In January 2022, the Japan's Ministry of Justice (The "MOJ") will implement a new policy that aim to improve the transparency of Japanese companies by disclosing the identity of their major investors.
This is a response by the MOJ to the evaluation report of the Financial Action Task Force ("FATF") published in August 2021. In the report, FATF urged the Japanese government to take stronger countermeasures against money laundering, especially by smaller financial institutions. The report pointed out that the customer monitoring process at some financial institutions were inadequate to prevent money laundering operations. To this end, financial institutions are expected to implement more stringent identity checks and to install procedures for monitoring their customers. The new policy would help improve the quality of identity checks and the monitoring of Japanese companies by providing better access to the identity of their investors.
1. Encouraging companies to report the investors'
identities to the relevant authorities
The regulatory rules by the MOJ are called the Rules on the Retention of the List of Information on Beneficial Owners at the Commercial Registry Offices (The "Rules"), providing a framework that outlines the new policy. However, since this is not based on new legislation, they are not mandatory requirements for Japanese companies.
The Rules stipulate the process by which Japanese companies provide the identity of its Beneficial Owners to the registrar of the commercial registry offices. "Beneficial Owner" means a natural person who is deemed to hold more than 50% (if there is no such a person, more than 25%) of the total number of voting rights directly or indirectly in the company. This follows the definition found in the anti-money laundering legislation (Article 4.1.4 of the Act on Prevention of Transfer of Criminal Proceeds and its regulations).
2. Both listed and private companies are expected to report the identity of their major investors to the relevant authorities
In relation to the MOJ's new policy, the Rules do not make a
distinction between listed companies and private companies. In
October 2021, the media reported that the MOJ, the Financial
Services Agency, and financial institutions will encourage both
listed and private Japanese companies to provide the identities of
their major investors to the relevant regulatory authorities.
Therefore, both listed and private companies are equally encouraged
to provide the information to their regulators. In practice, the
identity of the major investors of listed companies are usually
found in the Annual Securities Report. On the other hand, the list
of the major investors of private companies have not been usually
disclosed previously and may therefore attract more
attention.
3. The procedure for accessing the identity of the Beneficiary
Owners
The Rules provide that the regulatory authority shall issue a copy of the list of Beneficiary Owners of a company if requested by that company. Therefore, third parties, including financial institutions, are not able to directly access the list. Typically, financial institutions would request its customers to submit the list of Beneficiary Owners for monitoring purposes. In such cases, the procedure for accessing the list would be as follows:
(2) The regulatory authority prepares the list and issues a copy of the list to the company.
(3) The company submits the copy of the list to financial institutions based on their request.
This new policy will be another step for tackling money
laundering activities in Japan.
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