Money laundering watchdog gives Japan a failing grade
TOKYO – Japan’s anti-money laundering measures face failure from an international watchdog, Nikkei learned on Friday, giving Tokyo yet another reason to topple the walls of compartmentalized bureaucracy from the country.
At its plenary meeting at the end of last month, the Financial Action Task Force decided to place Japan under enhanced monitoring, a classification for countries that have “significant deficiencies” or are making “insufficient progress,” said a source close to the case. The assessment, scheduled for publication in August, follows a review at the end of 2019.
The group acknowledged the progress made by Japan since its last assessment in 2008, noting that “anti-money laundering and terrorist financing measures are bearing fruit.” But a lack of cooperation between different parts of the government has blocked legislation and regulations that could more effectively tackle the problem.
The FATF, which has 39 member countries and regions, issues binding recommendations on measures to combat money laundering and the financing of terrorism. The working group was created by the 1989 Group of Seven summit in Paris.
The task force urges Japan to improve oversight of efforts by financial institutions to prevent money laundering, and apparently calls for tougher administrative penalties as well as harsher penalties for those who violate laws in this area.
Financial institutions still face challenges related to ongoing due diligence – monitoring customers and their transactions for potential issues – and raising awareness of money laundering risks in businesses such as mobile money transfer services. .
In response to this latest assessment, Tokyo plans to create a team that targets money laundering. It will report to the Cabinet Secretariat but will involve other government agencies, including the Financial Services Agency and the Department of Justice. Japan also plans to submit legislation to parliament next year to impose tougher penalties.
Anti-money laundering efforts involve a wide range of government agencies, and the Japanese bureaucracy has long struggled to coordinate effectively. The Ministry of Justice enforces the legislation against the financing of terrorism. The National Police Agency is responsible for regulating customer due diligence, while the Cabinet Office oversees nonprofits, an area that could be abused to funnel money to criminal organizations.
After the unfavorable assessment of the FATF in 2008, Japan came under pressure to impose stricter laws, but a lack of cooperation between agencies hampered the process. The task force issued an unusual statement in 2014 expressing concern over “Japan’s continued failure to address the many and serious shortcomings” of the report.
The silos that separate government agencies have plagued Tokyo for many years and have once again raised their heads during the coronavirus pandemic. Poor communication between local governments and central authorities such as the health ministry has hampered efforts to prevent the spread of the virus.
Prime Minister Yoshihide Suga’s administration is committed to breaking down these barriers and is taking steps in that direction with plans for a new digital agency and an agency for children that both cross established ministerial boundaries. Similar measures will be essential to restore international confidence in Japanese countermeasures against money laundering.