Indonesia’s Fight Against Money Laundering and Terrorism Financing: Progress and Areas for Improvement

Introduction

Indonesia has made significant progress in tackling money laundering and terrorism financing, with a robust legal framework and effective financial intelligence in place. However, there are still areas where the country needs to improve, particularly in asset recovery, risk-based supervision, and proportionate sanctions.

Sources of Money Laundering Risks

The main sources of money laundering risks for Indonesia are:

• Domestic crimes such as corruption, narcotics trafficking, tax evasion, and forestry crimes
• High risk of terrorism financing due to the presence of terrorist organizations and their supporters

FATF Mutual Evaluation

According to the Financial Action Task Force (FATF) mutual evaluation, Indonesia has a good understanding of the risks it faces and has developed policies and strategies to mitigate them. The country’s domestic financial intelligence unit provides high-quality information to law enforcement agencies, which has led to successful investigations into money laundering and terrorism financing cases.

Areas for Improvement

However, Indonesia needs to improve its risk-based supervision, particularly in the non-financial sector, as well as impose effective and dissuasive sanctions across all sectors. The country also needs to ensure that accurate information on the ultimate owners of companies is available to law enforcement agencies.

Progress in Anti-Money Laundering/Counter-Terrorist Financing (AML/CFT) Framework

Indonesia’s financial supervisory authorities have taken proactive steps to develop an AML/CFT framework, with banks, larger financial institutions, and virtual asset service providers having a good understanding of the risks they face. However, this understanding varies among other sectors, such as:

• Money changers
• Money or value transfer services
• Non-financial entities

Strategy to Combat Terrorism Financing

Indonesia’s strategy to combat terrorism financing includes:

• Focusing on returning foreign terrorist fighters and de-radicalization efforts
• Addressing shortcomings in its legal framework for targeted financial sanctions on proliferation financing, although some key gaps remain

Future Steps

Indonesia will continue to work towards fulfilling the FATF’s membership requirements, which include addressing these areas of improvement. With continued efforts, the country can strengthen its defenses against money laundering and terrorism financing and ensure a safer financial system for all.