FATF AML Deficiency List
No but FATF statement in place
US Dept of State Money Laundering assessmentNon - Compliance with FATF MER Recommendations
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 2017 International Narcotics Control Strategy Report (INCSR) but has not been included since. Key Findings from the last report are as follows: -
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.
There are no international sanctions currently in force against this country.
BRIBERY & CORRUPTION
Rating (100-Good / 0-Bad)
Transparency International Corruption Index 74
World Governance Indicator – Control of Corruption 90
Japan ranks among the least corrupt countries in the world. Companies face very low risks of corruption in Japan. However, there is a traditional practice (known as amakudari) of assigning retired government officials to top positions within Japanese companies. Amakudari employees are particularly common in the financial, construction, transportation and pharmaceutical industries. Key Japanese anti-corruption legislation includes the Penal Code and the Unfair Competition Prevention Act. The Penal Code forbids facilitation payments. The Ethics Act sets limitations for gifts, which need to be registered and require mid- and senior-level public officials to disclose them if exceeding JPY 5,000. Gifts and facilitation payments are not common in practice. Japan has signed but has not yet ratified the United Nations Convention against Corruption. For further information - GAN Integrity Business Anti-Corruption Portal
Over the past 70 years, government-industry cooperation, a strong work ethic, mastery of high technology, and a comparatively small defence allocation (1% of GDP) have helped Japan develop an advanced economy. Two notable characteristics of the post-World War II economy were the close interlocking structures of manufacturers, suppliers, and distributors, known as keiretsu, and the guarantee of lifetime employment for a substantial portion of the urban labour force. Both features are now eroding under the dual pressures of global competition and domestic demographic change.
Scarce in many natural resources, Japan has long been dependent on imported raw materials. Since the complete shutdown of Japan’s nuclear reactors after the earthquake and tsunami disaster in 2011, Japan's industrial sector has become even more dependent than before on imported fossil fuels. A small agricultural sector is highly subsidized and protected, with crop yields among the highest in the world. While self-sufficient in rice production, Japan imports about 60% of its food on a caloric basis.
For three decades, overall real economic growth had been impressive - a 10% average in the 1960s, 5% in the 1970s, and 4% in the 1980s. Growth slowed markedly in the 1990s, averaging just 1.7%, largely because of the aftereffects of inefficient investment and an asset price bubble in the late 1980s, after which it took a considerable time for firms to reduce excess debt, capital, and labour. Modest economic growth continued after 2000, but the economy has fallen into recession four times since 2008. Government stimulus spending helped the economy recover in late 2009 and 2010, but the economy contracted again in 2011 as the massive 9.0 magnitude earthquake and the ensuing tsunami in March of that year disrupted economic activity. The economy has largely recovered in the five years since the disaster, although output in the affected areas continues to lag behind the national average.
Japan enjoyed a sharp uptick in growth in 2013 on the basis of Prime Minister Shinzo ABE’s “Three Arrows” economic revitalization agenda - dubbed “Abenomics” - of monetary easing, “flexible” fiscal policy, and structural reform. In 2015, ABE revised his “Three Arrows” to raise nominal GDP by 20% to 600 trillion yen by 2020, stem population decline by raising the fertility rate, and provide more support for workers with children and aging relatives. ABE’s government has replaced the preceding administration’s plan to phase out nuclear power with a new policy of seeking to restart nuclear power plants that meet strict new safety standards, and emphasizing nuclear energy’s importance as a base-load electricity source. Japan successfully restarted two nuclear reactors at the Sendai Nuclear Power Plant in Kagoshima prefecture. In October 2015, Japan and 11 trading partners reached agreement on the Trans-Pacific Partnership, a pact that promises to open Japan's economy to increased foreign competition and create new export opportunities for Japanese businesses.
Measured on a purchasing power parity (PPP) basis that adjusts for price differences, Japan in 2015 stood as the fourth-largest economy in the world after first-place China, which surpassed Japan in 2001, and third-place India, which edged out Japan in 2012. While seeking to stimulate and reform the economy, the government must also devise a strategy for reining in Japan's huge government debt, which amounts to more than 230% of GDP. To help raise government revenue, Japan adopted legislation in 2012 to gradually raise the consumption tax rate to 10% by 2015, beginning with a hike from 5% to 8%, implemented in April 2014. That increase had a contractionary effect on GDP, however, so PM ABE in late 2014 decided to postpone the final phase of the increase until April 2017 to give the economy more time to recover. Led by the Bank of Japan’s aggressive monetary easing, Japan is making progress in ending deflation, but demographic decline – a low birth rate and an aging, shrinking population – poses a major long-term challenge for the economy.
Agriculture - products:
vegetables, rice, fish, poultry, fruit, dairy products, pork, beef, flowers, potatoes/taros/yams, sugar cane, tea, legumes, wheat and barley
among world's largest and most technologically advanced producers of motor vehicles, electronic equipment, machine tools, steel and nonferrous metals, ships, chemicals, textiles, processed foods
Exports - commodities:
motor vehicles 14.9%; iron and steel products 5.4%; semiconductors 5%; auto parts 4.8%; power generating machinery 3.5%; plastic materials 3.3% (2014 est.)
Exports - partners:
US 20.2%, China 17.5%, South Korea 7.1%, Hong Kong 5.6%, Thailand 4.5% (2015)
Imports - commodities:
petroleum 16.1%; liquid natural gas 9.1%; clothing 3.8%; semiconductors 3.3%; coal 2.4%; audio and visual apparatus 1.4% (2014 est.)
Imports - partners:
China 24.8%, US 10.5%, Australia 5.4%, South Korea 4.1% (2015)
Investment Climate - US State Department
Japan is the world's third largest economy, the United States' fourth largest trading partner, and is an important destination for foreign direct investment (FDI). The Liberal Democratic Party (LDP) government of Prime Minister Shinzo Abe, elected by wide margins in December 2012 and again in December 2014 on a platform of economic recovery and revitalization, is pursuing an ambitious program of aggressive monetary easing, flexible fiscal policy, and a structural reform-focused “growth strategy” intended to put Japan’s economy on a path of sustainable growth after nearly two decades of deflation and slow growth.
The Government of Japan's growth strategy includes numerous measures intended to promote inward FDI. The Prime Minister announced in June 2013 the goal of doubling Japan’s inward FDI stock to 35 trillion yen by 2020 (exchange rate is approximately 109 JPY to USD as of the date of this publication), and reiterated this commitment in the revised strategy issued in June 2015. The focus on FDI promotion is encouraging, although Japan has the lowest ratio of inward FDI as a proportion of GDP of all Organization for Economic Cooperation and Development (OECD) member countries, something the Abe administration is working to change. At the end of 2014, the inward FDI stock was JPY 23.34 trillion, exceeding JPY 20 trillion for the first time. For the third consecutive year, the inflow of direct investment in Japan in 2014 exceeded the outflow. Despite this, Japan's stock of FDI, as a percentage of GDP, stood at 4 percent at the end of 2014, compared with 34 percent on average for all OECD member countries.
Japan is confronting the demographic realities of a low birthrate and an aging and shrinking workforce. In response, the Japanese 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 under fixed-term labor contracts.
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 under the aegis of the cabinet coordinated InvestJapan program 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 with world class corporations, research facilities, and technologies. Risks associated with investment in many other countries, such as expropriation and nationalization, are not a concern. Japan has an independent judiciary, consistently applied commercial law, and strong intellectual property protections. In recent years, the government has lowered capital gains, registration, and license taxes on real estate, and has reduced gift taxes. In April 2015, the Diet passed legislation cutting the corporate tax rate. Nearly all foreign exchange transactions, including transfers of profits, dividends, royalties, repatriation of capital, and repayment of principal, are freely permitted.
On the other hand, foreign investors in the Japanese market continue to face numerous challenges, many of which relate more to prevailing social practice rather than government regulations. These include still relatively high tax rates, including social security taxes; constraints on labor mobility, an insular and consensual business culture less open to mergers and acquisitions (M&A); a lack of independent directors on many company boards (although this is changing); and cultural and linguistic barriers. However, the current government is pursuing initiatives intended to address each of these challenges, and hopes these policies will contribute to an increasingly open and investor-friendly business environment.
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