The Cabinet approved bills Friday aimed at tightening rules against money laundering and terrorist financing to avoid getting on an international watchdog’s list of high-risk and uncooperative jurisdictions.

The move came months after the Financial Action Task Force, a global standard setter for fighting money laundering, issued an unprecedented statement that singled out Japan for its failure to fix deficiencies via legislation.

The Paris-based watchdog expressed concerns about Japan’s continued failure to remedy the numerous and serious deficiencies identified in its third mutual evaluation report adopted in October 2008.

With the submission of the bills to the Diet, Japan is likely to avoid getting on the FATF’s list in October and February when its members, including Group of Seven rich nations and 29 others, meet in Paris, a senior government official said.

Japan’s status remains in limbo as it has failed to present a key bill criminalizing the act of conspiracy due to resistance from some lawmakers and the Japan Federation of Bar Associations, who fear authorities may apply it arbitrarily.

“The fact that we are sending bills to the Diet in the hope of enactment is likely to prevent Japan from getting on the list in October and February,” a senior official said.

“But unless the (remaining) bill passes the Diet, Japan would not be seen as committed. . . . We are lagging far behind,” the official said, adding that legal loopholes could cause an “alarming situation” where terrorist funds flow into Japan.

Legal loopholes include the inability to freeze transfers of terrorist funds within Japan. Current law is designed only to prevent cross-border transfers of terrorist assets.

Another example is banks’ lax control over client accounts. Cash transactions of more than ¥2 million are closely scrutinized at banks, but if cash is subdivided by smaller amounts for separate transactions, those transactions would end up unchecked.

The FATF’s list includes countries such as Iran and North Korea on the blacklist who are subjected to countermeasures, and others like Sudan and Cuba on the gray list who are required to take steps to meet their political commitment.

If Japan is added to the gray list, it may cause other countries to shut Japanese financial institutions from their markets, and it may lead the United States to impose fines on Japanese banks, the official said.

U.S. authorities are increasingly imposing fines on financial institutions, the official noted, citing a staggering $8.95 billion fine against BNP Paribas for breaking U.S. sanctions.

Other countries are also beefing up measures against money laundering.

In July, Singapore’s central bank proposed tightening its money laundering rules, looking to formalize rules that would require banks to check more closely who their customers are.

Prime Minister Shinzo Abe’s administration aims to have the bills pass the Diet in the extraordinary session ending Nov. 30, although it is unclear whether they will make it as all depend on scheduling by lawmakers.