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TOKYO, Japan — According to Nikkei, Japan’s financial regulator and central bank will initiate an examination into how well anti-money laundering procedures are implemented at regional banks and other local financial institutions. The investigation, which comes in the wake of a rash of illicit money transfers in the country, might begin this summer. A report on money laundering by the Financial Action Task Force (FATF) is expected to be released in August, and it will likely highlight Japan’s financial institutions’ lack of internal control systems. The Financial Services Agency and the Bank of Japan want to know if financial institutions are taking enough precautions to prevent fraudulent money transfers. The FSA and BOJ will undertake required reviews and take action if they discover shortcomings. Japan was last reviewed by the FATF in 2008, when it was chastised for its low identity verification procedures by a number of organizations. The new assessment is expected to highlight a number of flaws, as well as assign Japan to the enhanced follow-up category, a failing mark reserved for countries with “severe weaknesses.” Last year, the National Police Agency of Japan reported 1,734 fraudulent online transfers. While the figure is lower than in 2019, it represents a 16 percent growth over the previous five years. It is rather simple to open a bank account in Japan. There are around 800 million deposits in the country, and unused accounts are sometimes utilized for illegal money transfers. The FATF examination is expected to raise concerns about regional financial institutions whose systems fail to detect fraud on occasion. Regional banks, in comparison to major banks, have worse risk management systems and identity verification processes; this has been a problem for a long time. The e-money service of mobile carrier NTT Docomo was used to hack bank accounts last year. After illegal withdrawals, the company had to stop linking its service to regional banks. The FSA and the BOJ will collaborate to look into the state of anti-money laundering procedures in financial institutions. Because of the huge number of regional financial institutions, the BOJ has agreed to participate in the survey at the request of the FSA. The central bank does not have supervisory jurisdiction, but it can inspect financial institutions on the spot. After the BOJ secures authorization from the financial institutions, the examination findings and other information will be shared with the FSA. Japan’s financial regulator changed its money-laundering and terrorist-financing countermeasures guidelines in February, calling for strict client control. The FSA and BOJ will consider issuing business improvement orders or requesting reports on the state of operations and finances, depending on the findings of the investigation. The FSA and BOJ also intend to look at cybersecurity measures, particularly as cybercrime becomes a big concern for the worldwide community. The watchdog and the central bank have been working together more closely in recent months, conducting coordinated inspections of financial firms. While splitting the task, they promised to keep each other informed about the status of their exams, future goals, and risk awareness. Money laundering and terrorism financing are two issues that countries are rushing to address. Financial firms face reputational concerns as well as possible repercussions from foreign authorities if tougher actions are not implemented./nRead More

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