In 2018, the authorities have reached to the Crypto Exchange Operator FSHO's one-room office in a Yokohama business district for an on-site inspection. They found various doubtful transactions.
The firm has ignored a lot of transactions in a short period of time in which the same client converted a large sum of cryptocurrency to cash, a person familiar with the investigation said. Japan's financial regulator, fearing that the funds have reached to the bad actors, later denied the operator's order to became a registered action, the first such kind of rejection.
Japan's Financial Services Agency (FSA) is finally cracking down on Crypto Exchanges which offer hidden transactions or have weak identity verification practices in preparation for inspection by the Financial Action Task Force this autumn. The news was reported by Nikkei Asian Review on May 22.
The FTAF would probably send its investigatory arm to check the strength of Japanese FSA's anti-money laundering policies, which consists of policy for crypto exchange and other financial services.
Japan was most probably given the worst possible score for identity verification in financial institutions in 2008 by FATF. After 10 years, FSA granted business improvement orders to practices which didn't take proper AML measures like allowing users to sign up for their accounts using a PO box in a lieu of a personal home address.
Based on the report, Japan was the first country to execute a registration system for crypto exchanges.
In October 2018, FTAF modified its rules to consists of Crypto Exchanges in its AML regulatory framework and requested G-7 member countries to begin executing strategies for registration, licensing, and tracking crypto exchanges.
Japan is Organizing a summit on Financial markets and World Economy (G20 2019) at Osaka this June and it is expected to address the forum on international crypto-regulations and initial coin offerings (ICO). In Contrast to China and South Korea, Japan hasn't announced a national ban on ICOs.
At the same time, various countries are cracking down on the use of crypto exchanges for money-laundering purposes. In 2018, Dutch Central Bank provided new rules, i.e. crypto firms to obtain a license before they start their operations in the country.
The bank believed that this step will stop money laundering and the use of bitcoin to fund terrorism. In order to qualify this license, crypto firms must report "unusual transactions" and know who their customers are.
The Dutch bank stated that the regulation was important due to the decentralized, hidden nature of the crypto market makes it target for money launderers.
Based on one investigation around $88 million were laundered across 46 Crypto exchanges around the globe in the last two years.