Japan looks to curb company establishment by organized crime groups


The Justice Ministry has unveiled measures to restrict the establishment of joint stock companies by organized crime syndicates in a move aimed at preventing fraud and money laundering via dummy firms.

During the process of certifying a company’s articles of incorporation — a step required for establishment — founders will be obligated to declare a de facto head who assumes control over management, according to the new regulations. A notary public will work to verify that the declared head is not affiliated with organized crime groups.

After announcing the steps on Tuesday, the ministry said it plans to introduce legislation on the matter and hopes to put the law in force by the end of the year.

The ministry plans to create a database tracking the certifications in order to enable information-sharing between notaries and related authorities, including police.

Under the new rules, notaries would not certify articles of incorporation if founders refuse — without a justifiable reason — to declare a de facto head and demonstrate that the head has no connection with crime groups.

In cases where declarations are suspected to be false, notaries would be authorized to take steps to identify individuals declared company heads.

But the proposed new regulations would only apply to newly established companies, and no penalties will be imposed for false declarations, prompting some critics to question the plan’s effectiveness.

According to the proposed ordinance for the enforcement of laws related to financial fraud, 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 joint stock company transparency, 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 in 2019-2020, according to the officials.