Japan provided the response to the MEQ in January 2008, and underwent on-site visit in Tokyo and Osaka in March of the same year. In October 2008, at the Plenary Meeting in Brazil, the third round of Mutual Evaluation of Japan was concluded. Since the results of every evaluation are to be published, the results of the evaluation of Japan are also published on the FATF website (http://www.fatf-gafi.org/) and the Ministry of Finance website (http://www.mof.go.jp/jouhou/kokkin/fatfhoudou_201030.htm).

## 2 Outline of the Mutual Evaluation Results

For each of 49 Recommendations there are four possible levels of compliance; namely, C (Compliant), LC (Largely Compliant), PC (Partially Compliant) and NC (Non-Compliant). As the results of Mutual Evaluation of Japan are shown in Table 5-5, C was received for 4 recommendations, LC for 19, PC for 15, and NC for 10 (Furthermore, Japan has one recommendation that did not apply (N/A)).

As for the recommendation regarding the FIU (Recommendation 26), the need to further strengthen human resource was pointed out, while the transfer of FIU functions from the Financial Services Agency to the National Public Safety Commission / the National Police Agency was positively evaluated. (Rating: LC).

As for the recommendation regarding customer due diligence by financial institutions

(Recommendation 5), assessors pointed out that the measures such as certification of beneficial owner and purpose of transaction, and ongoing customer due diligence, should be directly regulated by law or the like, and the additional customer identification methods should be introduced in case of identifying a customer without a photo ID (Rating: NC).

## 3 Follow-up of the Mutual Evaluation Results

## (1) Follow-up Procedures

In the context of the procedures regulated by FATF, those assessed countries that have received at least one PC or NC in the important recommendations (Recommendations 1, 5, 10, and 13 and Special Recommendations II and IV) are subject to follow-up, and they must periodically report the progress of improvement and overall statistics at Plenary Meetings.

And in the case where the Plenary agrees that the assessed counties have implemented 16 Recommendations (in addition to 6 core Recommendations, Recommendation 3, 4, 23, 26, 35, 36, 40 and Special Recommendation I, III, V) at a level essentially equivalent to a C or LC, the countries will be removed from the follow-up process. FATF members are encouraged to make necessary improvements and to seek removal from the follow-up process within three years after the adoption of Mutual Evaluation.

## (2) Report on Improvement

Regular Follow up procedures apply to Japan under Recommendation 5 rated NC and Special Recommendation II rated PC. Since the Mutual Evaluation, Japan has been actively making efforts to remedy the deficiencies identified in the Mutual Evaluation by, for instance, holding "the Related Ministry Liaison Conference regarding Implementation of FATF Recommendations".

Especially with regard to customer due diligence which was rated NC, the Act to Partially Amend the Act on Prevention of Transfer of Criminal Proceeds was promulgated on April 28, 2011, to make the confirmation of the purpose of transactions and beneficial owner. This has leaded to the considerable improvement of the deficiencies identified in Mutual Evaluation. Following the first follow-up report in October 2010, the second follow-up was reported on the improvement primarily in these areas at the Plenary Meeting held in Paris in October 2011. This will be followed again by the third follow-up report in June 2012, which will focus on the development of regulations to enforce the Act and the progress of other areas besides Customer due diligence.