A number of Japan‘s top regulators have joined forces with the police and government to issue joint guidance on real estate transactions involving or conducted in digital assets, citing risks that criminals may exploit them to launder the proceeds of crime.
On April 28, Japan’s Financial Services Agency (FSA), along with the Ministry of Land, Infrastructure, Transport and Tourism, the Ministry of Finance, and the National Police Agency, published guidance clarifying how real estate transactions involving or using digital assets are viewed under the country’s regulatory regime.
“In recent years, real estate is often purchased for the purpose of asset preservation or investment, and there is a risk that domestic and overseas criminal organizations may exploit real estate transactions to convert the forms of proceeds from crime,” read the translated request notice. “In particular, cryptocurrencies, which have the characteristic of transfers occurring instantaneously across borders, are considered highly likely to be used as a settlement method in real estate transactions for the purpose of money laundering and other illicit activities.”
With this in mind, the various authorities and ministries clarified several rules that those conducting such transactions must consider.
Firstly, the act of exchanging digital assets for legal tender, or mediating such exchanges, may fall under the scope of “cryptocurrency exchange operations.” Consequently, conducting such activity without registration as a digital currency exchange operator may violate Japan’s Payment Services Act, under which digital assets are governed in the country (for now). In this regard, if there is a suspicion that someone is operating a digital currency exchange business without registration, participants have a responsibility to inform the authorities.
Equally, in cases where a real estate business acts as the seller and receives digital currency as payment, then exchanges it for fiat currency, they should not use unregistered cryptocurrency exchange operators.
The request notice also clarified that when real estate agents use digital assets to conduct transactions, strict customer verification should be carried out in accordance with the Act on Prevention of Transfer of Criminal Proceeds, and suspicious transactions should be reported to the authorities or, in cases where a criminal offense is suspected, to the police.
Likewise, for digital currency exchanges, the authorities reiterated that strict customer verification should be carried out and that suspicious user activity should be reported, as required under the Prevention of Transfer of Criminal Proceeds Act. For example, if a customer receives a real estate sales payment in digital currency and attempts a high-value transaction inconsistent with their profile, authorities should be notified.
Finally, the notice underscored that the Foreign Exchange and Foreign Trade Act demands that persons receiving digital currency or similar assets exceeding the equivalent of JPY 30 million ($18,7749) from overseas are required to submit a “Report on Payment or Receipt of Payment.” Non-residents acquiring real estate in Japan must submit a “Report on Acquisition of Real Estate or Related Rights in Japan.”
The request notice was addressed to several major real estate and digital asset industry bodies, including the Japan Cryptocurrency Business Association and several national real estate federations, and to regulatory and law enforcement authorities, requesting that they “please ensure that measures to secure the proper conduct of real estate transactions using cryptocurrency are widely communicated.”
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