Japan may implement the following types of sanctions measures under the current legislation.

Financial Sanctions

Financial sanctions include restrictions on the making and the receipt of payments, the execution, change and termination of transactions on deposits, trusts and loans, outward and inward investments, and the issuing, obtaining and transferring of securities.

Under the sanctions regime, modes of payment include settlements by set-off and payments in substitution.

Under Japanese law, there is no measure expressly called an “asset freeze”, but in practice, restrictions regarding payments and transactions on deposits, trusts and loans are referred to as an “asset freeze” measure.

In particular, restrictions on the making of payments and transactions on deposits, trusts and loans to designated individuals and entities related to various countries, including North Korea, Russia, Belarus and Iran, and also to terrorists, have been introduced. Restrictions on the receipt of payments currently apply in limited cases as of June 2024.

Investment bans apply to inward investments by Iranian persons in a Japanese company in the industry of nuclear technology, and outward investments by Japanese residents in a Russian company. The scope of outward investments in a Russian company under the sanctions regime includes the acquiring of a 10% or more share of a non-resident (a Russian or non-Russian company) in relation to a Russian business, the increasing of the share of a non-resident of which it already holds 10% or more in relation to a Russian business, and the provision of a long-term loan to a non-resident of which it holds a 10% or more share in relation to Russian businesses.

Trade Sanctions

Typical trade sanctions include restrictions on the import and export of goods, intermediary trading, the provision of technologies, and the provision of services.

Trade sanctions are in place mainly in relation to North Korea and Russia as of June 2024.

In the case of sanctions against Russia, price caps are set on Russian oil and oil products, and certain services in relation to the trading of oil and oil production are prohibited.

Border Restrictive Measures

Travel bans and entry bans of vessels and aircrafts are also possible.

As sanctions measures, Japan has blocked the entry of North Korean nationals, North Korean vessels and any vessels which have called at North Korean ports, and the entry of designated persons involved in or relating to Russia’s invasion of Ukraine.

General Principles

The key criteria for determining the application of Japanese sanctions are Japanese residency and links with Japan. The current sanctions legislation does not adopt extraterritorial application.

Under the Foreign Exchange Act, which regulates financial and trade sanctions, a Japanese resident is defined as a natural person with a domicile or residence in Japan or a corporation whose principal office is in Japan. A branch office, local office, or other such office of a non-resident in Japan is deemed to be a Japanese resident, even if the non-resident’s principal office is located in a foreign state.

Financial Sanctions

Generally, financial sanctions apply to a Japanese resident.

Restrictions on payments apply also to a non-resident when payments are made from Japan.

Trade Sanctions

Export or import bans apply to those who export goods from or import goods into Japan, irrespective of their residency.

As for the provisions of technologies, anyone must comply with sanctions when providing technologies from Japan. In addition, a Japanese resident must comply with sanctions, when providing technologies to a non-resident or a Japanese resident connected with a designated country.

Restrictions on the provision of services apply to Japanese residents.

Japanese sanctions may be imposed, either to comply with international obligations, for example, resolutions adopted by the United Nations (for instance, in relation to North Korea, Iran, the Democratic Republic of Congo, Somalia, Yemen and others), or to co-operate with other countries or international communities (for example, in relation to Russia and Syria), or to maintain the peace and security of Japan (for instance, in relation to North Korea).

The Ministry of Finance implements and enforces mainly financial sanctions, but also restrictions on the provision of some services, while the Ministry of Economy, Trade and Industry implements and enforces mainly trade sanctions, but also some financial sanctions.

Criminal Offence

For violations of financial and trade sanctions, criminal liabilities may be imposed. The potential penalties to an individual offender are imprisonment for up to five years or a fine of up to JPY10 million, or both. In addition, a company for which the offender works may also be subject to a fine of up to JPY500 million.

Several criminal cases related to sanctions have been made public, but these are not recent cases and mainly concern matters related to the export and import of goods to and from North Korea, as described in the following examples.

In 2018, the court found a Japanese trading company and its employee in the company’s export division innocent in a criminal case where fabrics were, several times, exported to a northern port of China from Japan under contracts between the Japanese trading company and a Chinese company, the final destination of the fabrics being North Korea. The main argument revolved around whether the employee was aware of the fact that the fabrics would be ultimately delivered to North Korea. It was concluded that the employee was not so aware and was thus held to be not guilty.

In 2016, a Japanese company was sentenced to a fine of JPY3 million and its employee received a 2.5-year sentence with a four-year suspension for the export of goods (JPY12 million) to North Korea through Singapore.

In 2015, a Japanese company imported agricultural products originating from North Korea (at a value of JPY7.6 million) through China, declaring that the products originated in China. The company was sentenced to a fine of JPY2 million, and its representative director and its employee were sentenced to two years in prison and to one year and eight months in prison, respectively, with a stay of execution for four years.

In 2011, the court handed a four-year suspended sentence of a 1.5-year imprisonment term to an individual who had exported three cars (JPY7 million) to North Korea through South Korea under cover of a fraudulent company.

Administrative Liabilities

For violations of export or import restrictions, the Ministry of Economy, Trade and Industry (the METI) may ban exports or imports for up to three years or prohibit an individual offender from engaging in the activities of a company in a specified business as a director or an officer for up to three years.

In April 2020, the METI published an administrative disposition prohibiting an individual from exporting goods to any area for a period of eight months in response to the individual’s illegal export of fishing products (JPY20 million) to North Korea.

Financial institutions are obliged to check and make sure that payment operations will not violate the sanctions regulations under the Foreign Exchange Act. If the Ministry of Finance (the MOF) finds that a bank does not fulfil this obligation or might fail to, it is entitled to order the bank to take appropriate actions. In November 2021, the MOF issued a corrective action order to a major Japanese bank and instructed the bank to develop effective measures of improvement and prevention to ensure its compliance with the Foreign Exchange Act and sanctions measures.

No legislative provision or official guidance clarifies any mitigating steps in the case of a breach of sanctions. However, self-reviewing, self-reporting and the establishment of preventive measures may be taken into account when the competent authorities determine penalties.

The competent authorities have discretion in determining penalties and take into account whether it had knowledge or should have knowledge that it was in breach of sanctions. Depending on the situation or the seriousness of a result of a breach of sanctions, the authorities may not impose penalties, but instead may only issue an administrative directive.

Japanese Sanctions Measures

Japanese sanctions are implemented, not by way of prohibiting certain actions or transactions, but by way of requiring the approval or permission of the competent authorities to conduct certain actions or transactions, for which permission is, as a rule, not normally granted.

In exceptional cases, the competent authorities may set exemptions or grant an approval or permission. No provision of legislation clearly states on which grounds the competent authorities may do so.

Financial Sanctions

The Ministry of Finance (the MOF) exempts payments to individuals in North Korea on humanitarian grounds from the requirement to obtain permission.

In the case of sanctions on investment to Russia, exemptions have not been established, but there may be the possibility of the MOF granting permission if a Japanese company were to make additional investments in its Russian subsidiary for the sole purpose of maintaining the Russian operation or of exiting from the Russian market, which would otherwise violate financial sanctions.

Trade Sanctions

The Ministry of Economy, Trade and Industry (the METI) has issued a general guideline on the operation of general export controls, which sets out when the METI can or cannot grant approvals.

The METI has also issued a particular guideline on the potential granting of approval in relation to the Russia-related export ban. For example, the METI may consider approving exports when goods are exported to a Russian company wholly owned by a Japanese company, or companies with US, European, or South Korean owners. It should be noted that the METI cannot otherwise grant approvals in such cases, and doing so will depend on the situation.

In the case of sanctions against Russia, the provision of some services, such as auditing and engineering services to a Russian company, are exempted from permission when the services are rendered to a Russian subsidiary of a Japanese resident.

From the perspective of the sanctions regime, it may technically be possible to prohibit the provision of legal services, but no such direct prohibition is in place in relation to any country as of June 2024.

However, if legal services are in the area of management consulting services, which under the ban cannot be provided to Russian entities other than to those that are subsidiaries of a Japanese resident, the provision of such legal services may be subject to sanctions.

There is no direct provision prohibiting the circumvention of sanctions.

However, the authorities pay close attention to these matters, particularly in relation at the present time to sanctions against Russia. Thus, the authorities have issued a warning that an export to a third country or third party intending to deliver goods to Russia can constitute a breach of sanctions. Careful consideration is required when exporting goods from Japan to a third party located in a third country which will manufacture products using goods from Japan and then export such products to Russia. Depending on the situation, the export of goods from Japan to a third country can be regarded as an export to Russia and can be in breach of sanctions.

In addition, to prevent the circumvention of sanctions, non-Russian entities (for example, entities in China, India, the UAE, Uzbekistan and others) have been designated as subject to export bans or financial sanctions.

The circumvention of sanctions may be regarded as a beach of sanctions, which opens the door to criminal liability for the circumventing entity.

The potential penalties to an individual offender are imprisonment for up to five years or a fine of up to JPY10 million, or both. In addition, a company for which the individual offender works may also be subject to a fine of up to JPY500 million.

In 2016, a Japanese company was sentenced to a fine of JPY3 million, and its employee received a 2.5-year sentence with a four-year suspended sentence in a case where the export of 7,700 kitchen and daily items in total (valued at around JPY12 million) to Singapore was judged to be a de facto export to North Korea. The employee’s customs declaration stated that the final destination was Singapore, but instead the employee had the items delivered to North Korea with the assistance of a North Korea-related person.

In 2011, the courts handed down a 1.5-year sentence of imprisonment, served as a four-year suspended sentence, to an individual in a case where the individual exported three cars (valued at JPY7 million) to South Korea under cover of a fraudulent company, and where said export was determined to be a de facto export to North Korea. The individual insisted that they were not aware of any breach of sanctions since they thought that the delivery to a foreign embassy in North Korea was not prohibited. They claimed that they had been asked to deliver the cars only to South Korea, understanding that such delivery was not a breach of sanctions. The court’s conclusion was that the individual was aware of the illegality and had no good reason to believe that their actions were not in breach of the prevailing sanctions. The court also stated that, taking into account the fact, among others, that the individual did not consult with lawyers or specialists on the nature of the prevailing sanctions, it was doubtful that the individual could have not been aware of the illegality of their actions.