Citibank is feeling some FSA heat right now because it wasn’t strict enough in monitoring and reporting “suspicious transactions including money laundering.”
Organized crime relations are becoming a bigger and bigger deal in the world of Japanese financial regulation. Late last year, the FSA and the Japanese Bankers’ Association adopted some administrative guidelines concerning how banks should protect against yakuza, sokaiya and other rabblerousers, and many of those guidelines are being phased in this year by institutions across the country.
One measure being implemented is amending account agreements in order to allow banks to pull service from customers with criminal ties. Here is a translation of the JBA’s suggested language (original version here). It is pretty laughable even by legal Japanese standards; I wonder who had a hand in drafting it.
Article [__] (Exclusion of Anti-Social Forces)
(1) I hereby represent that I am currently not, and hereby agree that in the future I shall not become, any of the following.
1. A criminal organization (暴力団)
2. A member of a criminal organization
3. A quasi-constituent of a criminal organization
4. An enterprise related to a criminal organization
5. A sokaiya (総会屋), politically-branded racketeering organization (社会運動等標ぼうゴロ) or organized crime-related “specialist” (特殊知能暴力集団 – a police term for individuals or groups who are not yakuza themselves, but help fund yakuza activities)
6. Any other person pursuant to any of the above
(2) I hereby agree that I shall not engage in any of the following acts, whether personally or through a third party.
1. Violent demands
2. Improper demands in excess of legal responsibilities
3. Acts of violence or menacing statements in relation to a transaction
4. Spreading of rumors, use of falsified statistics or use of obstruction to harm the reputation of your bank, or to obstruct the business of your bank
5. Any other act pursuant to any of the above
(3) In the event it is determined that I correspond to any of the listed items in paragraph 1 above, commit any listed act in the preceding paragraph, or have made a falsified report with regard to the representations and covenants in paragraph 1 above, and it is improper to continue transactions with me, upon the demand of your bank, I will lose the benefit of term with regard to all liabilities I have to your bank, and will promptly perform those liabilities.
(4) In the event that I have received the discounting of notes, that it is determined that I correspond to any of the listed items in paragraph 1 above, commit any listed act in the preceding paragraph, or have made a falsified report with regard to the representations and covenants in paragraph 1 above, and that it is improper to continue transactions with me, upon the demand of your bank, I will owe a liability to repay the face amount of all notes, and will promptly perform it. Until such time as this liability is performed, your bank may exercise all of its rights as the holder of such notes.
(5) Once performance of the liabilities under the preceding two paragraphs has been completed, this agreement will lose validity. (Bizarre phrasing!)
5 thoughts on “Defending the financial system against yakuza infiltration”
Citibank suffers from a problem that afflicts many overseas operations in Japan. In a nutshell, many of their Japanese employees see their interests as more aligned with their customers than with their employer. Once your staff start to go off-piste, you find yourself in trouble. Citibank has failed to get to grips with this issue over many years which points to quite a serious management failure.
Interestingly, when there’s a compliance failure in a Japanese corporation it is often the opposite problem of staff putting what they see as the interests of the company before the interests of customers, regulators, society etc.
“many of their Japanese employees see their interests as more aligned with their customers than with their employer.”
And yet aligning with your customer is supposed to be the way to be most successful, as long as your customer is not the mafia or other money-laundering organizations.
Iin general banks that don’t act decisively to avoid being used for money laundering WILL be used that way. The passive stance of banks who apparently have turned a blind eye to this activity for years has started to bite them in the ass.
The common methods used by the gangs is kind of interesting:
– NHK recently did a special on efforts to combay money laundering where they showed how common it is for regular people to “sell” their accounts online to unknown elements who then use the honest accounts to make overseas transfers.
– Since there has historically been little sharing of information among banks (not sure if this has improved), NHK mentioned a Nigerian who got caught opening dozens of accounts all over the country and making as many wire transfers as possible before anyone found out.
Since the FSA seems to really enjoy handing out business suspensions in recent years, the domestic banks have invested heavily in programs that monitor their entire system for suspicious activity, similar to what US banks have installed.
What’s amazing is that the US banks are so eager to convince the government NOT to regulate that they tend to keep their houses in order; it’s usually Japanese domestic banks that rely on direct government orders to do the right thing.
I’ve seen posters in the Post Office and other retail banks warning in giant type that it’s a CRIME to sell your bank account to criminals for money-laundering.
There are a fair share of ‘organized crime-related specialists’ within the institutions themselves, from what I hear. That together with traders trying to screw the system with bogus trades makes being a compliance officer a particularly onerous duty.
If you work on a trading desk, keep an eye on the guy who is only out on vacation when the outside inspectors come to town.
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