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Japan To Toughen Remittance Rules To Fight Money Laundering Using Crypto
The Japanese government will introduce remittance rules as early as next spring aimed at preventing criminals from using cryptocurrency exchanges to launder money, Nikkei has learned.
Ankita K.
12:07 27th Sep, 2022

The Act on Prevention of Transfer of Criminal Proceeds will be revised to require the sharing of customer information between exchange operators. The move is aimed at tracking money transfers by people engaged in illegal activities.

A draft amendment to the law will be submitted to the extraordinary Diet session scheduled to convene on Oct. 3. The bill will add cryptocurrencies to the money transfer rules, known as travel rules. It is expected to take effect in May 2023.

The Financial Action Task Force (FATF), an international organization that examines anti-money laundering measures, recommended in 2019 that countries adopt the rule. The U.S., Germany, Singapore, and other countries have already passed legislation, and the European Union is preparing to follow suit.

The revised law will require cryptocurrency exchanges to provide customer information, including the customer's name and address, when sending cryptocurrency to another exchange. The legislation is aimed at determining when and where criminals send cryptocurrency.

Exchange operators that break the rules will be subject to administrative guidance and corrective orders. Violators of such orders will be subject to criminal penalties.

The law will also apply to stablecoins, a type of cryptocurrency whose value is linked to a legal tender. The distribution of these coins will be subject to a registration system, starting next spring, when the revised Fund Settlement Act, which was passed during this year's ordinary session of the Diet, takes effect. In anticipation of the spread of cryptocurrencies in Japan, the government will impose a broader monitoring system for cryptocurrencies.

Cash transactions between banks are recorded and traceable by the Society for Worldwide Interbank Financial Telecommunications (SWIFT) in the case of international money transfers, and by the Japanese Bankers Association's Zengin System for domestic money transfers, both of which record customer information.

In addition to the Act on Prevention of Transfer of Criminal Proceeds, the Foreign Exchange and Foreign Trade Act and the International Terrorist Asset-Freezing Act, which are related to money laundering, will be revised at the same time. The proposed amendment to the Foreign Exchange and Foreign Trade Act will add stablecoins to the list of regulated assets in May 2023, preventing their transfer to sanctioned parties such as Russia, and from sanctioned parties to third parties.

In order to cut off funding for nuclear development in North Korea and Iran, the revised laws will also allow financial and real estate transactions in Japan by people involved in the nuclear programs of the two countries to be regulated. The International Terrorist Asset-Freezing Act will be revised, with the aim of bringing it into effect by the end of the year. Transactions with foreign countries are already regulated under the Foreign Exchange and Foreign Trade Act.

The Japanese government has designated parties involved in nuclear development in North Korea and Iran as sanctioned parties, in accordance with a U.N. Security Council resolution, but the International Terrorist Asset-Freezing Act did not cover them. The FATF had sought improvements to the law, arguing that it could serve as a loophole for funding nuclear development.


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