Press Conference by Yuji Yamamoto, Minister for Financial Services

(Excerpt)

January 26, 2007

1.  Minister's Statement

Please allow me to make the following important statement. It relates to the efforts made by the Financial Services Agency (FSA) to enhance the anti-terrorist-funding/anti-money-laundering system. It is extremely regrettable that Sumitomo Mitsui Banking Corporation (SMBC) received a business improvement order from the U.S. authorities regarding its anti-money-laundering approach at its branch in the United States, following the steps that the Bank of Tokyo-Mitsubishi UFJ undertook at the end of last year. Both banks need to accept the order by the U.S. authorities with sincerity and make the requested business improvements accordingly. Efforts to prevent terrorist funding and money laundering are extremely important for the purpose of ensuring confidence in the financial market. Such efforts are important issues for Japan as well, including dealing with North Korea. On the international level, the Basel Committee on Banking Supervision has revised the core principles of banking supervision, and there are signs that the anti-terrorist-funding/anti-money-laundering system will also be revised, as exemplified by the inclusion of practical initiatives such as improved identification of correspondent account holders and customers' attributes. Taking this into account, we have decided to revise the supervision guidelines to incorporate the amendments made to the principles set forth by the Basel Committee on Banking Supervision, and published the draft version today will a view to inviting public comments. We also decided to request banks to further improve their precision in anti-terrorist-funding and anti-money-laundering operations. It is hoped that such efforts will help improve confidence in the Japanese financial market.

2.  Q&A

Q.

In regards to the anti-money-laundering measures you just mentioned, is it your understanding that Japanese banks' measures are insufficient at present, or that there were problems in the form of serious inadequacies at individual banks?

A.

Japanese financial institutions' system to prevent terrorist funding and money laundering is at a reasonable level in the first place, even by international standards. This is reflected in the good rating given by the IMF report published in July 2004. However, as I mentioned earlier, efforts to prevent terrorist funding and money laundering is not only becoming an important issue for Japan itself, including dealing with North Korea, but also becoming increasingly important in terms of ensuring confidence in the financial market internationally. With this in mind, we decided to revise the supervision guidelines, based on the judgment that it would be appropriate to require financial institutions to undertake even tougher measures to prevent terrorist funding and money laundering by clarifying the focal points of supervision.

Q.

There are some reports in the press that Nikko Cordial Corporation had remunerated its former managing director who was convicted in a payoff scandal in the past. What are your views on this, including compliance with laws and regulations by companies?

A.

I am aware of these reports. Although I have neither investigated nor identified the facts yet with accuracy, assuming that the reported facts are accurate, the conditions that have led the company to sustain a negative legacy for such a long period of time needs to be called into question. However, President Shoji Kuwashima deserves to be commended on his decision to switch to a new structure with a view to settling the negative legacy by changing the corporate constitution resolutely in response to such acts, and putting an end to remunerating the ex-managing director so as to comply with laws and regulations. It is hoped that Nikko Cordial Corporation will enhance governance by thoroughly carrying through such efforts, and ensure soundness in its financial position and its operations.

(End)