Japan has a good understanding of the main elements of money laundering and terrorism financing risks, but there are areas where things could be better.
The conclusion was delivered in a mutual evaluation report by the Asia Pacific Group of the Paris-based Financing Action Task Force (FATF) after site visit to the country.
“The assessment and understanding of TF risk is well demonstrated by counter-terrorism experts, but this does not extend to other Japanese officials with a role in CFT,” the report’s executive summary reads.
“National policies and strategies have sought to address some of Japan’s higher risks, including virtual asset risks. However, these lack targeted AML/CFT activities.”
The report also pointed out more coordination is needed among law enforcement agencies in development of AML/CFT policies.
Some financial institutions have an inadequate understanding of recently modified AML/CFT rules and “have no clear deadlines to comply with these new obligations,” the report noted.
“Designated non-financial businesses and professions have a low level of understanding of ML/TF risks and of their AML/CFT obligations,” it added.
The report mentioned a weakness with cash. “Despite the cross-border cash smuggling risks, Japan has yet to demonstrate effective detection and confiscation of falsely/not declared cross-border movements of currency,” the authors wrote.
“Japan has a limited understanding of at-risk non-profit organisations (NPOs), which has impeded competent authorities’ ability to conduct targeted outreach to bolster NPOs’ CFT preventive measures. This has placed Japanese NPOs at risk of being unwittingly involved in TF activity,” they added.
On the watchdog front, the report stated: “Understanding of risk by the different financial supervisors is uneven but is adequate for the most part.”
As for obtaining beneficial ownership (BO) information, “accurate and up-to-date BO information is not yet consistently available on legal persons. There are challenges in relation to the transparency of domestic and foreign trusts, in particular trusts that are not created by or administered by trust companies.
“Law enforcement agencies do not appear to have the necessary tools to establish the BO associated with more complex legal structures, and the risks associated with legal persons and arrangements are not well understood.”
Among the positives the report identified were constructive and timely international cooperation, all money laundering prosecutions have secured a conviction and “financial intelligence and related information are widely developed, accessed and regularly used to investigate ML, associated predicate offences and potential TF cases.”
But it added law enforcement agencies could enhance using financial intelligence for tracing assets.
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