Indonesia

The country with the highest number of Muslims (around 200 millions) has made several economic advances by introducing significant reforms in the financial sector, including tax and customs reforms, the use of Treasury bills, and capital market development and supervision. During the global financial crisis, Indonesia outperformed its regional neighbors and joined China and India as the only G20 members posting growth in 2009. The government has promoted fiscally conservative policies, resulting in a debt-to-GDP ratio of less than 25%, a fiscal deficit below 3%, and historically low rates of inflation. Fitch and Moody's upgraded Indonesia's credit rating to investment grade in December 2011. Indonesia still struggles with poverty and unemployment, inadequate infrastructure, corruption, a complex regulatory environment, and unequal resource distribution among regions.

Although neither a regional financial center nor an offshore financial haven, Indonesia is exposed to money laundering and terrorist financing due to a poorly regulated financial system, the lack of effective law enforcement and widespread corruption. Indonesia remains both a transit and destination for illicit narcotics. Indonesia is one of the world’s largest consumers of drugs, particularly marijuana, methamphetamine, and heroin. Cannabis is the most widely used drug in Indonesia, followed by methamphetamine.  The majority of methamphetamine entering Indonesia originates in Iran, while the majority of heroin originates in the “Golden Crescent” region of Southwest Asia. African, Chinese, and Iranian drug trafficking organizations continue to be a significant concern for Indonesian law enforcement.

However, most money laundering in the country is connected to non-drug criminal activity such as gambling, prostitution, bank fraud, piracy and counterfeiting, illegal logging and corruption. Indonesia also has a long history of smuggling, facilitated by thousands of miles of un-patrolled coastline and a law enforcement system riddled with corruption. The proceeds of these illicit activities are easily parked offshore and only repatriated as required for commercial and personal needs.

Various steps have been taken to reduce money-laundering activities. As a result of Indonesia’s ongoing efforts to implement the reforms to its Anti-Money Laundering (AML) regime, the Financial Action Task Force (FATF) removed Indonesia from its list of Non- Cooperative Countries and Territories (NCCT) on February 11, 2005. In order to ensure continued effective implementation of the reforms enacted, the FATF is monitoring Indonesia’s progress for one year. The removal of Indonesia from the NCCT list recognized a concerted, interagency effort— personally directed by President Susilo Bambang Yudhoyono—to further develop Indonesia’s nascent AML regime.

Indonesia’s Financial Intelligence Unit (PPATK), established in December 2002 and fully functional since October 2003, continues to make steady progress in developing its human and institutional capacity.[1]

Indonesia’s Anti-Money Laundering and Counter Terrorism Finance (CTF) Donors’ Coordination Group, co-chaired by the PPATK and the Australian Agency for International Development (AUSAID), has become a model for AML/CTF donors’ coordination groups in other countries. Since Indonesia’s removal form the NCCT list, donors and the Government of Indonesia (GOI) have placed greater emphasis on more practical training; technical and capacity building assistance for the nonbank financial sector, police, prosecutors and judges; cash smuggling; and regulation of charities and money changers.

In April 2002, Indonesia passed Law No. 15/2002 Concerning the Crime of Money Laundering, Indonesia’s anti-money laundering (AML) law, which made money laundering a criminal offense. The law identifies 15 predicate offenses related to money laundering, including narcotics trafficking and most major crimes. Law No. 15/2002 established the PPATK to develop policy and regulations to combat money laundering and terrorist finance.

In September 2003, Parliament passed Law No. 25/2003 amending Law No. 15/2002 Concerning the Crime of Money Laundering that addressed many FATF concerns. Amending Law No. 25/2003 provides a new definition of the crime of money laundering making it an offense for anyone to deal intentionally with assets known or reasonably suspected to constitute proceeds of crime with the purpose of disguising or concealing the origins of the assets, as seen in Articles 1(1) and 3. The amendment removes the threshold requirement for proceeds of crime and expands the definition of proceeds of crime to cover assets employed in terrorist activities. Article 1(7)(c) expands the scope of regulations requiring STRs to include attempted or unfinished transactions. Article 13(2) shortens the time to file an STR to three days or less after the discovery of an indication of a suspicious transaction.

Bank Indonesia (BI), the Indonesian Central Bank, issued Regulation No. 3/10/PBI/2001, “The Application of Know Your Customer Principles,” on June 18, 2001. This regulation requires banks to obtain information on prospective customers, including third party beneficial owners, and to verify the identity of all owners, with personal interviews if necessary.

One of the major limitations under Indonesia’s legal and regulatory framework is the limited authority provided under its legislation to block or seize assets originating from illicit activities for money laundering purpose.[2]

Indonesia is an active member of the Asia/Pacific Group on Money Laundering (APG) and the Bank for International Settlements. BI claims that it voluntarily follows the Basel Committee’s “Core Principles for Effective Banking Supervision.” The GOI is a party to the 1988 UN Drug Convention, and has signed, but not yet ratified, the UN Convention against Transnational Organized Crime. Indonesia has signed, but not yet become a party to, the UN International Convention for the Suppression of the Financing of Terrorism.

In June 2004, Indonesia became a member of the Egmont Group and, as such, is bound to share financial intelligence with other members in accordance with the organization’s charter.

The PPATK is actively pursuing broader cooperation with other Financial Intelligence Units (FIUS) and has MOUs with Thailand, Malaysia, Republic of Korea, Philippines, Romania, Australia, Belgium, Italy, Spain, Poland and Peru. The PPATK has also entered into an Exchange of Letters enabling international exchange with Hong Kong.

Indonesia has also signed Mutual Legal Assistance Treaties with Australia, China and South Korea; and joined other ASEAN nations in signing the ASEAN Treaty on Mutual Legal Assistant in Criminal Matter on November 29, 2004.

The Indonesian Regional Law Enforcement Cooperation Centre was formally opened in 2005 and was created to develop the operational law enforcement capacity needed to fight transnational crimes.

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[1] The PPATK is an independent agency that receives, maintains, analyzes, and evaluates currency and suspicious financial transactions, provides advice and assistance to relevant authorities, and issues publications. As of December 16, the PPATK has received approximately 3,059 suspicious transactions reports (STRs) from 102 banks and 23 non-bank financial institutions. The volume of STRs has increased from an average of 70 per month in 2004, to 160 per month in 2005. The agency also reported that it had received over 1.4 million cash transaction reports (CTRs). Based on their analysis of 646 STRs, PPATK investigators have referred 344 cases to the police. Based on referrals of STRs and other related information from the PPATK, as of September 2005, there has been 1 successful prosecution involving terrorism, 19 successful prosecutions involving bank fraud and/or corruption, and 1 successful prosecution for money laundering. Sentences in these cases ranged from 4 months in prison to the death penalty. Fifteen of the twenty-one cases had sentences imposed of 8 years in prison or more; the money laundering verdict handed down a sentence of 8 years in prison.

[2] Under BI regulations 2/19/PBI/2000, police, prosecutors, or judges may order the seizure of assets of individuals or entities that have been either declared suspects, or indicted for a crime. This does not require the permission of BI, but, in practice, for law enforcement agencies to identify such assets held in Indonesian banks, BI’s permission would be required. In the case of money laundering as the suspected crime, however, bank secrecy laws would not apply, according to the anti-money laundering law.