[Financial and real estate businesses] Are you prepared to deal with money laundering?
Posted: May 2025, 4
Recently, we have been receiving an increasing number of inquiries regarding "money laundering countermeasures" such as the following:
✓ I received an order to report on money laundering...
✓ The government is requesting a money laundering investigation/gap analysis report...
✓ An internal audit revealed deficiencies in anti-money laundering measures...
We will explain why anti-money laundering measures are needed now and how to respond.
Deadline for compliance with money laundering guidelines
In February 30, the Financial Services Agency formulated the "Guidelines for Combating Money Laundering and Terrorist Financing" (hereinafter referred to as the "Guidelines") to facilitate the implementation of effective measures against money laundering and terrorist financing by financial institutions and other organizations.
These guidelines stipulate in detail the measures that financial institutions and other entities must take and the necessary systems to put in place to combat money laundering and terrorist financing, and in particular clearly indicate "matters that require action" and "matters that are expected to be actioned."
Furthermore, in May 3, the Financial Services Agency issued a statement regarding the matters that the guidelines call for"Response Deadline"Is providedComplete the necessary preparations by thenWe have requested this through various industry associations and other organizations.
The deadline for this response is"Reiwa 6/End of March 2024".
After the deadline has passed, the government, associations, etc. will ask each target business to confirm the extent to which it has implemented anti-money laundering measures."questionnaire"and request reports on anti-money laundering measures."Reporting Order"etc. have been issued.
Why Address Money Laundering Now?
First of all, the following are some of the practices that should be prevented as part of measures to combat money laundering.
1) Money Laundering
The act of disguising proceeds obtained through crimes or illegal transactions as legitimate transactions, or transferring them between multiple financial institutions, etc., making it difficult to determine their origin or true ownership.
② Terrorist financing
Providing funds to terrorists with the purpose of supporting terrorist acts
3) Proliferation finance
Providing funds to those involved in the proliferation of weapons of mass destruction, including nuclear weapons
As the threat of nuclear weapons and terrorism increases internationally, the methods used by criminal and terrorist organizations to acquire funds are becoming more sophisticated every day.
If money laundering and other such practices are overlooked, criminal proceeds may be used to maintain and strengthen criminal activities and criminal organizations, which may encourage further crimes and terrorist acts, ultimately hindering the safety of people's lives and healthy economic activity.
In order to cut off funds leading to criminals, Japan and the international community as a whole are strengthening measures against money laundering.
In particular, Japan is a member of the FATF (Financial Action Task Force), which plays a central role in international anti-money laundering measures, and is strengthening domestic anti-money laundering measures in accordance with FATF statements and recommendations. FATF member countries also conduct mutual reviews of the effectiveness and enforceability of each country's anti-money laundering measures.
Japan has undergone mutual review four times so far: in 1994, 1998, 2008, and 2021.
The FATF has stated that the fifth review will begin in 2025.Japan also looks ahead to the 5th mutual reviewFurther measures are being strengthened.
Businesses covered by the guidelines
The guidelines apply to "specified business operators stipulated in Article 2, Paragraph 2 of the Act on Prevention of Transfer of Criminal Proceeds, including those under the jurisdiction of the Financial Services Agency."
For example, the following businesses are included:
Banks, credit unions, insurance companies, financial instruments traders, special business notifiers, trust companies,
Real estate specified joint venture companies, small-scale real estate specified joint venture companies, money lenders, money transfer companies,
Electronic payment instruments business operators, cryptocurrency exchange operators, real estate agents, etc.
As the deadline for complying with the guidelines approaches, various government agencies and associations are issuing surveys to check their compliance status.
"It doesn't matter to us because we're a small business."
"We only provide investment advice, so there is no money laundering involved."
"There is no record of being a financial instruments trader, so there is no money laundering involved."
"We only do domestic transactions and invest in specified investors, so we don't need to take measures against money laundering."
There are cases where people have their own interpretations, such as:There are no exceptions based on business size or track record.so please be careful.
In addition, the guidelines do not require a uniform response across the board, but rather require specific responses based on the risks identified and assessed in relation to each company's business characteristics, such as "in accordance with the scale and characteristics of each company's operations," or "taking into comprehensive consideration the scale and characteristics of each company's operations and actual business situation, etc."
How should we respond to the guidelines?
The guidelines stipulate "matters that require action" and "matters that are expected to be actioned."
What is particularly important is the "matters requiring action."
The guidelines also
"Measures regarding "matters requiring action" are insufficientWhen problems are found in the management system for money laundering and terrorist financing risks, such as those listed above, we will take measures as necessary, taking into account the supervisory guidelines established for each type of business.Responding to administrative requests based on laws and regulations, such as requests for reports and business improvement orders"Improve the management system of financial institutions, etc."
It is clearly stated.
If you are going to implement any of the guidelines from now on, be sure to prioritize and implement them in accordance with the "matters requiring action."
The issues that need to be addressed as "matters requiring action" can be broadly categorised into the following two points:
[Risk-based approach]
1) Identifying risks
Comprehensively and specifically examine the risks associated with the products and services offered, transaction formats, countries and regions involved, customer attributes, etc., and identify the money laundering and other risks that you face.
2) Risk assessment
Evaluate the impact of identified risks on yourself, etc., and document the results of the risk assessment.
3) Risk reduction
Determine and implement effective mitigation measures for identified and assessed risks.
In particular, it will be necessary to enhance the effectiveness of risk mitigation measures through customer due diligence (CDD) and transaction monitoring and filtering.
[Establishment of a management system and verification of its effectiveness, etc.]
① Formulation, implementation, verification and review (PDCA) of policies, procedures and plans related to anti-money laundering measures
② Management Involvement
Appoint a person from among the executives to be responsible for anti-money laundering measures and grant necessary authority
- Appropriate resource allocation (assignment of personnel with expertise to relevant departments, allocation of necessary budgets, etc.)
③ Establishment of a management system
∟ Establishment of a money laundering risk management system based on the concept of "three lines of defense"
∟ Securing and training staff with expertise and suitability
By carrying out these steps, you will have the following documents ready:
・Documents prepared by specific business operators, etc.
・Risk assessment report
・Policies and internal regulations regarding money laundering, etc.
・Customer acceptance policy
・Audit plan including the appropriateness and effectiveness of anti-money laundering measures
In addition, "documents prepared by specified business operators, etc." are documents that are required to be prepared under the Act on Prevention of Transfer of Criminal Proceeds, and are considered to be equivalent to risk assessment reports, so in many cases they are prepared as "documents prepared by specified business operators (risk assessment reports)."
Summary
We have written about anti-money laundering measures, but have you taken the necessary steps?
In response to the guidelines, Support Administrative Scriveners Corporation will provide support by accompanying you through a series of necessary responses, such as identifying and assessing risks based on your company's business characteristics, deciding on and implementing necessary mitigation measures.
In supporting internal audits, we also conduct audits on anti-money laundering measures, including audit items such as "confirming compliance with guidelines" and "verifying the effectiveness of various mitigation measures."
If you have concerns or are interested in your company's anti-money laundering measures, please contact us using the information below.
Initial consultation is currently available free of charge.
Editor of this article
Sachiko Masuno
