Japan's financial regulators have significantly strengthened the country's anti-money laundering (AML) regime. The changes, driven in part by international pressure following reviews by the Financial Action Task Force (FATF – the inter-governmental standard-setter for AML measures), impose sharper obligations on a broad range of businesses. For international companies operating through Japanese entities, the consequences of non-compliance are immediate and concrete: restricted bank account opening, suspended credit facility access, and reputational damage in correspondent banking relationships.
Japan's updated AML rules, effective from 2025, expand know-your-customer (KYC) and beneficial owner disclosure obligations across financial and designated non-financial businesses. Companies must verify and record beneficial owner information – including natural persons holding significant control – before conducting regulated transactions. The compliance deadline for existing customer remediation applies on a rolling basis, with regulators expecting documented procedures to be in place without delay.
This alert sets out what has changed, which business categories are affected, and the specific actions that international companies operating in Japan must take now.
What has changed and when it takes effect
Japan's legislature amended its core AML and counter-terrorist financing legislation in stages from 2022 onward. The most operationally significant provisions became enforceable from 2025. The Hanzaishureki Hou (Act on Prevention of Transfer of Criminal Proceeds) and related Cabinet Office ordinances now require all covered entities to apply enhanced due diligence in specific risk categories.
The principal changes are:
- Mandatory identification and verification of the beneficial owner – defined as natural persons who ultimately own or control a legal entity above a prescribed shareholding threshold – for all new customer relationships.
- Enhanced KYC requirements for high-risk customers, including politically exposed persons (PEPs) and customers from jurisdictions listed on Japan's enhanced-monitoring register.
- Stricter transaction monitoring obligations, requiring covered entities to detect and report suspicious transactions on a real-time basis rather than retroactively.
- Updated correspondent banking obligations, requiring Japanese financial institutions to verify the AML controls of overseas partner institutions before establishing or maintaining relationships.
- Extended record-keeping periods for customer identification documents and transaction records.
The Kinyucho (Financial Services Agency of Japan, FSA) issued supervisory guidelines confirming that examination of these obligations will form a core element of routine inspections from the second quarter of 2025 onward. Entities that cannot demonstrate documented compliance programmes face formal supervisory action, including suspension of regulated activities.
Which companies are affected and threshold criteria
The updated rules apply to a wide range of entities. The term "covered entity" under Japanese AML legislation extends well beyond licensed banks. The following business categories face direct obligations:
- Banks, shinkin (credit associations), securities firms, and insurance companies
- Money transfer operators and payment service providers registered under Japanese financial services legislation
- Real estate agents involved in purchase or sale transactions above prescribed value thresholds
- Lawyers, notaries, and accountants when executing specific transaction types on behalf of clients
- Dealers in high-value goods – including precious metals and jewellery – where cash transactions exceed the relevant threshold
- Cryptocurrency exchange service providers registered with the FSA
For international companies, the practical exposure arises in two scenarios. First, a foreign parent company whose Japanese subsidiary qualifies as a covered entity is indirectly subject to these obligations through its local operation. Second, a foreign company seeking to open a bank account, obtain a credit facility. Alternatively. Establish a correspondent banking arrangement in Japan will be subjected to the enhanced KYC and beneficial owner verification requirements as the customer. not only as the regulated entity.
The beneficial owner threshold is set at natural persons holding a qualifying interest in the entity. Where no individual meets the threshold, the senior managing officer is treated as the beneficial owner by default. This rule frequently creates compliance difficulties for foreign companies with complex holding structures, where the actual beneficial owner sits several corporate layers above the Japanese entity.
To receive an expert assessment of your company's AML exposure in Japan, contact us at info@ferrazwhitmore.com.
Immediate actions required for international companies
The FSA's supervisory posture has shifted from guidance-based to enforcement-oriented. Companies that have not yet reviewed their Japanese compliance programmes should treat the following as priority actions.
1. Map your beneficial owner chain now. Identify all natural persons who qualify as beneficial owners of your Japanese entity. Prepare documentary evidence – including corporate structure charts, shareholder registers, and, where applicable, notarised identification documents. Japanese financial institutions and the FSA require this information in a specific format. Errors or gaps at this stage routinely delay bank account opening by several months.
2. Audit your KYC procedures for Japanese customer-facing operations. If your Japanese entity is itself a covered entity, review whether your existing KYC procedures satisfy the updated requirements. Pay particular attention to PEP screening, risk classification methodology, and the frequency of customer due diligence reviews.
3. Review correspondent banking agreements. Foreign companies that channel transactions through Japanese financial institutions should confirm that their Japanese banking partners have updated their AML controls. A Japanese bank that fails FSA inspection may suspend outbound correspondent banking services at short notice – directly disrupting your treasury and trade finance operations.
4. Update transaction monitoring and suspicious activity reporting protocols. Where your Japanese entity processes transactions that fall within the scope of the legislation, ensure that your monitoring systems can flag and escalate anomalies in real time. Retrospective reporting, which was previously tolerated, is now treated as a deficiency.
5. Brief senior management and document the compliance programme. The FSA expects evidence of board-level awareness and sign-off on the AML compliance programme. A written policy document, together with records of internal training, significantly reduces supervisory risk during an inspection.
Companies expanding their financial services operations in Japan should also review the broader regulatory environment. Our analysis of banking and finance law in Japan provides a structured overview of the licensing, capital, and conduct obligations that apply to regulated entities. For companies with securities or fund management activities, the parallel obligations under Japan's capital markets legislation are addressed in our dedicated section on capital markets in Japan. For a comparative perspective on AML developments across high-growth markets, see our related alert on AML updates in the UAE.
About Ferraz & Whitmore
Ferraz & Whitmore is an international law firm based in Lisbon, advising business clients across 46 jurisdictions. Our banking and finance practice supports international companies managing AML compliance, bank account opening, KYC procedures, and credit facility arrangements in Japan and across Asia-Pacific. We combine Portuguese civil law expertise with English common law tradition to deliver cross-border legal solutions for institutional investors, multinationals, and in-house counsel who require results-oriented advice across multiple legal systems. The firm's Asia-Pacific team works directly with local counsel networks in Japan and maintains experience before Japanese financial regulators and supervisory bodies. To discuss your company's AML compliance obligations in Japan, contact us at info@ferrazwhitmore.com.
Disclaimer: This publication is provided for informational purposes only and does not constitute legal advice. The information herein should not be relied upon as a substitute for professional legal counsel tailored to your specific circumstances. Ferraz & Whitmore assumes no liability for actions taken or not taken based on the contents of this material. For advice regarding your particular situation, please contact info@ferrazwhitmore.com.