For some time now, Japan’s banking sector has faced many challenges arising from money laundering. This problem has been in the limelight since the Financial Action Task Force found “numerous and serious deficiencies” back in 2014. Japan has long been blamed for weak measures that it has set up against money laundering and terrorism financing.
In that context, the U.S. banking multinational, JPMorgan Chase & Co, is looking to launch an Interbank Information Network (IIN) in the East Asian nation. The bank’s blockchain-based information network for payments is expected to launch probably in January 2020.
According to the executive director of JPMorgan, Daizaburo Sanai, at least 80 banks have expressed an interest to join the Network. That is the most number of banks from a single country among the over 360 lenders on the network globally.
IIN is built on Quorum which is a permissioned blockchain based on Ethereum. This network, developed by JPMorgan, is designed to allow banks to exchange information instantly. Thus, they can verify that any transaction or payment has been approved in real-time. The bank says that this ability will help minimize friction in international payments and eventually support faster processing times.
The system will also reduce the risk of money laundering. Hence, Japanese banks may be aiming to use the platform to enhance anti-money laundering measures it ensures that the screening of cash recipients is “faster and more efficient.”
Interbank Information Network can minimize delays in the payments process. The increased speeds will enable the member banks to rapidly collaborate with law enforcement in any suspected cases of money laundering. According to Sanai, the system is designed to make the screening of payment recipients quick and efficient.
By mid-November, there were around 365 banks already signed up for this initiative from elsewhere as documented on JPMorgan’s website. Back in September 2019, OCBC became the first Singapore bank to join IIN. The leading bank worldwide for the clearing of euro-denominated payments, Deutsche Bank, also joined the network in September.
IIN was launched in 2017 as a pilot project but JPMorgan has started implementing it outside of Japan. Several involved parties can request and share information concurrently under this network whenever a payment is flagged for confirmation. The Financial Action Task Force which is a Paris-based organization completed its most recent on-site inspection of Japan in November.
The results of that inspection are expected to be announced in 2020 according to one finance ministry official. According to Takashi Endo, minimizing the delays arising from inquiries between banks can guarantee:
“Quick collaboration with law enforcement authorities, which is an effective way to fight money laundering”
Endo is a treasury operations department officer working at Sumitomo Mitsui Trust Bank Ltd. This Tokyo-based bank is in the list of the lenders that have signed a letter of intent to join this JPMorgan platform.
IIN ranks among the different initiatives designed using digital technology to speed up global money transfers. Companies like Facebook Inc. are also striving to launch blockchain-based payments projects. On the other hand, the incumbent Swift has also created a new system to accelerate transaction processing.
Facebook’s Libra is meant for cross-border payments while JPMorgan has created JPM Coin to compete with it.