Financial Crime World

Indonesia’s Compliance with CFT Requirements: A Mixed Bag

=====================================================

Indonesia has made significant strides in combating money laundering and terrorist financing, with a strong legal framework and effective use of financial intelligence and international cooperation. However, the country still faces challenges in improving asset recovery, risk-based supervision, and proportionate sanctions.

Primary Money Laundering Risks

According to a recent report by the Financial Action Task Force (FATF), Indonesia’s primary money laundering risks stem from domestic crimes such as:

  • Corruption
  • Narcotics
  • Tax evasion
  • Forestry-related offenses

The country also faces significant terrorism financing risks due to the presence of terrorist organizations and their supporters within its borders.

Risk-Based Policies and Strategies

Indonesia has demonstrated a good understanding of the risks it faces and has developed risk-based policies and strategies to mitigate them. This includes:

  • Robust domestic coordination and cooperation among agencies
  • Effective international cooperation on time-sensitive cases

Financial Supervisory Authorities

The country’s three main financial supervisory authorities have proactively developed anti-money laundering and combating the financing of terrorism (AML/CFT) frameworks.

  • Banks, larger financial institutions, and virtual asset service providers generally have a good understanding of the risks they face; however, this understanding is more varied in other sectors.

Areas for Improvement

To improve its AML/CFT framework, Indonesia needs to:

  • Enhance risk-based supervision, particularly for:
    • Money changers
    • Money or value transfer services
    • Non-financial sector entities
  • Impose effective and dissuasive sanctions across all sectors

Financial Intelligence Unit

Indonesia’s Financial Intelligence Unit provides high-quality financial intelligence to law enforcement agencies, which has been instrumental in investigations into money laundering, terrorist financing, and other offenses. However, the country needs to:

  • Improve its investigation and prosecution of different types of money laundering activities, particularly those involving assets located abroad or forestry-related crimes

Terrorist Financing

Indonesia has successfully detected, investigated, and prosecuted cases consistent with its risk profile. The country’s strategy includes a focus on:

  • Returning foreign terrorist fighters
  • De-radicalization efforts

However, Indonesia needs to:

  • Improve its understanding of the risk posed by the abuse of its non-profit sector for terrorism financing
  • Take proportionate measures without disrupting legitimate charitable activities

Indonesia has made progress in addressing shortcomings in its legal framework for targeted financial sanctions related to proliferation financing but still faces key gaps.

FATF Assessment and Future Plans

The FATF assessed Indonesia’s AML/CFT regime as part of its membership application, and the country will continue working to fulfill the organization’s requirements.