Japanese Law 6 Update: Over 3,500,000 Japanese Companies Expected to Disclose Identity of Beneficial Owners After January 2022 – Corporate / Commercial Law
Japan: Japanese Law 6 Update: More than 3,500,000 Japanese companies to disclose the identity of their beneficial owners after January 2022
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In January 2022, the Japanese Ministry of Justice (the “Ministry of Justice“) will implement a new policy aimed at improving the transparency of Japanese companies by disclosing the identity of their main investors.
This is a response from the Department of Justice to the Financial Action Task Force assessment report (“FATF“) published in August 2021. In the report, the FATF urged the Japanese government to take more stringent countermeasures against money laundering, especially by small financial institutions. The report pointed out that the monitoring process customers at some financial institutions was inadequate to prevent money laundering operations. To this end, financial institutions should put in place more stringent identity checks and put in place procedures for tracking their customers. This policy would improve the quality of identity checks and oversight of Japanese companies by providing them with better access to the identity of their investors.
1. Encourage companies to report the identity of investors to the competent authorities
The regulatory rules of the Ministry of Justice are called Rules on the retention of the list of information on beneficial owners in the offices of the commercial register (the “Rules“), providing a framework that describes the new policy. However, since it is not based on new legislation, these are not mandatory requirements for Japanese companies.
The rules stipulate the process by which Japanese companies provide the identity of their beneficial owners to the registrar of trade registration offices. âBeneficial ownerâ means a natural person who is deemed to hold more than 50% (in the absence of 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 Prevention of Transfer of Proceeds of Crime Law and its regulations).
2. Listed and private companies must declare the identity of their main investors to the competent authorities.
Regarding the new policy of the Ministry of Justice, the rules do not distinguish between listed companies and private companies. In October 2021, media reported that the Justice Ministry, Financial Services Agency and financial institutions will encourage Japanese listed and private companies to provide the identity of their top investors to the relevant regulatory authorities. Therefore, listed and private companies are also encouraged to provide the information to their regulators. In practice, the identity of the main investors in listed companies is usually found in the annual securities report. On the other hand, the list of the main investors of private companies has usually not been disclosed before and therefore may attract more attention.
3. The procedure for accessing the identity of the Beneficiaries
The rules provide for the regulatory authority to issue a copy of the list of beneficial owners of a business if the business so requests. Therefore, third parties, including financial institutions, are not able to directly access the list. Typically, financial institutions require their customers to submit the list of beneficial owners for audit purposes. In such cases, the procedure for accessing the list would be as follows:
(1) The company provides the information of its beneficial owners to the regulatory authority.
(2) The regulatory authority establishes the list and issues a copy of the list to the company.
(3) The company submits the copy of the list to the financial institutions on the basis of their request.
This new policy will be a new step in the fight against money laundering activities in Japan.
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