Japanese Law Update #6: More Than 3,500,000 Japanese Companies will be Expected to Disclose the Identities of Their Beneficial Owners after January 2022
In January 2022, the Japan’s Ministry of Justice (The “MOJ”) will implement a new policy that aim to improve the transparency of Japanese companies by disclosing the identity of their major investors.
This is a response by the MOJ to the evaluation report of the Financial Action Task Force (“FATF”) published in August 2021. In the report, FATF urged the Japanese government to take stronger countermeasures against money laundering, especially by smaller financial institutions. The report pointed out that the customer monitoring process at some financial institutions were inadequate to prevent money laundering operations. To this end, financial institutions are expected to implement more stringent identity checks and to install procedures for monitoring their customers. The new policy would help improve the quality of identity checks and the monitoring of Japanese companies by providing better access to the identity of their investors.
1. Encouraging companies to report the investors’ identities to the relevant authorities
The regulatory rules by the MOJ are called the Rules on the Retention of the List of Information on Beneficial Owners at the Commercial Registry Offices (The “Rules”), providing a framework that outlines the new policy. However, since this is not based on new legislation, they are not mandatory requirements for Japanese companies.
The Rules stipulate the process by which Japanese companies provide the identity of its Beneficial Owners to the registrar of the commercial registry offices. "Beneficial Owner" means a natural person who is deemed to hold more than 50% (if there is no 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 Act on Prevention of Transfer of Criminal Proceeds and its regulations).
2. Both listed and private companies are expected to report the identity of their major investors to the relevant authorities
In relation to the MOJ’s new policy, the Rules do not make a distinction between listed companies and private companies. In October 2021, the media reported that the MOJ, the Financial Services Agency, and financial institutions will encourage both listed and private Japanese companies to provide the identities of their major investors to the relevant regulatory authorities. Therefore, both listed and private companies are equally encouraged to provide the information to their regulators. In practice, the identity of the major investors of listed companies are usually found in the Annual Securities Report. On the other hand, the list of the major investors of private companies have not been usually disclosed previously and may therefore attract more attention.
3. The procedure for accessing the identity of the Beneficiary Owners
The Rules provide that the regulatory authority shall issue a copy of the list of Beneficiary Owners of a company if requested by that company. Therefore, third parties, including financial institutions, are not able to directly access the list. Typically, financial institutions would request its customers to submit the list of Beneficiary Owners for monitoring purposes. In such cases, the procedure for accessing the list would be as follows:
This new policy will be another step for tackling money laundering activities in Japan.
Yoshie Midorikawa, Partner
Yoshie Midorikawa has extensive experience in complex disputes and arbitration under the rules of the ICC, SIAC, UNCITRAL, LCIA, and ICSID. Having worked with leading law firms in Japan and Singapore, she has handled parallel proceedings across multiple jurisdictions as well as domestic disputes before Japanese courts. Through learning in the United States, practicing in Singapore, and serving on an international law firm’s arbitration team, among other accomplishments, she has developed expertise operating in diverse international environments. She has also served as a board member of listed companies in Japan, improving their corporate governance. Her deep understanding of the civil law system, her working experience in international environments, including common law jurisdictions, and her knowledge of business, enable her to bring practical and nuanced legal solutions to international commercial disputes. She is listed among “Best Lawyers in Japan 2022(Litigation)”, “Best Lawyers in Japan 2021(Litigation)” by Best Lawyers.