The Japanese cabinet approved an Oct. 14 cabinet decision to update six foreign exchange laws to help combat money laundering. According to local news outlets, these changes will also impact crypto trading businesses.
The amended bill will tighten know your customer (KYC), rules for crypto exchange business, and increase money laundering penalties for all institutions. The bill will be presented to the National Diet for approval.
The revisions don’t precisely aim at crypto companies. The reports indicate that the Japanese government has been trying to improve anti-money laundering policies since September 2010.
In addition to various new precautions that haven’t been disclosed, the country will give itself the right to freeze the assets of individuals and institutions if they are involved in crimes related to money laundering.
Japan views digital asset trading as a potential money laundering tool, owing to the widespread usage of crypto-exchanges and their mixers. These new revisions will be applicable to crypto trading companies as well. Platforms that provide crypto asset exchange services are now required to conduct a more thorough KYC process in order to verify user identities.
According to the Japan Crypto Asset Exchange Association, (JVCEA), it requested that its member exchange platforms take precautions against money laundering. CoinCheck and GMO Coin have tightened rules for major crypto exchange platforms in the region.
Japan has crypto regulations
Japan was the first country to establish a legal framework for regulating cryptocurrency. It included specific rules in its Payment Services Act, May 2016. The law was enacted in 2017 and recognizes crypto assets such Bitcoin (BTC), as legal tender.
The country has introduced new measures almost every two years since then, making it more difficult for crypto-businesses to operate.
One of Japan’s most prominent exchange platforms, CoinCheck, suffered a major hack and lost around $500 million in early 2018, which motivated the Japanese government to take precautions. In 2019, all crypto exchange businesses were subjected to the country’s anti-money laundering and combatting financial terrorism rules.
Japan had added regulations for DeFi protocols in 2021 two years later. Following the Terra Luna fall, 2022 saw the passing of another bill which limited stablecoin usage to licensed banks.
Supporting crypto without compromising regulations
The country has seen a steady increase in regulations that have driven crypto businesses away. Many of them decide to move to a crypto-friendly country such as Singapore.
The rapid decline in crypto-related businesses was also recognized by the government. Hiroshi Mikitani, President of Rakuten Group, criticized the system and stated that crypto could not flourish if it was too restrictive. He stated:
“Most people go to Singapore because it’s stupid to start a business in Japan,”
After acknowledging these facts, the Japanese government announced a change in crypto tax regulations.
The country’s Prime Minister, Fumio Kishida, said that 2022 would be the “first year of creating start-ups,” and the government might lower crypto tax rates to encourage crypto start-ups to set up businesses in Japan.
Japan currently taxes individuals and corporations up to 55% and 30% respectively on all realized and unrealized crypto-related gains. The government didn’t disclose to what rate they might be lowering these tax rates.