Studying law while fighting illicit finance

Harvard Law student Michael Chang-Frieden ’23 writes global watchdog report on Japan’s ability to fight money laundering, terrorist financing, and nuclear proliferation financing

In late August, the Financial Action Task Force, also known as FATF, an international financial crimes watchdog organization whose membership includes some 40 countries, published a once-per-decade report assessing Japan’s effectiveness in combatting money laundering, terrorist financing, and nuclear proliferation financing. For Harvard Law student Michael Chang-Frieden ’23, who served as the United States expert on the project, it was the culmination of three years of work. Chang-Frieden spoke with Harvard Law Today, in an interview that has been edited and condensed for length and clarity, about what the report found and about his experience working on the project.


Harvard Law Today: How did you become involved in this project?

Michael Chang-Frieden: The Office of Terrorist Financing and Financial Crimes at the U.S. Treasury Department leads the U.S. delegation to the Financial Action Task Force. I was a policy adviser in that office, and I was honored to be asked to serve as the U.S. assessor for the evaluation of Japan. We had six assessors total, each from a different country. My particular background has been focused on combating terrorist financing and proliferation financing.

HLT: Can you say more about the process?

Chang-Frieden: I worked on the project for three years at Treasury — including one that overlapped with my first year of law school. We began with a very detailed survey of Japanese legislation and regulations regarding their national security apparatus, for example, the statutes to combat terrorist financing and to freeze assets of terrorist financiers. And then we shifted to a nearly month-long series of interviews in Tokyo with Japanese government officials and representatives from relevant private industries to get a sense not just of Japan’s technical compliance in terms of its laws, but also, and more importantly, how effective they are in executing the mission against illicit finance. Finally, the report was rigorously vetted by all member countries of the FATF. That translated to a series of meetings this summer where we answered questions from the member countries on the specific findings and conclusions in the report. I had the opportunity to participate in those meetings and defend our conclusions before the FATF, which then officially adopted and published the report.

Man in blue shirt sits on steps in front of building on Harvard Law School campus.

Credit: Lorin Granger Michael Chang-Frieden ’23

HLT: So how is Japan doing in terms preventing the issues that you focused on?

Chang-Frieden: The report identifies some significant deficiencies, especially with respect to Japan’s prosecution of money laundering, as well as the gaps in its legal regimes for counterproliferation sanctions. These include a delay in the freezing of assets that are identified as linked to terrorist or proliferation financing. And obviously, that’s key because one major risk is asset flight. As soon as these actors are designated by the UN Security Council, they obviously want to move money so that it will be accessible for their malign purposes. And so freezing those assets without delay is extremely important. The report found several related deficiencies, both in terms of Japan’s laws as well as the execution of those programs.

The report also identified instances, both in the money laundering and terrorist financing contexts, where it was unclear whether all the cases deserving of dissuasive, custodial sentences had been prosecuted adequately.

HLT: What are the major weaknesses in Japan’s safeguards against money laundering? And can you explain how they would make the country more vulnerable to exploitation by terrorist organizations and criminal groups?

Chang-Frieden: This isn’t specific to money laundering, but the report identified significant deficiencies in the scope of Japan’s terrorist financing act, which result in a tougher time for investigators in uncovering crimes in the first place, as well as for prosecutors in ensuring criminal charges can be brought that reflect the gravity of the offenses. At base, the report is grounded in our assessment of Japan’s understanding of its own risks, for example, from North Korea, or from acts of terrorism or money laundering. That’s where we begin. And we found that in the counterterrorism context, the law enforcement experts were really impressive, and clearly demonstrated their expertise and pursued appropriately aggressive investigations. However, the report expressed concern with the technical deficiencies in Japan’s laws to criminalize those kinds of offenses, which have a negative impact on successful prosecution.

HLT: What are some of the high-level recommendations for improvement?

Chang-Frieden: They include increasing the use of money laundering charges to target the most serious predicate offenses, and the prioritization of investigating and prosecuting third-party money laundering across a wider range of offenses, especially involving high-volume schemes.

And as to terrorist financing, Japan needs to ensure that their legislation actually covers the financing of an individual terrorist or terrorist organization, including in the absence of a link to a particular terrorist act. To give a concrete example of that distinction, say an individual pays someone else to cause an explosion aimed to intimidate the government; that should be a straightforward terrorist financing case for Japan to bring. Where it gets complicated, and where the report identified a crucial gap, is in the provision of funds to a terrorist organization, such as ISIL or al-Qaida, where it’s not necessarily clear that those specific funds are earmarked for a terrorist attack as opposed to other operating expenses, but obviously money is fungible. That, for us, was a key deficiency that the FATF will expect Japan to remedy.

HLT: What effect do you think the report will have?

Chang-Frieden: I was encouraged to see high-level commitments from Finance Minister Taro Aso, who made a statement welcoming the report and stating that combatting money laundering was central to their strategy to make Japan an international financial hub, open to the world. I would add that as the world’s third largest economy, Japan is an extremely important jurisdiction that requires effective safeguards against money laundering and other illicit finance.

HLT: Can you speak to what you took away personally from working on this project?

Chang-Frieden: I was inspired by the dedicated public servants I met from various governments through the Financial Action Task Force, including the Japanese officials who spent so much time with us. We spent long, long days on the ground in Tokyo, interviewing officials across all areas of the government. I led interviews with officials from the Ministries of Justice, Foreign Affairs, and Finance, as well as the National Police Agency. It was also a wonderful experience working with individual subject matter experts, in terms of learning how other countries approach international problems. In particular, I loved working with the assessment team. It was six of us — myself from the U.S, someone from Finland, from Hong Kong, Australia, South Korea, and Italy — as well as our excellent colleagues from the FATF Secretariat. We worked shoulder-to-shoulder for more than two years.

HLT: Are you focused on related issues at HLS?

Chang-Frieden: Yes. I’m especially interested in the intersection of criminal and national security law. And I’ve focused my student writing on those topics.

HLT: Do you have a sense of what you want to do after you graduate?

Chang-Frieden: I’d very much like eventually to return to government as an attorney. I found the career civil servants so inspiring and enjoyed, especially, the dynamic of working on relatively small, lean teams, with people who cared very deeply about the mission. And HLS has been extremely supportive. I’ve particularly appreciated guidance and support from my professors and OPIA [the Office of Public Interest Advising] as well.

I’d also like to put in a plug for the office where I served in the Treasury Department, the Office of Terrorist Financing and Financial Crimes, for other students who might be interested. It helps lead policymaking and international outreach on virtually every issue that touches on illicit finance. More concretely, that means that it engages with foreign counterparts to shore up international measures to combat money laundering and terrorist financing, essentially to make the world a bit safer. And TFFC also works across all elements of the U.S. national security community, including the law enforcement, regulatory, policy, diplomatic and intelligence communities, as well as via the National Security Council. In short, TFFC encapsulates Treasury’s key role in the U.S. national security apparatus, and serving there was an extraordinary honor.


Read the full report on the FATF website (PDF)