theevents of a false declaration or suspicion of ML or TF.
Some authorities do not maintain statistics on STRs and on MLA.
Comprehensive statistics are not available on property frozen, seized and confiscated.
Insufficient guidance has been provided to DNFBPs for the application of national
AML/CFT measures.
In relation to R.6, sanctions are not explicitly linked to FI or DNFBP’s failure to apply
preventive measures related to TFS for TF.
In relation to R.9-23, AML/CFT supervisors do not have powers to impose direct
financial sanctions to individuals or FIs and DNFBPs.

32 |Recommendations

RatingFactor(s) underlying the rating••

36. International instruments

LC•

37. Mutual legal assistanceLC•

38. Mutual legal assistance:
freezing and confiscation

LC

•
•
•

39. ExtraditionLC

40. Other forms of international
cooperation

.LC

•

•
•
•
•
•
•
•
•
•

It is not clear if financial supervisors other than JFSA can impose a range of disciplinary
and financial sanctions for AML/CFT failures.
There is no specific provision on the application of sanctions to directors and senior
managers, when FI or DNFBPs are sanctioned as legal persons.
There are deficiencies in implementing measures required under the Vienna Convention
and the TF Convention.
The scope of MLA is affected by minor gaps in the predicate offence category ofenvironmental offences.
Undercover operations are not available pursuant to and MLA request.
Some minor concerns remain in relation to requirements for dual criminality
The scope of MLA is affected by minor gaps in the predicate offence category ofenvironmental offences.
Gaps with a basis to provide assistance for non-conviction based confiscation
proceedings and related provisional measures, at a minimum in circumstances when aperpetrator is unavailable by reason of death, flight, absence, or the perpetrator is
unknown
The scope of MLA is affected by minor gaps in the predicate offence category ofenvironmental offences.
No legal basis to provide for simplified extradition mechanisms.
There are no specific legal provisions for the international cooperation of JBFA in its roleas AML/CFT supervisor.
No information is available on the secure gateways and mechanisms used by other FI
supervisors than JFSA and by DNFBP supervisors.
There is no process for the prioritisation or timely execution of requests for agencies
others than JAFIC and Japan Customs.
There is no specific requirement on competent authorities to provide feedback onrequest and in a timely manner to competent authorities from which they have received
assistance.
There is no specific provision which allow financial supervisors’ exchanges ofdomestically available information related to or relevant for AML/CFT purposes withforeign counterparts.
There is no clear provision that would ensure that financial supervisors get the priorauthorisation of the requested financial supervisor for any dissemination of informationexchanged, or use that information for supervisory or non-supervisory purposes.
There is no specific provision on joint investigation teams with foreign authorities for
NPA

JAPAN SECOND ENHANCED FOLLOW-UP REPORT

www.fatf-gafi.org
October 2023

Follow-up Report &Technical Compliance Re-Rating
As a result of Japan’s progress in strengthening its measures to fight money
laundering and terrorist financing since the assessment of the country’s framework,
the FATF has re-rated the country on five Recommendations.

Follow-up report

Anti-money laundering and counter-terrorist financing
measures in Japan