A Guide to Anti-Money Laundering for Crypto Firms

Japan to Introduce Travel Rule for Crypto to Track Illegal Transfers

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The Japanese government has announced plans to introduce new rules to mitigate money laundering through crypto. Expected to take effect in May 2023, the regulations will provide Japanese authorities with additional monitoring capabilities to track virtual currency transfers.

Japan’s Act on Prevention of Transfer of Criminal Proceeds will be amended to implement these changes, with the draft amendment due to be submitted to parliament on October 3. If approved, cryptoassets will be brought under the travel rule as recommended by the Financial Action Task Force (FATF) in its targeted update on the implementation of FATF standards on virtual assets (VAs) and virtual asset service providers (VASPs). 

Monitoring crypto transfers

The new rules focus on remittances and sharing know your customer (KYC)-related information. Under the regulations, exchange operators must share customer information, including the customer’s name and address, when tokens are moved between platforms. VASPs that violate the rules will be subject to administrative guidance and criminal penalties.

The International Terrorist Asset-Freezing Act and the Foreign Exchange and Foreign Trade Act will also be revised to cut off funding for nuclear development in Iran and North Korea.

These revised regulations are the most recent in Japan’s efforts to regulate the crypto market. In June, parliament introduced a law limiting the issuance of stablecoins by non-bank institutions. In July, the Ministry of Economy, Trade, and Industry established a Web3 Policy Office to advance the Web3 business environment. The Financial Services Agency is also considering easing corporate tax rules for crypto companies from 2023 to stimulate the economy and encourage innovation. 

Implementing the travel rule

The FATF travel rule requires VASPs to “obtain, hold, and transmit required originator and beneficiary information in order to identify and report suspicious transactions, monitor the availability of information, take freezing actions, and prohibit transactions with designated persons and entities.” Officially adopted by the FATF in June 2019, the agency noted that by March 2022, only 11 jurisdictions had started enforcement and supervisory measures of the rule. 

Following this, in late March 2022, Japan’s Financial Services Agency (FSA) ordered crypto-asset exchange service providers (CESPs) to implement a framework to fulfill the travel rule. 

Key takeaways

Ahead of these regulatory updates, compliance teams should ensure they can collect and hold data in a standardized format to provide originator and beneficiary information to relevant bodies when required. 

While there is no one-size-fits-all travel rule solution, firms should strongly consider an information-sharing solution that is decentralized, secure, scalable, interoperable, and globally available. An example of a suitable data model is the IVMS 101 interVASP Messaging Standard (IVMS-101)


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Originally published September 30, 2022, updated September 30, 2022

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