Financial Sanctions and Enforcement in Indonesia: A Mixed Bag
Indonesia has made significant progress in tackling money laundering and terrorist financing, with a strong legal framework and effective use of financial intelligence and international cooperation. However, experts warn that the country still needs to improve its asset recovery mechanisms, risk- based supervision, and proportionate sanctions.
Money Laundering Risks
According to a recent report by the Financial Action Task Force (FATF), Indonesia’s money laundering risks primarily stem from domestic crimes such as:
- Corruption
- Narcotics
- Tax evasion
- Forestry crimes
The country also faces high terrorism financing risks due to the presence of terrorist organizations and their supporters within its borders.
Strengths
Indonesia has shown a good understanding of the risks it faces, as well as development of risk-based policies and strategies to mitigate them. The country has also demonstrated strong results in international cooperation, particularly in informal exchanges on time-sensitive terrorism and terrorism financing cases.
Weaknesses
To improve its anti-money laundering and combating the financing of terrorism (AML/CFT) frameworks, Indonesia needs to:
- Improve risk-based supervision, particularly for money changers, money or value transfer services, and non-financial sector entities
- Impose effective and dissuasive sanctions across all sectors
- Ensure accurate information on the ultimate owners of companies is available to law enforcement
Financial Intelligence Unit
Indonesia’s Financial Intelligence Unit provides high-quality, timely, and targeted financial intelligence to law enforcement for use in investigations into money laundering, terrorist financing, and other offenses. However, experts recommend:
- Improving the investigation and prosecution of different types of money laundering activities
- Ensuring that criminals are permanently deprived of the proceeds of their crimes, particularly assets located abroad or those linked to forestry or environmental crime
Terrorist Financing
Indonesia has successfully detected, investigated, and prosecuted terrorist financing cases in line with its risk profile. The country’s strategy includes a focus on returning foreign terrorist fighters and de-radicalization efforts. However, experts recommend:
- Improving understanding of the risk of abuse of Indonesia’s non-profit sector for terrorism financing
- Taking proportionate measures without discouraging or disrupting legitimate charitable activities
Proportionate Sanctions
The report also noted that Indonesia has taken steps to address shortcomings in its legal framework for targeted financial sanctions on proliferation financing, but some key gaps remain.
Conclusion
While Indonesia has made significant progress in tackling money laundering and terrorist financing, there is still much work to be done to improve asset recovery mechanisms, risk-based supervision, and proportionate sanctions. The country will continue its efforts to fulfill the FATF’s membership requirements.