Justice ministry to curb company formation by organized crime groups

February 27, 2018

Tokyo- Japan's Justice Ministry on Tuesday unveiled measures aimed at restricting the establishment of joint stock companies by antisocial forces such as organized crime syndicates.

During the process of certifying a company's articles of incorporation, which is required for its establishment, the company will be obligated to declare its de facto head who assumes control over its management, according to the new regulations.

A notary public will carry out checks on the declared de facto head to ensure that the person is not affiliated with organized crime groups.

The ministry plans to revise the ordinance for enforcing the Notary Act, which sets out the procedures for certification of companies' articles of incorporation, hoping to put the amended law in force by the end of the year, officials said.

The move is aimed at preventing fraudulent transactions and money laundering using joint stock companies as dummies.

The ministry plans to create a database of information on the certification of companies' articles of incorporation, in order to enable the sharing of information between notaries public and related authorities, including police.

Under the new rule, the notary will not certify a company's articles of incorporation if its founder refuses, without a justifiable reason, to declare its de facto head and demonstrate that the head has no connection with antisocial forces.

In cases in which false declaration is suspected, the notary can take identity confirmation steps for the individual declared as the head.

However, the new regulations will only apply to newly established companies and not to existing joint stock companies, and no penalties will be imposed for false declarations. Therefore, some question the effectiveness of the new rule.

According to the ordinance for the enforcement of the Act on Prevention of Transfer of Criminal Proceeds, a de facto head is defined as someone who has more than a quarter of the company's voting rights, someone who is capable of exercising a controlling influence over its management through investment and loans, or a representative of a corporation.

The Financial Action Task Force, an international organization working to combat money laundering and other illegal financial transactions, has urged Japan to improve the transparency of joint stock companies in the country, giving it the lowest grade on a four-point scale.

The ministry hopes to introduce the new regulations in time for the next FATF examination Japan faces in 2019-2020, according to the officials. Jiji Press