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Japan Country Summary

77.06 Country Rating /100
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Sanctions

No

FATF AML Deficient List

No

Terrorism
Corruption
US State ML Assessment
Criminal Markets (GI Index)
EU Tax Blacklist
Offshore Finance Center

Background Information


Anti Money Laundering

FATF Status

Japan is not on the FATF List of Countries that have been identified as having strategic AML deficiencies

Compliance with FATF Recommendations​

The last Follow-up Mutual Evaluation Report relating to the implementation of anti-money laundering and counter-terrorist financing standards in Japan was undertaken in 2023. According to that Evaluation, Japan was deemed Compliant for 4 and Largely Compliant for 29 of the FATF 40 Recommendations. It was deemed Highly Effective for 0 and Substantially Effective for 3 of the Effectiveness  & Technical Compliance ratings.

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.

Sanctions

There are no international sanctions currently in force against this country.

Bribery & Corruption

Rating                                                                           (100-Good / 0-Bad)

Transparency International Corruption Index                          73

World Governance Indicator – Control of Corruption             91

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

Economy

Japan is the world’s third largest economy, the United States’ fourth largest trading partner, and, as of 2021, the top provider of foreign direct investment (FDI) in the United States. Despite Japan’s wealth, high level of development, and general acceptance of foreign investment, however, inbound FDI stocks, as a share of GDP, are the lowest among the OECD countries. At the end of 2022, the inward FDI stock was 46.6 trillion yen, 8.4 percent of GDP, one of the lowest in the world. In April 2023, the Council for Promotion of Foreign Direct Investment in Japan, led by Minister of Economic and Fiscal Policy and joined by related ministers of the Japanese government, announced an “Action Plan for Attracting Human and Financial Resources from Overseas”, which aims to double Japan’s inward FDI to 100 trillion yen or around 20 percent of GDP by 2030.

Japan’s legal and regulatory climate is supportive of investors, and the government continues to develop new regulations in line with international norms. The protections of intellectual property rights are strong with generally robust enforcement. Capital markets are fairly deep and broadly available to foreign investors. Nearly all foreign exchange transactions, including transfers of profits, dividends, royalties, repatriation of capital, and repayment of principal, are freely permitted. However, foreign investors continue to face numerous challenges. A traditional aversion towards mergers and acquisitions within corporate Japan has inhibited foreign investment, and weak corporate governance, among other factors, has led to low returns on equity and cash hoarding among Japanese firms. Investors and business owners must also grapple with inflexible labor laws and a highly regimented system of labor recruitment and management that can significantly increase the cost and difficulty of managing human resources. Although courts are independent, attorney-client privilege does not exist in civil, criminal, or administrative matters, except for limited application in cartel anti-trust investigations. The Japanese government has recognized many of these challenges and is pursuing initiatives to improve investment conditions. The sectors that have historically attracted the largest foreign direct investment in Japan are electrical machinery, finance, and insurance.

Japan’s Climate Law in 2022 codified Japan’s decarbonization commitments under the Paris Agreement and established mechanisms to overcome local resistance and red tape for green project implementation. The law also calls for prefectural policies to specifically address renewable energy promotion, low-carbon products and operations, public transportation and greening of public spaces, and promotion of Japan’s “recycling-oriented society.” Russia’s invasion of Ukraine in February 2022 led to elevated global commodity prices, which pushed up Japan’s inflation to a 41-year high. In May 2023, Japan’s Diet passed the Green Transformation Promotion Act, where the government aims to mobilize over 150 trillion yen in public-private investments over the next 10 years to ensure a stable supply of energy and promote decarbonization efforts. It will also introduce carbon pricing via a fossil fuel surcharge and an emissions trading scheme in 2028 and 2033, respectively.

Future improvement in Japan’s investment climate is contingent largely on the success of structural reforms to raise economic growth.

 

Country Links

Bank of Japan

Financial Services Agency

Japan Financial Intelligence Center (JAFIC)

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