This week, after disclosing its plans to crackdown on anonymous cryptocurrencies Zcash, Dash, and Monero, the government of Japan has said that major credit agencies will evaluate cryptocurrency users to prevent the utilization of digital assets in laundering money generated from illicit operations.
Suspicious Users Will be Investigated
Credit agencies, information security research firms, and Japan Credit Information Service will cooperate with the government to investigate suspicious cryptocurrency trading accounts and individuals that trade unusually large amounts of digital assets beginning in a few weeks.
The decision of local authorities to strictly oversee the local cryptocurrency exchange market and closely monitor large transactions was triggered by a series of reports that have come out in the past few months that have claimed the Yakuza, the biggest criminal syndicate in the country, is using cryptocurrencies to launder hundreds of millions of dollars regularly.
More to that, the Japanese authorities have also said that individuals that are suspected to be connected to terrorist organizations and criminal organizations based on their social media presence and credit scores will also be target of scrutiny, and accounts on cryptocurrency exchanges owned by suspicious individuals will be extensively evaluated by four credit agencies as well as local financial authorities.
Yizumi Nobuhiko, the chairman of Japan Credit Information Service, has said according to NHK:
“By providing the personal information of suspicious individuals including credit scores and financial data, the government hopes to protect investors and improve the security of the cryptocurrency industry.”
However, to prevent the leak of personal information, the four credit agencies will not provide sensitive financial and personal data unless local financial authorities have reasonable basis to suspect certain individuals and entities to be involved in a money laundering scheme or a crime syndicate.
Cryptocurrency Market Restructuring Ongoing
As CCN reported on June 22, the Japanese government has ordered six (out of sixteen) exchanges licensed by the Japan Financial Services Agency (FSA) to overhaul their Anti-Money Laundering (AML) and Know Your Customer (KYC) system.
An investigation by the FSA discovered that major exchanges like bitFlyer, the country’s most widely utilized cryptocurrency exchange, had flaws in their AML and KYC systems that are not sufficient to prevent money laundering.
Consequent to the request of the government, Japanese exchanges including bitFlyer stopped registering new users and started to fix its internal management system.
Brian Kelly, the founder of cryptocurrency hedge fund BKCM and CNBC Fast Money contributor, said that the initiation of an improvement process of internal management systems by Japanese exchanges will enable the local cryptocurrency market to evolve into a legitimate industry, which will be beneficial in the long run.
“Japanese exchanges were ordered to improve business conditions [by the government]. It’s actually a good thing. Short run it’s going to be a little tough because they’re stopping new accounts from coming in but actually they’re cleaning up the system. They’re making sure it’s more robust. Making sure it’s better for people,” Kelly said.
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