Indonesia Fights Financial Crime with Strong Legal Framework, But Needs Improvement in Key Areas
Indonesia has made significant progress in combating financial crime, including money laundering and terrorist financing, by establishing a robust legal framework and leveraging financial intelligence and international cooperation. However, the country still needs to focus on improving asset recovery, risk-based supervision, and proportionate sanctions.
Key Risks Identified by FATF
According to the Financial Action Task Force (FATF) mutual evaluation of Indonesia, the country’s primary money laundering risks stem from domestic crimes such as:
- Corruption
- Narcotics
- Tax evasion
- Forestry crimes
Indonesia also faces high terrorism financing risks due to the presence of terrorist organizations and their supporters within its borders.
Progress in Combating Financial Crime
Indonesia has demonstrated a good understanding of the risks it faces and has developed risk-based policies and strategies to mitigate them. The country’s three main financial supervisory authorities have proactively developed anti-money laundering and combating the financing of terrorism (AML/CFT) frameworks, with:
- Banks
- Larger financial institutions
- Virtual asset service providers
- Showing a good grasp of the risks they face
Areas for Improvement
However, Indonesia needs to improve its risk-based supervision, particularly in regards to:
- Money changers
- Money or value transfer services
- Non-financial sectors
The country also requires:
- Effective and dissuasive sanctions across all sectors
- Ensuring accurate information on the ultimate owners of companies is available to law enforcement agencies
Financial Intelligence Unit
Indonesia’s Financial Intelligence Unit provides high-quality financial intelligence to law enforcement for use in investigations into money laundering, terrorist financing, and other offenses. However, Indonesia must improve its investigation and prosecution of different types of money laundering activities and ensure that it permanently deprives criminals of the proceeds of their crimes.
Terrorist Financing
Indonesia has been successful in detecting, investigating, and prosecuting terrorist financing cases in line 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 of abuse of its non-profit sector for terrorism financing and take proportionate measures without discouraging or disrupting legitimate charitable activities.
Proliferation Financing
Indonesia has taken steps to address shortcomings in its legal framework for targeted financial sanctions on proliferation financing, but some key gaps remain.
Way Forward
Indonesia will continue its work to fulfill the FATF’s membership requirements. It is essential that the country prioritizes addressing these remaining weaknesses to effectively combat financial crime.