Japan Tightens Crypto Regulations to Combat Money Laundering
An extraordinary session of the National Diet is scheduled for October 3rd to present amendments to the Act, enabling crypto transactions to comply with travel rules for money transfers. The Financial Action Task Force (FATF) has been urging Japan to adopt its travel rules since 2019, aligning with countries like the U.S., Germany, and Singapore. The European Union is also working toward similar regulations under the MICA framework.
The proposed amendment mandates that crypto exchanges collect and share customer information for transactions involving cryptocurrencies and stablecoins, akin to existing protocols for cash transfers. Systems like SWIFT for international transactions and the Zengin System for domestic ones already maintain such records. This framework will now extend to cryptocurrencies.
Stablecoins to Be Regulated Through a Registration System
Stablecoins such as USDT, USDC, and PAXG, which are pegged to fiat currencies, will require a formal registration system for their distribution. Beginning May 2023, the revised Fund Settlement Act will prohibit transfers involving sanctioned entities. As cryptocurrency adoption rises, Japan is preparing by advocating for comprehensive monitoring systems.
Crypto exchanges will need to disclose customer names and addresses during transfers to other exchanges. Additional amendments to laws like the International Terrorist Asset-Freezing Act and the Foreign Exchange and Foreign Trade Act will enhance these efforts. The legislation, set to take effect in May 2023, will empower authorities to track the timing and locations of transactions by flagged individuals.
Notably, the new law will also regulate financial and real estate dealings of individuals connected to North Korea and Iran’s nuclear programs, addressing gaps not covered by previous U.N. Security Council resolutions. The FATF has championed such measures to close loopholes that facilitate funding for nuclear development.
Crypto exchanges failing to comply with the required data collection and disclosure may face administrative penalties, corrective orders, or even criminal charges for violations. Surprisingly, the legislation does not address newer cryptocurrencies, despite their challenges in adhering to compliance standards and susceptibility to scams. CryptoChipy advises caution and provides a warning list of risky coins and businesses.
Authorities Push for Enhanced Cryptocurrency Regulation
Cryptocurrencies, valued for their anonymity and privacy, have seen rising adoption, presenting both opportunities and challenges for economies. While they empower individuals financially, they also facilitate illicit activities.
The FATF, an intergovernmental organization, introduced global travel rules to combat money laundering and terrorist financing. These rules require financial institutions to share originator and beneficiary details for virtual asset transactions. However, the FATF reports limited success in encouraging global compliance. An April survey revealed that over half of the surveyed countries had insufficient AML and CFT regulations.
Japan’s crypto exchanges have been negotiating with the government since March, addressing compliance with FATF’s travel rules. While Japan’s Financial Services Agency (FSA) has mandated a framework for these rules, exchanges have expressed concerns over high compliance costs.
Recently, Japan has intensified its crypto regulation efforts. Laws now restrict stablecoin issuance to licensed banking institutions, and the Ministry of Economy, Trade, and Industry has launched a Web3 policy office to foster innovation in the Web3 space.
