Japan told to do more to combat money laundering and terrorist financing

Watchdog says anti-money-laundering rules are inadequate, and there is an 'incomplete criminalisation of terrorist financing'

PUBLISHED : Sunday, 29 June, 2014, 5:51am
UPDATED : Sunday, 29 June, 2014, 5:51am

Japan has failed to address deficiencies in its measures to halt money laundering and terrorist financing, and should step up its efforts to do so, an international watchdog said.

The measures should include "necessary legislation", the Financial Action Task Force (FATF), which is sponsored by the Organisation for Economic Co-operation and Development, said. The biggest deficiencies include the incomplete criminalisation of terrorist financing and an incomplete mechanism for freezing terrorist assets, it said, without being more specific.

"The FATF is concerned by Japan's continued failure to remedy the numerous and serious deficiencies," the task force said. "The FATF will continue to monitor Japan's progress."

The caution comes more than five years after the FATF and the Asia-Pacific Group on Money Laundering produced a study of Japan's anti-money-laundering measures and steps to counter terrorist financing. That report flagged concerns including the low rate of money-laundering prosecutions and the low number of inspections of non-bank financial institutions.

"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," it said.

The FATF, an intergovernmental body established in 1989 and backed by 34 countries and jurisdictions including the United States, Germany and France, said one of Japan's biggest deficiencies was an "incomplete criminalisation of terrorist financing".

While the agency did not mention any specific actions or add Japan to its blacklist of high-risk and non-co-operative jurisdictions, the move may be an embarrassment for the country's financial sector in the wake of a loan scandal last year involving Mizuho Financial Group.

The lender was embroiled in a scandal over loans made to organised crime networks through a consumer finance affiliate.

The difference between this warning and being included on the FATF's list of "high-risk or non-co-operative jurisdictions" is that the caution is intended to quickly promote necessary legal changes, according to a document from Japan's Finance Ministry supplied to reporters in Tokyo. If the changes happened, there would be no further action, according to the ministry.

There are no developed countries on the FATF list of high-risk jurisdictions, which includes Iran, North Korea, Syria, Pakistan and Turkey.

Regulators from Hong Kong to the US are stepping up efforts to curb money laundering, including boosting measures to catch risk-management failures at banks. The US Office of the Comptroller of the Currency in January proposed a policy shift that will remove hurdles to targeting lenders with certain enforcement actions.

The Hong Kong Monetary Authority told chief executives of lenders in the city in an April 2013 letter to strengthen their anti-money-laundering controls and systems. It said it would double its team of specialists, which mainly comprises examiners for carrying out on-site checks at banks, to 22 people over the year.