Online Trading of Japanese Swords and the Secondhand Articles Dealer Act: Practical Guide to Identity Verification Requirements in Non-Face-to-Face Transactions

Why Does Buying and Selling Used Japanese Swords Constitute "Secondhand Article Dealing"?

Japanese swords are works of art, and in most cases they are bought and sold as "used goods." Purchasing a newly made sword directly from a tōshō does not constitute a secondhand article transaction, but any business that purchases swords that have passed through the hands of an individual or dealer even once, or resells them to others, requires a "secondhand article dealer" license under the Secondhand Articles Dealer Act. Swords fall under the category of works of art within the classifications of secondhand articles defined by the Act, and are subject to strict transaction record-keeping obligations aimed at preventing the circulation of stolen goods and illicit conversion to cash.

As the buying and selling of Japanese swords via the internet has expanded, the scope of application of the Secondhand Articles Dealer Act has once again attracted attention. In face-to-face transactions, it suffices to have the other party present their driver's license or My Number Card and verify it on the spot. However, in online transactions such as sword e-commerce, where the seller and buyer never meet face to face, the verification procedures for non-face-to-face transactions prescribed by the Act must be followed. The fact that the common practices of face-to-face transactions cannot simply be carried over to online dealings is what makes practical compliance in this field challenging.

The Three Identity Verification Methods Required for Non-Face-to-Face Transactions

The Enforcement Rules of the Secondhand Articles Dealer Act limit the permissible methods of identity verification in non-face-to-face transactions to several categories. The three main methods are as follows.

1. The method using addressee-only mail — payment and delivery of the item are conducted via a postal service that only the named addressee can receive, delegating confirmation of identity to the postal service provider's verification procedures.
2. The combination of non-forwarding mail and identity documents — a public document such as a copy of the residence certificate is received from the other party, and mail marked as non-forwarding is sent to the address listed on that document, confirming the fact of the person's existence and residence by whether the mail is actually delivered.
3. Transfer to a bank account in the person's own name — a copy of the residence certificate or equivalent is received, a contract is entered into to transfer the payment to a deposit account held in the name listed on that document, and the match between the account name and the declared information is confirmed.

A key feature of all these methods is that simply having the other party send an image of their identity document is not sufficient. A growing number of businesses are adopting online-only verification via image submission — so-called eKYC — but this too is only recognized as a valid verification method when it meets the requirements prescribed by the Enforcement Rules, such as photography that captures the thickness and characteristics of the identity document, comparison with the facial photograph, and so on. Regardless of the type of document, there is also an obligation to retain records of the verification for a prescribed period.

Risks of Neglecting Identity Verification and the Impact on the Industry

Japanese swords, as high-value works of art, are also goods in which stolen items can easily be mixed into the market as distressed merchandise. Transactions in which identity verification is performed only perfunctorily or is omitted not only heighten the risk of being exploited as a channel for converting stolen goods into cash, but may also expose the business operator to revocation of their operating license or other penalties.

For sword dealers, identity verification is not merely a legal compliance procedure; it is also a mechanism for ensuring that the counterparty is the true and legitimate owner, and in turn for protecting the provenance of the sword the buyer will receive. Having systems in place that allow stolen swords to be traced through transaction records when they are discovered serves as a measure of the trustworthiness of the industry as a whole. In recent years, the international circulation of works of art and antiques has increased, and there is a growing tendency for swords whose provenance cannot be traced to be shunned even in overseas markets.

Ledger Entry Requirements Alongside Identity Verification

The obligations that the Secondhand Articles Dealer Act imposes on secondhand article dealers do not end with identity verification. For every transaction, it is also mandatory to record in the secondhand articles ledger the counterparty's name, address, occupation, and age, the date of the transaction, the characteristics of the secondhand article, and other relevant information, and to retain these records for a prescribed period. This is not merely a matter of internal record-keeping; it is also a mechanism that provides important leads when the police investigate the distribution channels of stolen goods.

Swords are secondhand articles whose individual identity is relatively easy to establish from the mei, the shape, and the characteristics of the koshirae, and the more accurate the ledger entries, the easier it becomes to trace a sword when theft or illicit distribution is discovered. While online transactions have the advantage that transaction records are automatically retained in the system, situations can arise where the recorded content amounts to nothing more than a list of formal input fields and is not integrated with the actual identity verification process. Designing the conduct of identity verification and ledger entry as a single integrated procedure is key to maintaining the effectiveness of the system.

Mechanisms Supporting the Integrity of the Online Sword Market

As online trading of Japanese swords continues to expand, identity verification practices are a field in which further refinement will continue to be required. The options for non-face-to-face verification with a level of certainty equal to or greater than face-to-face verification are expanding year by year, including verification by reading the IC chip of the My Number Card and verification methods utilizing the Public Personal Authentication Service.

From the perspective of a sword buyer, checking the counterparty's secondhand article dealer license number and identity verification system provides a practical means of identifying businesses with which one can trade with confidence. It is not widely known that the Secondhand Articles Dealer Act — a regulation that may seem unremarkable at first glance — actually forms the foundation for protecting the value and provenance of Japanese swords as works of art. When searching for swords online, the presence or absence of a displayed secondhand article dealer license number is a good first measure of a dealer's reliability.