JFBA Anti-Money Laundering Regulations. (GJBs) July 31, 2013

Transcription

1 JFBA Anti-Money Laundering Regulations Applicable to Gaikokuho Jimu Bengoshi (GJBs) JFBA International ti Criminal i Legislation Committee July 31, 2013 Koichiro Ohashi / Masayuki Watanabe 1

2 How to Avoid Involving v in Money Laundering Activities t How to Avoid Involving in Money Laundering Activities 2

3 What is Money Laundering? Clean Money Dirty Money Used for Criminal Money Gambling Billing Fraud Prostitution Clean Money Criminal Proceeds Resale Real Estate cash transfer Purchase How to Avoid Involving in Money Laundering Activities 3

4 What is Money Laundering? Money Laundering The process to conceal the source of profits from illegal activities. If those activities are not policed, the criminal i proceeds may be re-used dfor further criminal i activities, and/or Ci Criminal i organizations i may use the proceeds to enter into or influence on legitimate economic activities. How to Avoid Involving in Money Laundering Activities 4

5 History of Anti-Money Laundering Measures Global Events December 1988 Adoption of "UN New Narcotics Convention" (Criminalization of money laundering activities) July 1989 Arch Summit (Adoption of the Establishment of FATF (Financial Action Task Force on Money Laundering)) April 1990 FATF issued "the 40 Recommendations" - Customer identification by financial institutions - Reporting of suspicious transactions to financial regulatory authorities May 1998 Birmingham Summit (Agreement on establishment of FIU) Events in Japan June 1990 Notices issued on the requirement of customer identification, etc. (by the Director-General of the Banking Bureau, Ministry of Finance) July 1992 Implementation of "the Anti-Drug Special Prevention Law " (Creation of the " Suspicious transaction ti report t" system relating to drug crime proceeds) February 2000 Implementation of "the Act on the Punishment of Organized Crime" (Extension of the scope of predicate offences to certain serious crimes, establishment of the Japan FIU, etc.) How to Avoid Involving in Money Laundering Activities 5

6 Global Events Events in Japan September 2001 July 2002 Terrorist attacks in the US With the implementation of "the Act on the October 2001 Punishment of Financing to Offences of Public FATF issued "the Special Recommendations on Intimidation" and "the revised Act on the terrorist financing" ( 9 Special Recommendations ) - Criminalization of terrorist financing, Reporting of suspicious transactions related to terrorism. Punishment of Organized Crime", terrorist financing offence was added to predicate offences. January 2003 Implementation of "the Customer Identification Act" (Obligation of identification of customers etc. by financial institutions etc. is legislated.) June 2003 March 2008 (resolved in March 2007) FATF re-revised "the 40 Recommendations" Diet resolved "the Act on Prevention of Transfer -Application of Recommendations to non-financial of Criminal Proceeds (the customer identification obligation businesses (real estate agents, dealers in precious metals, to non-financial business operators are adopted. ) dealers in precious stones, etc.) and professions (lawyers, JFBA implemented Rules relating to client identity accountants, etc.) )(AKA G (A.K.A Gatekeeper Initiatives ) ii i verification i and record preservation, etc (Old Rules) in March 2008 (adopted in March 2007) October 2008 Third Mutual Evaluation Report of Japan (With regard to CDD under the 40 Recommendations, Japan received NC for 9 items and PC for 9 items.) Feb 2012 The 4th revision of the 40 Recommendations was issued. Former 40 Recommendations and 9 Special Recommendations were integrated. March 2013 JFBA implemented Rules Concerning Client Identity Verification and Record Preservation, Etc. (New Rules) (adopted in December 2012) April 2013 ( resolved in March 2011) Amendments of "the Act on Prevention of Transfer of Criminal Proceeds June 2013 National Police Agency established the advisory body for discussing the further amendment of the New Rules. How to Avoid Involving in Money Laundering Activities 6

7 Why the Gatekeeper Initiatives were issued? Attorneys, Accountants, and other professional acting as agents/advisors on financial transactions Can be used for money laundering or fund aids to terrorists. Put them into Gatekeeper function, and require them to report any suspicious i transactions. To avoid fund transfer to those crime organizations and terrorists. How to Avoid Involving in Money Laundering Activities 7

8 Risks that t GJBs are involved in Money Laundering Activities iti In and outside of Japan, such cases are reported that attorneys are without knowingly involved in money laundering activities. As financial institutions have been already highly regulated, there is growing risk that attorneys would be used by criminal organizations to circumvent the regulations applicable to financial institutions. How to Avoid Involving in Money Laundering Activities 8

9 Why JFBA opposed to the reporting obligations Confidentiality Obligation: One of essential arms to fight against government to protect citizens. Independence from government or political sectors (Autonomy of Attorneys) Basis for the citizens reliance on justice system. How to Avoid Involving in Money Laundering Activities 9

10 Risk of impairing i i citizens reliance on justice system Reporting obligation on suspicious transactions. Attorneys have to report a suspicious transaction to the government without notifying to the client. Then, the client may not disclose really important matters to his/her attorney. That will harm the relationship between attorney and client. How to Avoid Involving in Money Laundering Activities 10

11 Risk of jeopardizing i attorney system If client does not tell truth, attorney may not act in compliance with laws or assist the client effectively. Reporting obligation i would lead to citizens i to view attorneys as not protector for citizens but spy of law enforcements. How to Avoid Involving in Money Laundering Activities 11

12 Why JFBA sets new rules? JFBA accepted one of FATF recommendations, and set forth: the Regulations Regarding Client Identification Confirmation and Retention of Identity Confirmation. In line with the amendment of the Act on Prevention of Transfer of Criminal i Proceeds (effective on Apr. 2013), JFBA revised the above Regulations (effective Mar. 2013) and also set forth the new rules (effective Mar. 2013) How to Avoid Involving in Money Laundering Activities 12

13 Relationship between Act on Prevention of Transfer of Criminal Proceeds ( APTCP ) and JFBA Regulations Article 11.1 of Revised Act on Prevention of Transfer of Criminal Proceeds ( APTCP ) provides: Client identification confirmation and retention of identification confirmation records conducted by attorneys at law shall be governed by JFBA regulations. Attorneys at law includes GJBs, but not Tax Accountants or CPAs. How to Avoid Involving in Money Laundering Activities 13

14 Amended AML Regulations and Rules for Legal Professionals in Japan Amended AML Regulations and Rules for Legal Professionals in Japan 14

15 Act on Prevention of Transfer of Criminal Proceeds ( APTCP ) STR Competent Administrative Authority Not applicable to attorneys, etc. Supervisory Measures (e.g. Rectification Order) Notification of STR Statement of Opinion on Supervision JAFIC (Japan Financial Intelligence Center) National Public Safety Commission (National Police Agency) Collection & Analysis of STR Information Exchange Foreign FIUs Specified Business Operator Financial Institutions (e.g. Banks, Securities Firms, Insurance Companies), Financial Leasing Company, Credit Card Company, Real Estate Agent, Dealer in Precious Metals & Stones, Mail Box Operator, Telephone Service Operator Disseminati on of STR Confiscation of Criminal Proceeds Judicial Scrivener, Administrative Scrivener, Certified Pubic Accountant, Certified Tax Accountant Investigative Authority Terrorist etc. Attorneys, etc. (*) Investigation Verification of Client Identification * Attorneys, etc. Record Keeping Suspicious i Transaction Report (STR) means attorneys, legal profession corporations and Gaikokuhou-Jimu Bengoshis (GJBs) Amended AML Regulations and Rules for Legal Professionals in Japan 15

16 FATF Third Round Mutual Evaluation FATF Members Evaluation for all members completed from 2007 to 2011 Evaluation Report for Japan is issued in October rd round MER (FATF member countries and regions mutually evaluate the compliance of Recommendations) (i) Response to Questionnaire, (ii) on-site investigation and (iii) face-to face meeting, (iv) plenary meeting (i) Does the country receive PC or NC for important recommendations? Regular follow-up Two years after the MER is discussed, the assessed country would report back to the Plenary and provide information on the actions it has taken or is taking to address the deficiencies underlying any of the Recommendations that are rated PC or NC. FATF members are encouraged to seek removal from the follow-up process within three years after the adoption of the MER, or very soon thereafter. Yes No C: Compliant Evaluation LC: Largely Compliant PC: Partially Compliant NC: Non Compliant Biennial Update must provide succinct updates for Recommendation rated PC or NC. Yes, but not enough. The country shall submit follow-up letter in the next plenary again. Are the measures taken for the Deficiencies that are rated PC or NC enough in light of the Recommendations? No Yes Enhanced Follow-Up (i) Letter sent from FATF Chairman, (ii) High level l mission, i (iii) Application of Recommendation 21, (iv) Suspension or Termination of FATF membership Amended AML Regulations and Rules for Legal Professionals in Japan 16

17 Summary of CDD measures required under Third Mutual Evaluation to Japan Customer Due Diligence required by FATF Recommendations Specified Business Operator Japanese Regulation Deficiencies Transaction Verification of Customer Identification Data Natural Person -Name - Address - Date of Birth Legal Person Verification of additional customer Information Purpose of Transactions Beneficial Owner Authorization for agency Legal status, tt directors, Articles Atil of Incorporation of legal person Nationality, Occupation, Assets, Source of Assets PEPs (Politically Exposed Persons) Customer - Name - Address On going Due Diligence Risk based Internal Management Amended AML Regulations and Rules for Legal Professionals in Japan 17

18 Expansion of Customer Identification Items under APTCP For professionals (e.g. accountants), only additional item is verification of agency power of agent Individual Customer Customer Identification Data (name, address, birth date) (Presentation or Delivery of Customer Identification document, supplemental document or its copy) Occupation (Declaration) Corporate Customer (other than listed companies) Customer Identification Data of Corporation (Corporate Name, address of head office or principle office)+customer Identification Data of person in charge of the transaction (Presentation or delivery of customer Identification document, supplemental document, orits copy) Purpose of Transactions (Declaration) Business Nature (ID) Customer Identification Data of Beneficial Owner (Declaration, but ID is required in case of higher risk transaction) Country, Local Government, Listed Company, etc. Associations and Foundations without juridical personality Customer Identification Data of person in charge of the transaction(presentation or delivery of customer Identification document, supplemental document, or its copy) Purpose of Transactions (Declaration) Business Nature (Declaration) Agency Power of Agent Agency Power of Person in charge of Transaction (Personal status, power of (power of attorney, employee ID card, telephone etc.) attorney, telephone etc.) (Certain Higher Risk Transactions) Information concerning Assets and Revenue (ID) Amended AML Regulations and Rules for Legal Professionals in Japan 18

19 National Regulations (APTCP) and JFBA Regulations The Act on Prevention of Transfer of Criminal Proceeds (Act No. 22 of 2007, as amended, APTCP ) requires Specified Business operators (e.g. financial institutions such as banks and securities firms) to (i) verify customer identifications, (ii) keep and preserve client identification record and (iii) file suspicious transaction reports to authorities. For the reason of obligations of confidentiality of professionals, obligation of filing suspicious transaction reports (STRs) are not imposed to professionals (i.e. Attorneys, etc., Judicial Scrivener, Administrative Scriveners, Certified Pubic Accountants, and Certified Tax Accountants). To respect the autonomy of Attorneys, etc., APTCP doesn t directly impose any obligations to Attorneys, etc., but APTCP requires JFBA to introduce rules for Attorneys, etc. in reference to the obligations of other professionals under APTCP. Attorneys, etc. means Attorneys, Legal Profession Corporations and Gaikokuho-Jimu-Bengoshis (GJBs). Amended AML Regulations and Rules for Legal Professionals in Japan 19

20 Old and New JFBA Rules and Regulations [Old Rules and Regulations] JFBA implemented Rules relating to client identity verification and record preservation, etc. ( Old Rules ) in March 2008 (adopted in March 2007) in response to the implementation of APTCP. [New Rules and Regulations] JFBA implemented Rules Concerning Client Identity Verification and Record Preservation, Etc. (New Rules) and Regulations Concerning Client Identity Verification and Record Preservation, Etc. ( New Regulations ) in March 2013 (adopted in December 2012) in response to the amendment to APTCP by totally amending Old Rules and Old Regulations. New Regulations are the subordinate regulations for New Rules. Amended AML Regulations and Rules for Legal Professionals in Japan 20

21 Verification of Client Identification under JFBA Rules and Regulations - Attorneys - Legal Profession Corporations - Gaikokuho-Jimu-Bengoshis (GJBs) Preparation and Preservation of Customer Identification Records Transactions - Management of a client s financial institution account, or taking custody of or management of money, securities, or other assets no less than JPY 2 million. - Certain transactions concerning real properties, corporations, trusts. - If need to conduct strict client management - When taking custody of money or other assets for non-legal matters. Clients -Adopted in reference to transactions for other professionals (e.g. CPAs and CTAs under APTCP). Client Identification Individual -Name - Address -Birth Date Corporation -Name - Address of headquarter or Main Office Amended AML Regulations and Rules for Legal Professionals in Japan 21

22 When Attorneys, etc. need to verify Client Identity? Management of a client s financial institution account, or taking custody of or management of money, securities, or other assets no less than JPY 2million. Certain transactions concerning real properties, p corporations, trusts. If need to conduct strict client management When taking custody of money or other assets for nonlegal matters. Amended AML Regulations and Rules for Legal Professionals in Japan 22

23 Exception for Requiring i Verification of Client Identity Works conducted through consignment by the public agency and foreign courts When money has been entrusted in order to pay advances, deposits, security money, taxes, bail bonds, penalties, fines, money relating to additional penalties, non-penal fines, or other similar amounts to a court, legal affairs bureau, financial institution, or other institutions. When money has been entrusted in order to perform obligations borne by the client or other related parties resulting from a judgment, decision, mediation, or settlement in procedures involving the courts or other dispute resolution organizations. When tender, settlement, or other similar money borne by the other party or other related parties has been received in procedures involving the courts or other dispute resolution organizations. When condolence money, damage indemnity, settlement money, or other similar money has been entrusted in order to settle with the victim, bereaved family, or their representatives ti (including statutory t t representatives) ti with regard to criminal i cases. When money has been received as an advance for Attorneys, etc. fees or expenses. When conducted as work pursuant to a voluntary guardianship contract. When the client has been appointed by a court as a guardian of adult or a trustee in bankruptcy, etc. and when a request has been received regarding acts that can be conducted as duties of such client. Amended AML Regulations and Rules for Legal Professionals in Japan 23

24 Required verification items under JFBA Rules Category of Persons or Entities Natural Persons Judicial Persons Association or Foundation without juridical personality (e.g. partnerships) Client - Name - Name N/A N/A Identification - Address - Address of Items - Date-of-birth head office or the principal place of business Country, Local Government and other entities (*) Authority Applicable if the Applicable N/A Applicable natural person uses an agent. Identity of natural person in charge of transaction N/A (**) N/A (**) Applicable N/A (*) Other entities include (i) Incorporate administrative i ti agencies, Juridical persons in which h a national or local l government has contributed more than 50% of capital, funds, or other money pursuant thereto, (ii) Foreign governments, (iii) foreign governmental institutions, foreign local governments, foreign central banks or international institutions of which Japan is a member and (iv) Entities that are listed or registered on markets that trade securities (excluding markets in Iran and North Korea). (**) APTCP requires identity of natural person in charge of transaction in case of natural persons using agents and judicial persons. However, JFBA rules does not require such verifications. 24 Amended AML Regulations and Rules for Legal Professionals in Japan

25 Identification Method for Natural Person - Verification of Client Identification Data (name, address, and birth date of the client). - In case of proxy, verification of authority of the agent is required. Face-to face Transactions Presentation of certificate of seal registration, national health insurance certificate, national pension book, driver s license, etc. Presentation ti of a copy of a certificate t of residence or a government-issued document without a photo Non Face-to face Transactions (Website, Mailing Service, etc.) Send the personal Identification document or its copy + + Amended AML Regulations and Rules for Legal Professionals in Japan Send an engagement agreement or transaction documents to the client s address, which does not need forwarding by registered mail or mail that records acceptance or delivery Attach identification document to the verification record and send an engagement agreement or transaction ti documents to the client s address, which does not need forwarding by registered mail or mail that records acceptance or delivery. Identification is Compl leted 25

26 Identification Method for Corporation - Verify Client Identification Data (the name of the Corporation, address of head quarters or main office). - Verification of the authority of the natural person in charge of the transaction is required. - APTCP requires identity of natural person in charge of transaction. ti However, JFBA rules does not require such verifications. Face-to face Transactions Presentation of a certificate of registered matters of the corporation, seal registration certificate, etc. Non Face-to face Transactions (Website, Mailing Service, etc.) Send the personal Identification document or its copy + + Verification of the authority of the natural person in charge of the transaction (e.g. by presenting a document that indicates that the Natural Person Concerned is a officer or employee of the client or by some other method) Amended AML Regulations and Rules for Legal Professionals in Japan Verification of the authority of the natural person in charge of the transaction (e.g. by presenting a document that indicates that the Natural Person Concerned is a officer or employee of the client or by some other method) + Attach identification document to the verification record and send an engagement agreement or transaction documents to the client s address, which does not need forwarding by registered mail or mail that records acceptance or delivery. Identification is Compl leted 26

27 Other Identification Methods (Art 2, Para 3, Item 4 of JFBA Rules) (1) When a client is introduced by another operator, and such other operator conducts identity verification in accordance with laws and regulations: Information concerning identity verification is obtained from such other operator; provided, however, that Attorneys, etc. may at any time obtain materials in order to verify identity used by such other operator, and verify such operator takes proper measures in order to verify identity in accordance with laws and regulations. (2) When the likelihood of the purpose of the request involving the transfer of criminal proceeds is slim in view of the attributes of the client, business relationship with the client, and the details of the request, etc.: Presented or sent documents issued or provided by a government or public office or other similar documents, that state the identity of such client, or copies of such documents (3) When identity verification is not possible using methods stated above due to the client being abroad, or when it is not possible to send Mail Not Requiring Forwarding by Registered Mail, etc.: Using methods that an operator in the relevant foreign country to verify identity, or other method involving the same level of trust as the methods stated in JFBA Rules. (4) When a client is in custody in a penal detention facility due to having been arrested, taken into detention, or is in prison, etc.: method in which a document in which a court has indicated the grounds for the client s custody such as a certified copy of the detention warrant, or a judgment, that states matters that identify the client is issued, or inspected Amended AML Regulations and Rules for Legal Professionals in Japan 27

28 Verification of Authority (Art 4, Para 1 of JFBA Rules) Under New JFBA rules, Attorneys, etc. shall verify the authority of the natural person in charge of the transaction. The measure for the verification of the authority is to make requests by presenting a document that indicates that the natural person concerned is a officer or employee of the client or by some other method. It is not the verification of agency power itself. Independent telephonic contact with the natural person or possession of Identification issued by the corporate customer (e.g. employee ID card) are permitted for verification methods. Category of Persons or Entities Authority Natural Persons Judicial Persons Association or Foundation without juridical personality Country, Local Government and other entities (e.g. partnerships) Applicable if the Applicable N/A Applicable natural person uses an agent. Amended AML Regulations and Rules for Legal Professionals in Japan 28

29 Verification Measures for Authority under APTCP (for reference) Individual Customer (i) Relatives living together or Legal Representatives (ii) Possession of Proxy (iii) Independent telephonic or other contact with the individual customer (e.g. , fax) (iv) It is clear that the representative acts on behalf of the individual customer for the reason that Specified Business Operator recognizes the relationship between an individual customer and the representative. Others (including Corporate Customer) Associations and Foundations without juridical personality (i) Possession of Proxy (ii) Possession of Identification issued by the corporate customer (e.g. employee ID card) *As business cards are not issued by the corporate customer, it does not fall within the definition of Identification. (iii) Registered as an executive under the commercial register of the corporation (iv) Independent telephonic or other contact with the corporate customer (e.g. , fax) (v) It is clear that the representative acts on behalf of the corporate customer for the reason that Specified Business Operator recognizes the relationship between an individual customer and the representative. Not Required Amended AML Regulations and Rules for Legal Professionals in Japan 29

30 Risk-Based Approach Japan FATF Specified Transactions Verification of Identification Higher Risk Transactions Medium Risk Transactions Enhanced Due Diligence (EDD) Customer Due Diligence (CDD) Non-Specified Transactions No CDD is required Lower Risk Transactions Reduced Due Diligence (RDD) Amended AML Regulations and Rules for Legal Professionals in Japan 30

31 Risk-based Approaches under JFBA Rules JFBA Rules implemented the following risk-based approaches. 1. Rule-based Approach Strict verification measures taken for higher-risk transactions (Art 3) 3 (three) high-risk transactions which require strict verification measures These transactions are designated as higher-risk transactions in reference to APTCP. 2. Principle-based Approaches Proper Response to Requests (Art 6) Proper Response When Taking Custody of Money for Non-Legal Matters (Art 8) Principle-based approaches in reference to FATF risk-based approach guidance for legal professionals Amended AML Regulations and Rules for Legal Professionals in Japan 31

32 Strict Verification Measures taken for Higher Risk Transactions (Art 3 of JFBA Rules) Under JFBA Rules, the following three types of transactions are specified as higher risk transactions. These transactions are designated in accordance with higher risk transactions applicable to other professionals under APTCP. (1) Acts in which the parties concerned in transactions required verification of client identification are suspected of pretending to be the client or the person in charge of transactions involved in verifying when conducing transactions. (2) Acts with clients who are suspected of having falsified matters relating to verification when conducting transactions when verification is undertaken when conducting such transactions (including clients whose natural persons in charge of transactions are suspected of having falsified such matters) (3) Acts with clients who reside or are located in Iran or North Korea. In case of higher risk transactions, Attorneys, etc. must verify the identity of such client in Verification of identity when falling under item (1) or item (2) above shall be conducted by a method that differs to the method of verifying identity conducted when commencing the preparation of implementation of transactions required verification of client identification or using identification documents that differ from documents used when verifying transactions. Amended AML Regulations and Rules for Legal Professionals in Japan 32

33 Proper Response (Art 6, Art 7 and Art 8 of JFBA Rules) Persuading clients and withdrawal from the request is proper response. Reporting Suspicious Transactions is prohibited. 1 Proper Response to Requests (Art 6) (1) When intending to accept requests for legal l matters, Attorneys, etc. must carefully consider whether the purpose of such request relates to a transfer of criminal proceeds in view of the attributes of the client, business relationship with the client, and the details of the request. These elements should be judged by way of risk based approach. (2) Attorneys, etc. shall not accept requests when the purpose p of the request is acknowledged as relating to the transfer of criminal proceeds. 2 Proper Response after Accepting Requests (Art 7) (1) After accepting a request to handle legal matters, and when Attorneys, etc. discover that the purpose of the request relates to the transfer of criminal proceeds, Attorneys, etc. must explain to the client that the request is illegal and must endeavor to persuade the client to abandon fulfilling such purpose. (2) Attorneys, etc. must withdraw from the request if unable to persuade the client as provided for in (1) above. Amended AML Regulations and Rules for Legal Professionals in Japan 33

34 3 Proper Response When Taking Custody of Money for Non-Legal Matters (Art 8) (1) If Attorneys, etc. take custody of money, securities, or other assets that are not related to legal matters, Attorneys, etc. must carefully consider whether the purpose of such custody relates to a transfer of criminal proceeds in view of the attributes of the party attempting to have assets taken care of, business relationships with such party, and the contents t of the assets involved in the custody. These elements should be judged by way of risk based approach. (2) In the case of (1) above, Attorneys, etc. shall not take custody of such assets when the purpose of the custody is acknowledged as relating to the transfer of criminal proceeds. (3) When, as a result of considerations of (1) above, Attorneys, etc. have taken custody of assets, Attorneys, etc. shall verify the identity of the party attempting to have such assets taken care of in accordance with a method under JFBA Rules, and must store copies of documents presented for such purpose or originals or copies of documents sent or submitted, and a document that states the outline of such assets taken into custody for five years after the completion of such Asset Management Acts, etc. or such Transactions, etc. (4) After taking custody of assets in the case provided for (1) above, and when Attorneys, etc. discover that the purpose of the custody relates to the transfer of criminal proceeds, Attorneys, etc. must explain to the client that the request is illegal and must endeavor to persuade the client to abandon fulfilling such purpose. Amended AML Regulations and Rules for Legal Professionals in Japan 34

35 Miyake & Partners Measures in Order to Accurately Verify Identity (Art 9 of JFBA Rules) Attorneys, etc. must endeavor to implement training for employees and to establish other necessary frameworks in order to verify identity and to accurately take measures such as preparing and preserving verification records and transaction records. Amended AML Regulations and Rules for Legal Professionals in Japan 35

36 Record Preservation Obligations (Art 5 of JFBA Rules) Two types of Records are required to be recorded d and preserved for 5 years after the completion of transactions. Cases to be recorded Items to be recorded Verification Record Transaction Record When Attorneys, etc. verify client identifications When Asset Management Acts, etc. have been conducted or Transactions, etc. have been prepared or executed (limited to when the identity of a client must be verified) (1) Name of the person that conducted the identity verification and other matters that are sufficient to identify such verifier (2) Measures adopted in order to confirm identity and the date and time at which identity verification documents are presented (1) Summary of transactions (2) Matters in order to search client identity verification records (3) Date(s) of the Asset Management Acts, etc. or Transactions, etc. (4) Type(s) of the Asset Management Acts, etc. or Transactions, etc. (5) Value of property relating to the Asset Management Acts, etc. or Transactions, etc. (6) Name(s) of the transferring entity or the receiving entity (meaning the original transferring entity or the final receiving entity relating to such transfer of property to the extent known when the work undertaken by Attorneys, etc. is to execute a part of the transaction, ti act, or procedures relating to such transfer of property) relating to the transfer of property in the Asset Management Acts, etc. or Transactions, etc. involving the transfer of property, and other matters that are sufficient to identify the transferring entity or the receiving entity relating to such transfer of property. Amended AML Regulations and Rules for Legal Professionals in Japan 36

37 Possibilities of Further Amendments of JFBA Rules According to the minutes of National Public Safety Commission, FATF opined that measures taken under the amendment to APTCP are not enough for the responses to FATF Third Round Mutual Evaluation in connection with (i) risk-based approaches, (ii) on-going due diligence and (iii) verification of beneficial owners and other matters. Japanese government set up council of advisers again. It is said that APTCP will be amended again in the near future. As JFBA Rules were stipulated in reference to regulations for professionals under APTCP, it is possible that JFBA Rules will be also amended in the near future. Amended AML Regulations and Rules for Legal Professionals in Japan 37

38 Cases of money laundering involving Legal Professionals and Red Flags Indicators 38

39 FATF Guidance It is recommended to refer the following documents issued by FATF. RBA GUIDANCE FOR LEGAL PROFESSIONALS (October 2008) Money Laundering and Terrorist Financing Vulnerabilities of Legal Professionals (June 2013) fessionals.pdf Amended AML Regulations and Rules for Legal Professionals in Japan 39

40 Example of Money Laundering involving attorneys (excerpt from Money Laundering and Terrorist Financing Vulnerabilities of Legal Professionals ) Legal professional removed from practice after ignoring red flag indicators on an aborted transaction common law country (Case 8) In 2011 a solicitor was struck off the roll for acting in a number of property purchases which had all the hallmarks of money laundering. In 2008 the solicitor received instructions from an individual to purchase property on behalf of other clients, who provided funds for the purchase prior to the solicitor indicating the need for the funds to be deposited. The solicitor did not meet the clients, undertake due diligence checks or obtain instructions in writing. The funds came into the client account, the transaction was cancelled and there was a request to provide the funds to a third party all on the same day. [Red Flag Indicators] Transaction is aborted after receipt of funds and there is a request to send the funds to a third party The client is acting through an intermediary and avoiding personal contact without good reason Unusual speed requested. 40

41 Example of Money Laundering involving attorneys (excerpt from Money Laundering and Terrorist Financing Vulnerabilities of Legal Professionals ) Legal professional approached over internet to set up multiple companies without information i on identity, i source of funds or purpose hbid hybrid common law / civil iil law country (Case 23) A legal professional was approached over the internet to set up companies with limited or no details about the future uses of the company. Over three years they were asked to set up at least such companies in this way. The people they were asked to list as directors included individuals known to be involved with high level organised crime in that country. They never met the clients and did not undertake any due diligence. The companies were used to facilitate money laundering from loan sharking. [Red Flag Indicators] Client is actively avoiding personal contact without good reason. Transactions are unusual in terms of volume. Client is overly secretive about the purpose of the transaction. Parties involved in the transaction have known connections with criminals. 41

42 Red Flags about the client (excerpt from Money Laundering and Terrorist Financing Vulnerabilities of Legal Professionals ) Red flag 1: The client is overly secret or evasive about: who the client is who the beneficial owner is where the money is coming from why they are doing this transaction this way what the big picture is. 42

43 Red Flags about the client (excerpt from Money Laundering and Terrorist Financing Vulnerabilities of Legal Professionals ) Red flag 2: The client: is using an agent or intermediary without good reason. is actively avoiding personal contact without good reason. is reluctant to provide or refuses to provide information, data and documents usually required in order to enable the transaction s execution holds or has previously held a public position (political or high-level professional appointment) or has professional or family ties to such an individual and is engaged in unusual private business given the frequency or characteristics involved. provides false or counterfeited documentation is a business entity which cannot be found on the internet and/or uses an address with an unusual domain part such as Hotmail, Gmail, Yahoo etc., especially if the client is otherwise secretive or avoids direct contact. is known to have convictions for acquisitive crime, known to be currently under investigation for acquisitive crime or have known connections with criminals is or is related to or is a known associate of a person listed as being involved or suspected of involvement with terrorist or terrorist financing related activities. shows an unusual familiarity with respect to the ordinary standards provided for by the law in the matter of satisfactory customer identification, ifi i data entries and suspicious i transaction reports that is asks repeated questions on the procedures for applying the ordinary standards. 43

44 Red Flags about the client (excerpt from Money Laundering and Terrorist Financing Vulnerabilities of Legal Professionals ) Red flag 3: The parties: The parties or their representatives (and, where applicable, the real owners or intermediary companies in the chain of ownership of legal entities), are native to, resident in or incorporated in a high-risk country The parties to the transaction are connected without an apparent business reason. The ties between the parties of a family, employment, corporate or any other nature generate doubts as to the real nature or reason for the transaction. There are multiple appearances of the same parties in transactions over a short period of time. The age of the executing parties is unusual for the transaction, especially if they are under legal age, or the executing parties are incapacitated, and there is no logical explanation for their involvement. There are attempts to disguise the real owner or parties to the transaction. The person actually directing the operation is not one of the formal parties to the transaction or their representative. The natural person acting as a director or representative does not appear a suitable representative. 44

45 Red Flags in the source of funds (excerpt from Money Laundering and Terrorist Financing Vulnerabilities of Legal Professionals ) Red Flag 4: The transaction involves a disproportional amount of private funding, bearer cheques or cash, especially if it is inconsistent with the socio-economic profile of the individual or the company s economic profile. Red flag 5: The client or third party is contributing a significant sum in cash as collateral provided by the borrower/debtor rather than simply py using those funds directly, without logical explanation. Red flag 6: The source of funds is unusual: third party funding either for the transaction or for fees/taxes involved with no apparent connection or legitimate explanation funds received from or sent to a foreign country when there is no apparent connection between the country and the client funds received from or sent to high-risk countries. Red flag 7: The client is using multiple bank accounts or foreign accounts without good reason. Red flag 8: Private expenditure is funded by a company, business or government. Red flag 9: Selecting the method of payment has been deferred to a date very close to the time of notarisation, in a jurisdiction where the method of payment is usually included in the contract, particularly if no guarantee securing the payment is established, without a logical explanation. Red flag 10: An unusually short repayment period has been set without logical explanation. Red flag 11: Mortgages are repeatedly repaid significantly ifi prior to the initially i i agreed maturity date, with no logical explanation. Red flag 12: The asset is purchased with cash and then rapidly used as collateral for a loan. 45

46 Red Flags in the source of funds (excerpt from Money Laundering and Terrorist Financing Vulnerabilities of Legal Professionals ) Red flag 13: There is a request to change the payment procedures previously agreed upon without logical explanation, especially when payment instruments are suggested which are not appropriate for the common practice used for the ordered transaction. Red Flag 14: Finance is provided by a lender, either a natural or legal person, other than a credit institution, with no logical explanation or economic justification. Red Flag 15: The collateral being provided for the transaction is currently located in a high-risk country. Red flag 16: There has been a significant increase in capital for a recently incorporated company or successive contributions over a short period of time to the same company, with no logical explanation. Red flag 17: There has been an increase in capital from a foreign country, which either has no relationship to the company or is high risk. Red flag 18: The company receives an injection of capital or assets in kind which is notably high in comparison with the business, size or market value of the company performing, with no logical explanation. Red flag 19: There is an excessively high or low price attached to the securities transferred, with regard to any circumstance indicating such an excess (e.g. volume of revenue, trade or business, premises, size, knowledge of declaration of systematic losses or gains) or with regard to the sum declared in another operation. Red flag 20: Large financial transactions, especially if requested by recently created companies, where these transactions tions are not justified by the corporate purpose, the activity it of the client or the possible group of companies to which it belongs or other justifiable reasons. 46

47 Red Flags in the choice of lawyers (excerpt from Money Laundering and Terrorist Financing Vulnerabilities of Legal Professionals ) Red flag 21: Instruction of a legal professional at a distance from the client or transaction without legitimate or economic reason. Red flag 22: Instruction of a legal professional without experience in a particular specialty or without experience in providing services in complicated or especially large transactions. Red flag 23: The client is prepared to pay substantially higher fees than usual, without legitimate reason. Red flag 24: The client has changed advisor a number of times in a short space of time or engaged multiple legal advisers without legitimate reason Red flag 25: The required service was refused by another professional or the relationship with another professional was terminated. 47

48 Red Flags in the nature of the Retainer (excerpt from Money Laundering and Terrorist Financing Vulnerabilities of Legal Professionals ) Red flag 26: The transaction is unusual, e.g.: the type of operation being notarised is clearly inconsistent with the size, age, or activity of the legal entity or natural person acting the transactions are unusual because of their size, nature, frequency, or manner of execution there are remarkable and highly significant differences between the declared price and the approximate actual values in accordance with any reference which could give an approximate idea of this value or in the judgement of the legal professional a non-profit organisation i requests services for purposes or transactions not compatible with those declared or not typical for that body. 48

49 Red Flags in the nature of the Retainer (excerpt from Money Laundering and Terrorist Financing Vulnerabilities of Legal Professionals ) Red flag 27: The client: is involved in transactions which do not correspond to his normal professional or business activities shows he does not have a suitable knowledge of the nature, object or the purpose of the professional performance requested wishes to establish or take over a legal person or entity with a dubious description of the aim, or a description of the aim which is not related to his normal professional or commercial activities or his other activities, or with a description of the aim for which a license is required, while the customer does not have the intention to obtain such a licence frequently changes legal structures and/or managers of legal persons asks for short-cuts or unexplained speed in completing a transaction appears very disinterested in the outcome of the retainer requires introduction to financial institutions to help secure banking facilities 49

50 Red Flags in the nature of the Retainer (excerpt from Money Laundering and Terrorist Financing Vulnerabilities of Legal Professionals ) Red flag 28: Creation of complicated ownership structures when there is no legitimate or economic reason. Red flag 29: Involvement of structures with multiple countries where there is no apparent link to the client or transaction, or no other legitimate or economic reason. Red flag 30: Incorporation and/or purchase of stock or securities i of several companies, enterprises or legal entities within a short period of time with elements in common (one or several partners or shareholders, director, registered company office, corporate purpose etc.) with no logical explanation. Red flag 31: There is an absence of documentation to support the client s story, previous transactions, or company activities. Red flag 32: There are several elements in common between a number of transactions in a short period of time without logical explanations. Red flag 33: Back to back (or ABC) property transactions, with rapidly increasing value or purchase price. Red flag 34: Abandoned transactions with no concern for the fee level or after receipt of ffunds. Red flag 35: There are unexplained changes in instructions, especially at the last minute. 50

51 Red Flags in the nature of the Retainer (excerpt from Money Laundering and Terrorist Financing Vulnerabilities of Legal Professionals ) Red flag 36: The retainer exclusively relates to keeping documents or other goods, holding large deposits of money or otherwise using the client account without the provision of legal services. Red flag 37: There is a lack of sensible commercial/financial/tax or legal reason for the transaction. Red flag 38: There is increased complexity in the transaction or the structures used for the transaction which results in higher taxes and fees than apparently necessary. Red flag 39: A power of attorney is sought for the administration or disposal of assets under conditions which are unusual, where there is no logical explanation. Red flag 40: Investment in immovable property, p in the absence of any links with the place where the property is located and/ or of any financial advantage from the investment. Red flag 41: Litigation is settled too easily or quickly, with little/no involvement by the legal professional retained. Red flag 42: Requests for payments to third parties without substantiating reason or corresponding transaction. ti 51

52 Thank you very much for listening my lecture. If you have any questions, please do not hesitate to contact us. Koichiro Ohashi Tel: Fax: kohashi@whitecase.com Masayuki Watanabe TEL: FAX: m-watanabe@miyake watanabe@miyake.gr.jp 52