Ratify and comply: a pathway for Japan to follow the FATF recommendation 35
| Pages | 71-88 |
| DOI | https://doi.org/10.1108/JMLC-02-2017-0007 |
| Date | 02 January 2018 |
| Published date | 02 January 2018 |
| Author | Akira Matsuoka |
| Subject Matter | Accounting & Finance,Financial risk/company failure,Financial compliance/regulation,Financial crime |
Ratify and comply: a pathway for
Japan to follow the FATF
recommendation 35
Akira Matsuoka
The Fletcher School, Tufts University, Medford, Massachusetts, USA
Abstract
Purpose –To identify the reason of Japan not complying with the Financial Action Task Force (FATF)
recommendation35 and suggesting a strategic solution to overcoming the barrier.
Design/methodology/approach –Through contextual, historical,and legal analysis of the anti-money
laundering(AML) measures in Japan.
Findings –This paper implies that less flexible mindsets in stone of major players in the field of AML
measures in Japan are the fundamentalbarrier for Japan not complying with the FATF Recommendation 35,
while thispaper suggests better realistic ways to address the barrier.
Originality/value –The novel point of this paperis that this paper illustriously uncovers the mindsets of
the major players pertaining to the Japanese AML measures in a very illustrative way, points out the
underlyingtrue barrier, and describes a useful strategydesperately needed to address the barrier.
Keywords Anti-money laundering, Conspiracy, Japanese AML, The financial action task force,
The United Nations convention against transnational organized crime, The Palermo convention
Paper type General review
Introduction
“All the best stuff is made in Japan”(Zemeckis, 1990). It could tell you a lot about
the reputation and credibility of Japanese things. This is a line from the movie,
Back to the Future Part III (Zemeckis, 1990). The things include not only tangible
goods such as electronic machines, but also intangibles such as financial services.
In addition to the success of private sector enterprises, the public sector of Japan
has also been influential as a major player not only in Asia but also in the world.
As a part of G7, Japan has been leading the field in public policy, including
economic policy. Is it even imaginable that Japan could find itself on a black list
orthegraylist?Attheverybest,Japanhasprovenitselftobeaneconomicforce
under good governance by its government. As a country allied with major
western countries, it is also fair to say that Japan can be expected to honor its
international commitments in whatever context they have been undertaken.
Japan, however, cannot be as favorably viewed from the standpoint of anti-money
laundering (AML) measures. In this regard, Japan is not so much a developed country as a
developing country in light of AML measures. In fact, in June, 2014, the Financial Action
Task Force (FATF) accused Japan of insufficient AML measures. This was a remarkably
unusual statement from the FATF to be directed at a developed country (Financial Action
Task Force, 2014). In additionto the criticism, Japan could have been placed on the black list
or the gray list of the FATF.
It is difficult to deny the fact that Japanpresents a crucially weak point regarding AML
measures. Though the Diet of Japan has gradually passed AML legislation, the last
Ratify and
comply: a
pathway for
Japan
71
Journalof Money Laundering
Control
Vol.21 No. 1, 2018
pp. 71-88
© Emerald Publishing Limited
1368-5201
DOI 10.1108/JMLC-02-2017-0007
The current issue and full text archive of this journal is available on Emerald Insight at:
www.emeraldinsight.com/1368-5201.htm
bottleneck for Japanese AML measures is ratification of the Convention against
TransnationalOrganized Crime, the so-called Palermo Convention.
It is not an understatement to say that Japan has had trouble addressing this weakness.
For the ratification of the Palermo Convention,the Japanese government insists that the Diet
of Japan would have to pass a law to criminalize conspiracy to commit serious crime, to
make the Palermo Convention enforceable under the Japanese legal system. Accordingly,
the Japanese government has put such a law before the Diet three times (Japan,Ministry of
Justice, 2017), but the Diet has scrapped the proposed law every time. Under the
circumstances, itis reasonable to expect that the Japanese government will not be able to get
approval of such legislationfrom the Diet.
This problem pertaining to the ratification of the Palermo Convention does not force
Japan to work on a mission which is impossible. I will argue that the reason why Japan has
not dealt with AML measures compared to other developed countries is attributable to its
less flexible mindsetvis-à-vis the ratification of the Palermo Convention.
Now, let us think of the structure of this paper. From a certain perspective, it is
understandable that Japan would have a less flexible attitude toward the ratification of the
Palermo Conventionor even toward AML measures, when confronted with pressureapplied
by foreign countries. To understand the Japanese point of view, this paper, at first, will
consider the history of AML not only in Japan but also in the world. Then, this paper will
turn to mindsets of major players on AML measures with respect to the ratification of the
Palermo Convention: for example, how the players view the ratification of the Palermo
Convention or the laws to criminalizeconspiracy of serious crime. This paper, following the
introduction of mindsets of the players, willindicate how those mindsets became inflexibly
set in stone. Finally,this paper will suggest some solutions to this problem.
History of AML measures at the world level
ML itself is not so new. The definition of ML, according to the US treasury, is “financial
transactions in which criminals, including terrorist organizations, attempt to disguise
the proceeds, sources or nature of their illicit activities”(US Department of the
Treasury, 2017). Historically, it is not unusual to see that ancient people who earned
money from illegal businesses disguised its history and placed the money in legal
transactions. In addition, it is hardly surprising that terrorists who collect their money
through illegal activities, such as human trafficking, disguise its history and use it in
legal activities. Also, not only terrorists but also ordinary people might be involved in
small-scale ML. For example, you could deal with illegal sales transactions, such as
drug sales, through a virtual currency not governed by public regulators, such as
Bitcoin, and disguise the profits from these transactions by placing them in legal
activities. ML has a long history and continues to be a problem.
International cooperationis crucial in combatting ML. The USA was the first country to
criminalize ML, when Congresspassed the Money Laundering Control Act of 1986 (Internal
Revenue Service, 2016). But, even with perfect enforcement, the USA faced difficulty in
enforcing ML developed outsideits jurisdiction. Especially with globalization, international
cooperation is necessaryfor effective AML measures.
In that context of international cooperation for AML, the FATF plays some important
roles as an international organization:analyzing ML, proposing AML measures, monitoring
AML measures of each country, and so on (Financial Action TaskForce, 2017b). The FATF
was originally establishedby the G7 Summit of Paris in 1989 with G7 countries, the EU and
eight other countries(Financial Action Task Force, 2017c).
JMLC
21,1
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