Indonesia’s Financial Sector Grapples with Rise in Fraudulent Activities

Indonesia’s financial sector is facing a growing threat from fraudulent activities, with experts warning that law enforcement agencies are struggling to keep pace with the rapidly evolving digital landscape.

According to data from the Indonesian Financial Transaction Reports and Analysis Centre (PPATK), fraud-related suspicious action reports have risen steadily over the past three years. In 2019, there were 9,801 such reports, which increased to approximately 23,000 in 2021.

Cyber-Based Fraud on the Rise

Cyber-based fraud and violations of the electronic transaction law have become the most common type of crime triggering suspicious action reports. Experts warn that new payment methods and the need for law enforcement agencies to adapt quickly to the digital threat landscape pose significant risks.

Vulnerabilities in Financial Services

Experts at a recent webinar organized by the United Nations Office on Drugs and Crime (UNODC) highlighted the vulnerabilities in financial services, including fintech and crypto traders. These technologies are vulnerable to organized crime due to their ability to open accounts without face-to-face appointments, high-speed transactions, and real-time privacy features.

Phishing Scams and Identity Theft

PPATK Acting Deputy of Prevention Fithriadi Muslim warned that inadequate information security in the financial services sector could lead to criminals exploiting phishing scams and identity theft. He also highlighted the risks posed by business email compromises, where criminals intercept correspondence to undertake the transfer of funds from victims to themselves.

Trade-Based Money Laundering

The webinar also touched on the issue of trade-based money laundering (TBML), which involves the use of digital transformation to move funds cross-border using inflated import/export transactions. This type of fraud is difficult for authorities to trace, as the transactions appear unsuspicious on the surface.

New Technologies Hold Promise

Experts emphasized that new technologies hold great promise for law enforcement agencies, citing examples such as data mapping of crime, smartphone tracking, and biometrics. They warned that governments need to be able to harness the emerging power of financial technologies while mitigating risks using smart regulations and encouraging private sector development.

UNODC’s Efforts to Support Indonesia’s Digital Transformation

The webinar was attended by over 100 participants from national regulators, law enforcement, financial services, and other government agencies. It is part of UNODC’s efforts to support Indonesia’s digital transformation policy and enhance its readiness to mitigate the risks posed by crime associated with this rise in digital innovation.