Source: 2008
Released by the Bureau for International Narcotics and Law Enforcement Affairs
I. Summary
While methamphetamine abuse remains the biggest challenge to Japanese anti-narcotics efforts, marijuana use also is widespread and MDMA (Ecstasy) trafficking has increased significantly. Cocaine use is much less prevalent but still significant. According to Japanese authorities, virtually all illegal drugs consumed in Japan are imported from overseas, usually by Japanese or foreign organized crime syndicates. In spite of legal and bureaucratic obstacles, Japanese law enforcement officials are becoming more proactive in addressing Japan’s illegal drug distribution problem. Japanese Police conducted several complex drug investigations during 2007, both independently and in cooperation with the U.S. Drug Enforcement Administration (DEA) office in Tokyo. Japan is a party to the 1988 UN Drug Convention.
II. Status of Country
Japan is one of the largest markets for methamphetamine in Asia. Methamphetamine trafficking is a significant source of income for Japanese organized crime syndicates, and more than 80 percent of all drug arrests in Japan involve methamphetamine. MDMA is also a significant problem in Japan—over 1 million Ecstasy tablets had been seized by police as of November 2007, and officials say that they expect MDMA abuse to increase. Marijuana abuse also has grown steadily in Japan since 2000. In 2007, Japanese authorities discovered the first domestic commercial marijuana “indoor grow” operation. More generally, Japan is not a significant producer of illicit narcotics. The Ministry of Health, Labor and Welfare strictly controls some licit cultivation of opium poppies, coca plants, and cannabis for research. According to DEA and the Japanese National Police Agency, there is no evidence that methamphetamine or any other synthetic drug abused in Japan is manufactured domestically.
III. Country Actions Against Drugs in 2007
Policy Initiatives. The Headquarters for the Promotion of Measures to Prevent Drug Abuse, which is part of the Prime Minister’s Office (Kantei), announced the Five-Year Drug Abuse Prevention Strategy in July 2003. This strategy includes measures to increase cooperation and information sharing among Japanese agencies and between Japanese and foreign law enforcement officials, promotes greater utilization of advanced investigative techniques against organized crime syndicates, and mandates programs to raise awareness about the dangers of drug abuse. The Ministry of Health, Labor and Welfare added 30 more drugs to its list of controlled substances in 2006 and plans to add three more in 2008.
Law Enforcement Efforts. Japanese police are increasingly effective at gathering intelligence and making arrests in spite of legal and operational constraints, but their investigations are largely reactive in nature. Prosecutors do not have the plea-bargaining tools to motivate the assistance of co-defendants and co-conspirators in furthering investigations. Japan also has laws restricting the proactive use of informants, undercover operations, and controlled deliveries using a human courier. When laws and circumstances allow, proactive policing does occur. Although wiretapping remains infrequent, police are increasingly making use of legislation that took effect in 2003 authorizing the use of telephone intercepts. In addition, officials maintained detailed records of Japan-based drug trafficking, organized crime, and international drug trafficking organizations. Japan regularly shares intelligence with foreign enforcement agencies and participates readily in international drug trafficking investigations with a Japanese nexus.
The supply of methamphetamine in Japan appears to be on the rise after a period of decline. The mid-2006 closure of several methamphetamine mega-labs in Indonesia, Malaysia, and the Philippines, combined with tightened security measures in the Sea of Japan, are believed to have been responsible for a decline in availability that led to a spike in methamphetamine prices that lasted until mid-2007. Law enforcement officials believe Chinese traffickers, using supplies from China and Canada, have stepped in to fill the production gap. Methamphetamine prices have returned to their May 2006 levels, indicating a significant rebound in available supply.
After a year of unremarkable interdictions in 2006, increased efforts by Japanese customs officials produced dramatic results in 2007. In August 2007, police and customs officials seized 688,000 MDMA tablets, 155 kg of methamphetamine, and 280 kg of marijuana from a vessel originating in Vancouver, Canada. In the first half of 2007, police had seized 112 kg of methamphetamine, eight times more than the 14 kg confiscated during the same period in 2006. More than 1 million tablets of MDMA/Ecstasy had already been seized by November, five times more than in all of 2006. Marijuana and cannabis resin seizures January – June 2007 were 12 kg and 83 kg respectively, approximately the same as the previous year. Cocaine, heroin, and opium seizures remained low, roughly at their 2006 levels.
Corruption. There were no reported cases of Japanese officials being involved in drug-related corruption in 2007. The government does not encourage or facilitate the illicit production or distribution of narcotics, psychotropic drugs, controlled substances, or the laundering of proceeds from illegal drug transactions.
Agreements and Treaties. Japan’s parliament failed to agree on an anti-conspiracy bill for the fourth consecutive year. As a result, Japan still cannot ratify the UN Convention against Transnational Organized Crime. Japan is a party to the 1988 UN Drug Convention, the 1961 UN Single Convention, as amended by the 1972 Protocol, and the 1971 UN Convention on Psychotropic Substances. Japan has signed but not ratified the UN Convention against Corruption. An extradition treaty is in force between the U.S. and Japan, and a Mutual Legal Assistance Treaty (MLAT) went into effect in August 2006—Japan’s first MLAT with any country. The MLAT allows Japan’s Ministry of Justice to share information and cooperate directly with the Department of Justice in connection with investigations, prosecutions and other proceedings in criminal matters.
Cultivation/Production. Japan is not a significant cultivator or producer of controlled substances. The Ministry of Health, Labor, and Welfare’s research cultivation program produces a negligible amount of narcotic substances purely for research purposes.
Drug Flow/Transit. Authorities believe that methamphetamine smuggled into Japan originates in the People’s Republic of China (PRC), Taiwan, North Korea, Burma, Malaysia, Indonesia, the Philippines, and Canada. Drugs other than methamphetamine often come from the these same source countries, but airport customs officials have made several recent seizures of cocaine transiting from the United States, and authorities confirm that methamphetamine, MDMA, and marijuana are being imported in large quantities from Canada as well. Most of the MDMA in Japan originates in either the Netherlands or China.
Domestic Programs/Demand Reduction. Most drug treatment programs are small and are run by private organizations, but the government also supports the rehabilitation of addicts at prefectural (regional) centers. There are a number of government-funded drug awareness campaigns designed to inform the public about the dangers of stimulant use, especially among junior and senior high school students. The Ministry of Health, Labor, and Welfare, along with prefectural governments and private organizations, continues to administer national publicity campaigns and to promote drug education programs at the community level.
IV. U.S. Policy Initiatives and Programs
Policy Initiatives. The United States will build on the successes of the last year by strengthening law enforcement cooperation related to controlled deliveries and drug-related money-laundering investigations. Other U.S. objectives include encouraging more demand reduction programs; supporting increased use of existing anticrime legislation and advanced investigative tools against drug traffickers; and promoting greater involvement from government agencies responsible for financial transaction oversight.
The Road Ahead. DEA Tokyo will continue to work closely with its Japanese counterparts to offer support in conducting investigations on international drug trafficking, money-laundering, and other drug-related crimes. DEA will continue to pursue an aggressive education and information-sharing program with Japanese law enforcement agencies to foster knowledge of money laundering investigations, and their relationship to narcotics trafficking and terrorist financing.
Japan is the world’s second largest economy and an important world financial center. Although the Japanese government continues to strengthen legal institutions to permit more effective enforcement of financial transaction laws, Japan still faces substantial risk of money laundering by organized crime and other domestic and international criminal elements. The principal sources of laundered funds are drug trafficking and financial crimes: illicit gambling, loan-sharking, extortion, abuse of legitimate corporate activities, Internet fraud activities, and all types of property related crimes, which are often linked to Japan’s criminal organizations. U.S. law enforcement investigations periodically show a link between drug-related money laundering activities in the U.S. and bank accounts in Japan.
On March 29, 2007, Japan’s government enacted new money laundering “Law for Prevention of Transfer of Criminal Proceeds.” Referred to in the press as the Gatekeeper Bill, after the Financial Action Task Force (FATF) Gatekeeper Initiative, and designed to bring Japan into closer compliance with the FATF Forty Recommendations, the bill’s passage marked significant changes in Japan’s anti-money laundering landscape. In addition to the financial institutions previously regulated, the new statutes expanded the types of nonfinancial businesses and professions under the law’s purview, including real estate agents, private mail box agencies, dealers of precious metals and stones; and, certain types of trust and company service providers. They must conduct customer due diligence, confirm client identity, retain customer verification records, and report Suspicious Transaction Reports (STRs) to the authorities. Legal and accounting professionals such as judicial scriveners and certified public accounts are now subject to customer due diligence and record keeping, but not STR reporting. However, the bill stipulates that, “confirmation of the identity of the clients and retention of records (of transaction and identity verification) by lawyers shall be prescribed by the Japan Federation Bar Association’s regulation,” permitting lawyers to remain outside the law’s new parameters. Accordingly, the bar association drafted and now enforces “Rules Regarding the Verification of Clients’ Identity and Record-Keeping.”
Drug-related money laundering was first criminalized under the Anti-Drug Special Law that took effect July 1992. This law also mandates the filing of STRs for suspected proceeds of drug offenses, and authorizes controlled drug deliveries. The legislation also creates a system to confiscate illegal profits gained through drug crimes. The seizure provisions apply to tangible and intangible assets, direct illegal profit, substitute assets, and criminally derived property that have been commingled with legitimate assets.
The narrow scope of the Anti-Drug Special Law and the burden required of law enforcement to prove a direct link between money and assets to specific drug activity limits the law’s effectiveness. As a result, Japanese police and prosecutors have undertaken few investigations and prosecutions of suspected money laundering. Many Japanese officials in the law enforcement community, including Japanese Customs, believe that Japan’s organized crime groups have been taking advantage of this limitation to launder money.
Japan expanded its money laundering law beyond narcotics trafficking to include money laundering predicate offenses such as murder, aggravated assault, extortion, theft, fraud, and kidnapping when it passed the 1999 Anti-Organized Crime Law (AOCL), which took effect in February 2000. The law extends the confiscation laws to include additional money laundering predicate offenses and value-based forfeitures, and enhances the suspicious transaction reporting system.
The AOCL was partially revised in June of 2002 by the “Act on Punishment of Financing to Offenses of Public Intimidation,” which specifically added the financing of terrorism to the list of money laundering predicates. A further amendment to the AOCL submitted to the Diet for approval in 2004, designed to expand the predicate offenses for money laundering from approximately 200 offenses to nearly 350 offenses, with almost all offenses punishable by imprisonment, has yet to be approved.
Japan’s Financial Services Agency (FSA) supervises all financial institutions and the Securities and Exchange Surveillance Commission supervises securities transactions. The FSA classifies and analyzes information on suspicious transactions reported by financial institutions, and provides law enforcement authorities with information relevant to their investigation. Japanese banks and financial institutions are required by law to record and report the identity of customers engaged in large currency transactions. There are no secrecy laws that prevent disclosure of client and ownership information to bank supervisors and law enforcement authorities.
To facilitate the exchange of information related to suspected money laundering activity, the FSA established the Japan Financial Intelligence Office (JAFIO) on February 1, 2000, as Japan’s financial intelligence unit. Under the 2007 anti-money laundering law, on April 1, 2007, JAFIO relocated from the FSA to the National Police Agency, where it is known as the Japan Financial Intelligence Center (JAFIC). Correspondingly, JAFIC’s staff grew from 17 to 43 personnel, with an emphasis on strengthened analytical functions. JAFIC receives STRs from specified business operators through the competent administrative authorities, analyzes them, and disseminates intelligence deemed useful to criminal investigations to the law enforcement community.
In 2006, JAFIC received 113,860 STRs, up from the 98,935 STRs received in 2005. In 2006, some 82 percent of the reports were submitted by banks, 7 percent by credit cooperatives, 9 percent from the country’s large postal savings system, 0.7 percent from nonbank money lenders, and almost none from insurance companies. In 2006, JAFIC disseminated 71,241 STRs to law enforcement, up from 66,812 STRs disseminated in 2005. Of these, 143 money laundering cases went to prosecutors, up from 112 in 2005. The amount of money confiscated or forfeited in 2006 was 6.07 billion yen (U.S. $52 million), up from 4.46 billion yen (U.S. $39 million) in 2005.
As of 2007, JAFIC has concluded international cooperation agreements with numerous counterpart FIU’s (Australia, Belgium, Brazil, Canada, Hong Kong, Indonesia, Malaysia, the Philippines, Singapore, Thailand, the United Kingdom, and the United States). These agreements establish cooperative frameworks for the exchange of financial intelligence related to money laundering and terrorist financing. Japanese financial institutions have cooperated with law enforcement agencies, including U.S. and other foreign government agencies investigating financial crimes related to narcotics.
In 2006, Japan concluded a Mutual Legal Assistance Treaty (MLAT) with the Republic of Korea, and is currently negotiating MLAT texts with China and Russia. In 2003, the United States and Japan concluded a Mutual Legal Assistance Treaty (MLAT), which took effect in July of 2006. In 2007 the U.S.-Japan MLAT was used for the first time in furtherance of two separate money laundering investigations where the predicate crimes (Nigerian bank fraud) first occurred overseas, then moved to the U.S., with the money subsequently laundered in Japan; the cases are still pending.
Although Japan has not adopted “due diligence” or “banker negligence” laws to make individual bankers legally responsible if their institutions launder money, there are administrative guidelines that require due diligence. In a high-profile 2006 court case, however, the Tokyo District Court ruled to acquit a Credit Suisse banker of knowingly assisting an organized crime group to launder money despite doubts about whether the banker performed proper customer due diligence. Japanese law does not protect bankers and other financial institution employees who cooperate with law enforcement entities.
In April 2002, the Diet enacted the Law on Customer Identification and Retention of Records on Transactions with Customers by Financial Institutions (a “know your customer” law). The law reinforced and codified the customer identification and record-keeping procedures that banks had practiced for years. The Foreign Exchange and Foreign Trade law was revised in January 2007, so that financial institutions are required to make positive customer identification for both domestic transactions and transfers abroad in amounts of more than 100,000 yen (approximately $900). Banks and financial institutions are required to maintain customer identification records for seven years. In January 2007, an amendment to the rule on Customer Identification by Financial Institutions came into force, whereby financial institutions are now required to identify the originators of wire transfers of over 100,000 yen.
In 2004, the FSA cited Citibank Japan’s failure to properly screen clients under anti-money laundering mandates as one of a list of problems that caused the FSA to shut down Citibank Japan’s private banking unit. In February 2004, the FSA disciplined Standard Chartered Bank for failing to properly check customer identities and for violating the obligation to report suspicious transactions. In January 2007, the Federal Reserve ordered Japan’s Sumitomo Mitsui Banking Corp.’s New York branch to address anti-money laundering deficiencies, only a month after similarly citing Bank of Tokyo-Mitsubishi UFJ for anti-money laundering shortcomings.
The Foreign Exchange and Foreign Trade Law requires travelers entering and departing Japan to report physically transported currency and monetary instruments (including securities and gold weighing over one kilogram) exceeding one million yen (approximately U.S. $8,475), or its equivalent in foreign currency, to customs authorities. Failure to submit a report, or submitting a false or fraudulent one, can result in a fine of up to 200,000 yen (approximately $1,695) or six months’ imprisonment. Efforts by authorities to counter bulk cash smuggling in Japan are not yet matched by a commensurate commitment in necessary resources.
In response to the events of September 11, 2001 the FSA used the anti-money laundering framework provided in the Anti-Organized Crime Law to require financial institutions to report transactions where funds appeared either to stem from criminal proceeds or to be linked to individuals and/or entities suspected to have relations with terrorist activities. The 2002 Act on Punishment of Financing of Offenses of Public Intimidation, enacted in July 2002, added terrorist financing to the list of predicate offenses for money laundering, and provided for the freezing of terrorism-related assets. Japan signed the UN International Convention for the Suppression of the Financing of Terrorism on October 30, 2001, and became a party on June 11, 2002.
After September 11, 2001, Japan has regularly searched for and designated for asset freeze any accounts that might be linked to all the suspected terrorists and terrorist organizations listed on the UN 1267 Sanctions Committee’s consolidated list and the list of individuals and entities under UNSCR 1373.
Underground banking systems operate widely in Japan, especially in immigrant communities. Such systems violate the Banking Law. There have been a large number of investigations into underground banking networks. Reportedly, substantial illicit proceeds have been transferred abroad, particularly to China, North and South Korea, and Peru. In November 2004, the Diet approved legislation banning the sale of bank accounts, in a bid to prevent the use of purchased accounts for fraud or money laundering.
Japan has not enacted laws that allow for sharing of seized narcotics assets with other countries. However, the Japanese government fully cooperates with efforts by the United States and other countries to trace and seize assets, and makes use of tips on the flow of drug-derived assets from foreign law enforcement efforts to trace funds and seize bank accounts.
Japan is a party to the 1988 UN Drug Convention and has signed but not ratified the UN Transnational Organized Crime Convention. Ratification of this convention would require amendments to Japan’s criminal code to permit charges of conspiracy, which is not currently an offense. Minority political parties and Japan’s law society have blocked this amendment on at least three occasions. Japan is a member of the Financial Action Task Force. JAFIO (now JAFIC) joined the Egmont Group of FIUs in 2000. Japan is also a member of the Asia/Pacific Group against Money Laundering, and is scheduled for a second round mutual evaluation in 2008.
In 2002, Japan’s FSA and the U.S. Securities and Exchange Commission and Commodity Futures Trading Commission signed a nonbinding Statement of Intent (SOI) concerning cooperation and the exchange of information related to securities law violations. In January 2006 the FSA and the U.S. SEC and CFTC signed an amendment to their SOI to include financial derivatives. Japan is a signatory but not a party to the UN Convention against Corruption. Japan is listed 17 out of 179 countries surveyed in Transparency International’s 2007 Corruption Perception Index.
The Government of Japan has many legal tools and agencies in place to successfully detect, investigate, and combat money laundering. However, there have been few successful money laundering prosecutions and convictions. To strengthen its money laundering regime, Japan should stringently enforce the Anti-Organized Crime Law, and amend the law with regard to charges of conspiracy. The narrow scope of the Anti-Drug Special Law has limited the law’s effectiveness. Japan should also enact penalties for noncompliance with the customer identification provisions of the Foreign Exchange and Trade Law, adopt measures to share seized assets with foreign governments, and enact banker “due diligence” provisions. Japan should continue to combat underground financial networks. Since Japan is a major trading power and the misuse of trade is often the facilitator in alternative remittance systems and value transfer schemes, Japan should take steps to identify and combat trade-based money laundering. Japan should also become a party to the UN Transnational Organized Crime Convention and the UN Convention against Corruption.