FATF Follow-up Report on Japan
In 2021, the Financial Action Task Force (FATF) released the results of their “Fourth Round of Joint FATF/APG Mutual Evaluations of Japan” on, with less than convincing results. This was especially disappointing since the combined force of the Financial Services Agency (FSA) and Bank of Japan (BOJ) was put behind a concerted effort to raise the AML and CTF standards across the industry prior to the inspection, which took place towards the end of 2019.
In the Mutual Evaluation Report (MER), the FATF judged:
“Japan’s measures to combat money laundering and terrorist financing are delivering results, but the country needs to prioritize efforts in certain areas to improve the effectiveness of the Japanese anti-money laundering and counter terrorist financing (AML/CFT) framework.”
The 2021 report judged 10 out of 39 technical compliance areas (there are 40, but one is not applicable to Japan) as “partially compliant”, and one as “non-compliant”. At the time, we compared Japan’s performance at the aggregate level with regional competition as well as leading world financial centers. You can find this previous report here.
Out of the 11 deficient areas, one was upgraded to “partially compliant” with the 2022 Follow-Up Report (FUR), namely “R.2 — National co-operation and co-ordination”.
The 2023 FUR saw five upgrades, eliminating the last “non-compliant” area:
- R.5 — Terrorist financing offence
- R.6 — Targeted financial sanctions — terrorism & terrorist financing
- R.8 — Non-profit organizations (from “non-compliant” to “partially compliant”)
- R.24 — Transparency & beneficial ownership (BO) of legal persons
- R.28 — Regulation and supervision of DNFBPs
The FATF also recognized progress being made on “R.25 — Transparency & BO of legal arrangements”, but requires further improvement to change the rating. There have been no upgrades from “partially compliant” to “largely compliant”, nor any upgrades from “largely compliant” to “compliant”.
As a result of the 2023 FUR, Japan has six Recommendations rated “partially compliant”. Japan will report back to the FATF on progress achieved in improving the implementation of its AML/CFT measures in October 2024.
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