TOKYO -- The Financial Services Agency (FSA) is set to launch a fact-finding survey on all regional banks and shinkin banks (credit unions) on their measures to prevent money laundering and illegal remittances, in an unusual step targeting all 365 such institutions in the country, it has been learned.
The move is aimed at uncovering whether those financial institutions are serving as loopholes of international monitoring networks against shady financial transactions. If any issues are found with those institutions, the FSA will conduct on-site inspections as early as July and dish out administrative punishments as necessary.
Under the plan, the FSA and financial bureaus across the country will jointly carry out interviews with board members at those financial institutions, among other steps, later this month. Specifically, the financial authorities will ask such questions as whether the banking institutions are reviewing their management systems, whether their management teams are actively involved in measures to prevent money laundering and illegal remittances, and whether those institutions are securing sufficient personnel to cope with the issues -- all in line with guidelines released in February for such establishments.
It is generally believed that small- and medium-sized banking institutions tend to be lenient in confirming customer identities due to shortages in specialized staff and expertise. "Considerable amounts of illicit funds are flowing out into regional banks and shinkin banks after such funds are shunned by major banks, posing serious problems," said a senior FSA official. "In many cases, such funds are ultimately destined for North Korea, the United Arab Emirates or Pakistan (the latter two of which are suspected of providing funds to terrorists)," the official added.
The FSA has already uncovered several cases of suspected illegal remittances. At a bank in the Shikoku region in western Japan, a male company operator residing in Japan remitted a total of 550 million yen from the bank's regional branch to an account under the name of a trading company at a bank in Hong Kong on five occasions between May and June last year. As the trading company lists individuals linked to North Korea as its board members, it is highly likely that the remittances were illegal amid economic sanctions against the country. Furthermore, it has emerged that the trading house is also closely tied to another trading company in Heilongjiang province in China, which has secretly been engaging in trading with North Korea in defiance of the U.N. sanctions against the North.
Although the regional bank was being cautious about a series of remittances at the branch in question as well as the credit division of its main office, the company didn't see the transactions as problematic since it had already confirmed the identity of the remitter.
In the upcoming survey, the FSA is planning to identify financial bodies whose countermeasures are insufficient, while singling out institutions that have implemented effective countermeasures, in order to use them as yardsticks in carrying out on-site inspections in July and later.
The Financial Action Task Force, an intergovernmental organization of financial authorities, is planning to review anti-money laundering measures being taken by banking institutions operating in Japan from April through November 2019. "Financial institutions that cannot cope with strict guidelines may quit overseas remittance services," said a senior FSA official.
(Japanese original by Takashi Narumi, Business News Department)