JAPAN
Summary
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Sanctions

None

FAFT AML Deficient

No

Higher Risk Areas

US Dept of State Money Laundering Assessment

Weakness in Government Legislation to combat Money Laundering

Not on EU White list equivalent jurisdictions

Medium Risk Areas

Non - Compliance with FATF 40 + 9 Recommendations

Failed States Index (Political Issues)(Average Score)

 

 

ANTI-MONEY LAUNDERING

 

FATF Status

Japan is not on the FATF List of Countries that have been identified as having strategic AML deficiencies

 

Compliance with FATF Recommendations

At the June 2014 FATF Plenary, FATF made the following statement: -

“The FATF is concerned by Japan’s continued failure to remedy the numerous and serious deficiencies identified in its third mutual evaluation report adopted in October 2008, despite Japan’s high-level political commitment.

The most important deficiencies deal with:

-      the incomplete criminalisation of terrorist financing

-      the lack of satisfactory customer due diligence requirements and other obligations in the area of preventive measures applicable to the financial and non-financial sectors

-      the incomplete mechanism for the freezing of terrorist assets, and

-      the failure to ratify and fully implement the Palermo Convention.

The FATF encourages Japan to promptly address these AML/CFT deficiencies, including through the adoption of the necessary legislation. The FATF will continue to monitor Japan’s progress.”

 

The last Mutual Evaluation Report relating to the implementation of anti-money laundering and counter-terrorist financing standards in Japan was undertaken by the Financial Action Task Force (FATF) in 2008. According to that Evaluation, Japan was deemed Compliant for 4 and Largely Compliant for 19 of the FATF 40 + 9 Recommendations. It was Partially Compliant or Non-Compliant for 2 of the 6 Core Recommendations.

 

APG Yearly Typologies Report - 2015

Emerging Trends; Declining Trends; Continuing Trends (INCSR)

Fraud and theft are common predicate offences.

For example: a company employee and his wife stole around 16 million JPY in cash from a commuter ticket sales office counter of a railway station, and concealed around 9.7 million JPY out of the 16 million JPY by burying the money underground in a forest. They were arrested for violating the Act on Punishment of Organized Crimes (concealment of criminal proceeds).

A member of a Korean theft group stole a luxurious watch (worth 10 million JPY at the current price) from a house and concealed it in the ceiling of the bathroom where he was staying. He was charged with violating the Act on Punishment of Organized Crime (concealment of criminal proceeds).

As a continuing trend, drug trafficking is also common.

For example: an associate of Boryokudan (Yakuza/organised crime group) illicitly retailing methamphetamine sent it to his customer by home delivery. He had his customer transfer the purchase price to a bank account opened under the name of third party, and around 3.1 million JPY was transferred to the account. He was arrested for violating the Anti-Drug Special Provisions Law (concealment of drug-related criminal proceeds).

 

US Department of State Money Laundering assessment

Japan was deemed a Jurisdiction of Primary Concern by the US Department of State 2016 International Narcotics Control Strategy Report (INCSR).

Key Findings from the report are as follows: -

Perceived Risks:

Japan is a regional financial center but not an offshore financial center. The country continues to face substantial risk of money laundering by organized crime, including Japanese organized crime groups (the Yakuza), Mexican drug trafficking organizations, and other domestic and international criminal elements. In the past several years, there has been an increase in financial crimes by citizens of West African countries, such as Nigeria and Ghana, who reside in Japan. The major sources of laundered funds include drug trafficking, fraud, loan sharking (illegal money lending), remittance frauds, the black market economy, prostitution, and illicit gambling. Bulk cash smuggling also is of concern. There is not a significant black market for smuggled goods, and the use of alternative remittance systems is believed to be limited.

Japan has one free trade zone, the Okinawa Special Free Trade Zone, established in Naha to promote industry and trade in Okinawa. The zone is regulated by the Department of Okinawa Affairs in the Cabinet Office. Japan also has two free ports, Nagasaki and Niigata. Customs authorities allow the bonding of warehousing and processing facilities adjacent to these ports on a case-by-case basis.

 

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SANCTIONS

There are no international sanctions currently in force against this country.

 

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BRIBERY & CORRUPTION

 

Index

Rating (100-Good / 0-Bad)

Transparency International Corruption Index

72

World Governance Indicator – Control of Corruption

91

 

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INVESTMENT CLIMATE - Executive Summary (US State Department)

Japan is the world's third largest economy and the United States' fourth largest trading partner, and is a major destination for foreign direct investment (FDI). After nearly two decades of deflation and low growth, Japan’s economy is showing signs of new vitality. The Liberal Democratic Party (LDP) Government of Prime Minister Shinzo Abe, elected in December 2012 on a platform of economic recovery and revitalization, has undertaken an ambitious program comprised of fiscal stimulus, monetary easing, and a reform-focused “growth strategy” to get Japan’s economy moving again.

The Abe Government’s Growth Strategy includes numerous measures intended to promote inward FDI, and the Prime Minister announced in June 2013 the goal of doubling Japan’s inward FDI stock to 35 trillion yen by 2020. The focus on FDI promotion is encouraging, although the commitment of past governments to implement policies to improve Japan’s investment climate has been inconsistent. Japan has the lowest ratio of FDI as a proportion of GDP of all Organization for Economic Cooperation and Development (OECD) member countries, something the Abe Government is working to change.

Japan officially welcomes foreign investment and has eliminated most formal restrictions governing FDI. The Ministry of Economy Trade and Industry (METI) and the Japan External Trade Organization (JETRO) assist foreign firms wishing to invest in Japan, and many prefectural and city governments have active programs to attract foreign investors. A number of factors make Japan a potentially attractive investment destination. Japan remains a large, wealthy, and sophisticated market. Risks associated with investment in many other countries, such as expropriation and nationalization, are not of concern in Japan. Japan has an independent judiciary, consistently applied commercial law, and strong Intellectual Property (IP) protections. Japan’s civil courts enforce property and contractual rights and do not discriminate against foreign investors. The government has recently lowered capital gains, registration, and license taxes on real estate with an aim to increase the liquidity of Japanese real estate markets, and has reduced inheritance and gift taxes to promote intergenerational transfer of land and other real assets. Nearly all foreign exchange transactions—including transfers of profits, dividends, royalties, repatriation of capital, and repayment of principal—are freely permitted.

Japan is confronting the demographic realities of an aging and shrinking workforce. In response, the Government is pursuing policies to keep older workers in the labor force; broaden employment options and job retention for women, especially working mothers; and attract more skilled labor from abroad in certain sectors.

Foreign investors in the Japanese market still face numerous challenges, many of which relate more to prevailing social practice rather than government regulations. These include high tax rates; an insular and consensual business culture traditionally resistant to mergers and acquisitions (M&A); a lack of independent directors on many company boards; and cultural and linguistic barriers. However, the Abe Government hopes that its initiatives will contribute to an increasingly open and investor-friendly business environment.

 

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FURTHER REPORTS

10 July 2016 - OECD: Japan must make fighting international bribery a priority

The OECD Working Group on Bribery in International Transactions has continuously urged Japan since 2002 to strengthen its efforts to fight bribery by Japanese companies in their foreign business activities, and implementation of the Convention on Combating the Bribery of Foreign Public Officials in International Business Transactions.

However, Japan has only prosecuted four cases of “foreign bribery” since 1999, when Japan’s Unfair Competition Prevention Law (UCPL) was amended to make it an offence to bribe foreign public officials to obtain advantages in international business. The Working Group has repeatedly urged Japan to amend the Anti-Organised Crime Law (AOCL) so that companies and individuals convicted of bribing foreign public officials cannot keep their illegal proceeds, including by laundering them, as required by the OECD Convention. It has also recommended that Japan establish an Action Plan to organise police and prosecution resources to be able to proactively detect, investigate and prosecute cases of foreign bribery by Japanese companies.

On 29-30 June 2016, a high-level OECD mission arrived in Tokyo to discuss these pressing issues with high-level Japanese representatives from the Ministry of Foreign Affairs, Ministry of Economy, Trade and Industry, Ministry of Justice, National Police Agency and National Tax Agency.

“We appreciate the readiness of the Japanese government to meet with us to discuss outstanding issues related to the necessary improvements of the country’s anti-bribery legislation and practice,” said Drago Kos, Chair of the Working Group on Bribery. “Japan should be aware that continued failure to fulfil the Working Group’s crucial recommendations would not only increase the Group’s concerns but – bearing in mind Japan’s important role in the world economy – also negatively affect other countries’ efforts in the global fight against foreign bribery. Therefore, we trust that the current positive spirit of cooperation will both result in the country quickly meeting our substantial concerns and also in Japan joining the list of countries more actively enforcing the OECD Anti-Bribery Convention.”

The Japanese side, in response, expressed its commitment to the global fight against corruption, and explained the latest status of its efforts to implement the recommendations of the Working Group.

The Working Group on Bribery – made up of the 34 OECD Member countries including Japan plus Argentina, Brazil, Bulgaria, Colombia, Latvia, Russia and South Africa – comprises the Parties to the OECD Anti-Bribery Convention. The Working Group conducts a systematic programme for monitoring implementation of the Convention by all its Parties. Typical examples of “foreign bribery” involve bribing officials in foreign countries to obtain public contracts for building infrastructure.

The Working Group decided to send a high-level mission to Japan to meet governmental representatives and senior officials, and to urge them to take the necessary steps to implement the OECD Anti-Bribery Convention.

The most recent evaluation of Japan took place in December 2011, and the next evaluation will be conducted in March 2019.

 

13 August 2012  -   IMF Report - Japan: Basel Core Principles for Effective Banking Supervision - Detailed Assessment of Compliance

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