The Ministry of Finance published the results of a survey on anti-money laundering and terrorist financing risk assessment for trusts conducted in FY2024, conducting comprehensive risk assessment and consideration of mitigation measures based on transparency issues of civil trusts and foreign trusts pointed out in the FATF 4th Mutual Evaluation of Japan.
Key Points
Survey Background and Purpose
- The FATF 4th Mutual Evaluation of Japan (August 2021) pointed out issues with transparency of beneficial ownership in civil trusts and foreign trusts, and understanding of risks by designated business operators
- The 3rd Follow-up in October 2024 achieved an upgrade in evaluation for FATF Recommendation 25 (Legal Arrangements) from PC to LC, but the evaluation for civil trusts and foreign trusts remained unchanged
- The "Action Plan for Anti-Money Laundering, Counter-Terrorist Financing, and Counter-Proliferation Financing Measures (2024-2026)" specified risk assessment and consideration of mitigation measures for civil trusts and foreign trusts
- Civil trusts are increasingly used for family inheritance purposes, with the number of notarized documents created consistently increasing from 2018 to 2023
Mitigation Measures for Trusts Handled by Trust Companies
- The 2022 revision of the Payment Services Act made it possible to accept electronic payment instruments in trust, and Article 40, Paragraph 10 of the Trust Business Act Enforcement Regulations stipulates restrictions on handling foreign electronic payment instruments used for criminal activities
- The Financial Services Agency strengthened supervision through document provision such as the "Guidelines for Anti-Money Laundering and Counter-Terrorist Financing Measures" and opinion exchange meetings with industry associations
- At the 2024 opinion exchange meeting, requests were made for completion of responses to AML guidelines (by end of March), appropriate disclosure of trustee positions, and continuous improvement of management systems
- The Trust Association supported risk reduction through establishing study committees, sharing information with member companies, and inquiring about system development status
Risk Assessment Methods for Civil Trusts and Foreign Trusts
- Civil trusts are assessed through 4 steps: "Current situation confirmation → Identification of risk-enhancing factors → Evaluation of mitigation measures → Assessment of residual risk"
- Foreign trusts are defined as "trusts falling under FATF Recommendation 25 Interpretive Note 3(c)" and their scope is considered based on sufficient link with the home country
- The survey was contracted to KPMG AZSA LLC and conducted from late November 2024 to late March 2025
- Interview surveys were conducted with the Financial Services Agency, Trust Association, 3 trust banks, Family Trust Promotion Association, and experts/academics
The article shows that in anti-money laundering and other risk measures for trusts, risk assessment and mitigation measures are progressing by business type, with improving transparency of civil trusts and foreign trusts being an important future challenge.