What is money laundering? Money laundering cases and regulations in Japan

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  1. 导言
  2. What is money laundering?
  3. Does money laundering constitute a criminal act?
    1. How does money laundering work?
  4. What are some examples of money laundering in Japan?
    1. The act of impersonating someone else to sell the rights to use electronic money obtained through sophisticated fraud schemes
    2. The act of concealing assets by using a crypto address belonging to an unidentified person
    3. Cross-border concealment of funds
    4. Establishment of a company using illegal proceeds as capital, followed by assumption of a shareholder position
  5. What are the letters from the bank requesting confirmation of transaction details for?
    1. What happens if customer information verification requests from the bank are ignored?

In 2022, financial institutions reported a total of 583,317 transactions as suspected cases of money laundering in Japan. This represented an increase of 53,167 cases from the previous year—a record high.

Though conducted under the guise of legitimate transactions, money laundering is a crime. And given the increasing number of transactions suspected as money laundering, not only can financial institutions become unknowingly involved, but various businesses and individuals can as well. This can result in penalties such as fines, in addition to undermining the credibility of the businesses concerned.

This article covers the basics of money laundering and looks at some specific cases in Japan.

What’s in this article?

  • What is money laundering?
  • Does money laundering constitute a criminal act?
  • What are some examples of money laundering in Japan?
  • What are the letters from the bank requesting confirmation of transaction details for?

What is money laundering?

According to Japan’s National Police Agency website, money laundering is defined as the act of disguising criminal proceeds so that their source and true ownership are obscured, in an effort to evade detection and apprehension by investigative authorities.

The “laundered” funds may be diverted to finance the activities, ongoing operations, and growth of criminal groups—potentially fueling organized crime. There is also a concern that such groups could adversely impact the normal economic activity of society.

Within the international community, efforts centered around the Financial Action Task Force (FATF) are underway to strengthen global measures against money laundering. In line with this, Japan has also enacted laws and established guidelines for financial institutions.

Does money laundering constitute a criminal act?

Money laundering is prohibited by law. In Japan, enforcement is carried out under laws such as the Act on Punishment of Organized Crimes and the Anti-Drug Special Provisions Law. Additionally, prevention measures are implemented under laws including the Act on Prevention of Transfer of Criminal Proceeds.

In 2022, statutory penalties were increased as part of efforts to strengthen measures against money laundering. For example, in the December 2022 amendment to the Act on Punishment of Organized Crimes, the statutory penalty for the “crime of controlling business operations” (using criminal proceeds to assume a position such as a shareholder, or to appoint or dismiss board members, etc.) was raised from imprisonment for up to 5 years or a fine of up to 10 million yen, to imprisonment for up to 10 years or a fine of up to 10 million yen.

How does money laundering work?

The money laundering process is highly complex, but it generally involves three stages:

  • Placement: Placement is the stage where criminal proceeds are introduced into the financial system. This comprises various methods, such as depositing cash from criminal proceeds into a bank account under a fictitious name, or purchasing real estate.

  • Layering: Layering is the stage where the funds are moved several times through repeated money transfers or other means to obscure the origins of the criminal proceeds.

  • Integration: Finally, integration is the stage in which the funds with obscured origins are reintroduced into economic activity in seemingly legitimate ways, such as through investment in legal businesses or the sale of real estate.

What are some examples of money laundering in Japan?

Money laundering can take various forms. Looking at examples of money laundering offenses in Japan, the most commonly misused transactions are domestic exchange transactions—followed by cash, bank deposit, credit card, and electronic money transactions. Within the international community, money laundering using crypto assets has also become a serious problem, with the number of such cases having increased by 68% in 2022 over the previous year.

Let’s take a look at some major cases from 2022 and 2020 in Japan based on data from Japan’s National Police Agency.

The act of impersonating someone else to sell the rights to use electronic money obtained through sophisticated fraud schemes

Case study: When selling off the rights to use electronic money swindled by a team of sophisticated fraudulent actors, a group of males in the consulting business created a listing on an electronic money trading website under the name of a limited liability company operated by someone else. They then sold the rights, pretending to be that individual.

The act of concealing assets by using a crypto address belonging to an unidentified person

Case study: A male company employee purchased crypto assets with criminal proceeds deposited into his own bank account. He then transferred them to a crypto address managed by an unidentified individual.

Cross-border concealment of funds

Case study: A male company executive transferred criminal proceeds obtained through fraud to a bank account he had opened in another country. In doing so, he submitted a false invoice to a bank in Japan, disguising it as a legitimate commercial transaction.

The perpetrators in these three cases were charged with “concealment of criminal proceeds,” which accounts for more than half of all money laundering offenses.

Although rare, money laundering also includes using criminal proceeds to assume a position such as a shareholder to control the business activities of that corporation.

Establishment of a company using illegal proceeds as capital, followed by assumption of a shareholder position

Case study: In 2020, a man operated an unlicensed cabaret and paid the illegal earnings obtained from that operation as capital for shares issued when he set up a company. In this way, he acquired a position as the company founder. He then appointed himself CEO and registered the incorporation with the District Legal Affairs Bureau.

What are the letters from the bank requesting confirmation of transaction details for?

Measures to prevent money laundering are being strengthened domestically as well as internationally. One such measure, conducted by financial institutions, is the verification of transaction details and customer identity.

Financial institutions regularly send their users documents such as the Confirmation of Purpose of Transaction, Confirmation of Customer Information, and Confirmation of Delivery Details—all in accordance with the Act on Prevention of Transfer of Criminal Proceeds and guidelines established by the Financial Services Agency.

Some might be surprised to suddenly receive such letters, but financial institutions use these documents to verify transactions and customer information in an effort to prevent fraudulent transactions (such as the transfer of criminal proceeds).

What happens if customer information verification requests from the bank are ignored?

To aid in crime prevention, the government is urging people to respond within the given deadline when they receive documents such as the Confirmation of Customer Information from financial institutions.

The Act on Prevention of Transfer of Criminal Proceeds stipulates that a financial institution may refuse to fulfill its obligations related to a transaction until the customer complies with the transaction verification process. If no response is received, the transaction may be halted or restricted.

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