Japan Moves to Close Loopholes Following Incidents at Major Banks – Japan says it is moving to close loopholes in regulations on terror and criminal financing amid growing international concerns about the country’s financial oversight following a series of high-profile incidents at major Japanese banks.
The move also comes as the Group of Seven leading industrialized countries strengthen their financial crackdown on Islamic extremists operating in Iraq and Syria, as well as on Russia, which they say has aided separatists in Ukraine. Japan doesn’t want to be viewed as a weak link in the G-7 effort to put pressure on these groups.
The government of Prime Minister Shinzo Abe decided Friday it will table in parliament a set of bills requiring banks to conduct rigorous background checks on clients, freeze domestic assets of suspected terrorists, and ban such individuals from conducting transactions in Japan.
The new bills will tighten existing rules that have left such background checks to the discretion of individual banks and have prohibited only illicit transactions conducted across borders. The government hopes to pass the bills in the current parliamentary session that ends Nov. 30.
The legislative initiative came after an international watchdog highlighted in a report in June a lack of internal controls in Japan to prevent and detect illicit money transfers.
In a highly unusual step, the Paris-based Financial Action Task Force singled out Japan, saying it was
• “concerned by the country’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 FATF, set up in 1989 and backed by 34 countries and regions, including the G-7, is set to convene again in October and February. Continued inaction could land Japan on a FATF list of high-risk countries—an embarrassing distinction that could jeopardize the operations of Japanese banks overseas.
• “Being on the list could make it difficult for Japanese banks to open new branches,” government officials warned.
Financial transactions by Japanese banks would also come under closer scrutiny and face significant delays, they added.
The officials are eager to avoid the risk of Japanese banks being subject to serious penalties, following a recent U.S. decision to impose a $9-billion fine on BNP Paribas for skirting U.S. sanctions.
Japanese banks have already found themselves in hot water in recent years over their lax financial oversight.
In 2012, regional lender Hokuriku Bank was identified by the U.S. Congress as being used by Russian individuals to launder more than $290 million in cash.
In June last year, the largest Japanese banking group, Bank of Tokyo-Mitsubishi UFJ, agreed to pay $250 million to New York’s banking regulator for alleged involvement in transactions involving countries subject to U.S. financial sanctions, such as Iran and Sudan.
In October last year, Mizuho Bank, another of Japan’s biggest lenders, was ordered by Japanese regulators to improve its operations after being found to have made loans to criminal groups such as the yakuza.
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