Indonesia’s Fight Against Money Laundering and Terrorist Financing: Room for Improvement

Indonesia has made progress in combating money laundering (ML) and terrorist financing (TF), but a recent assessment reveals that there are still areas that require further attention and improvement.

Inspection of Financial Institutions and DNFBPs

The assessment found that the inspection process for financial institutions and Designated Non-Financial Businesses and Professions (DNFBPs) is not yet robust enough to effectively identify high-risk entities. This has led to instances where high-risk non-profit organizations (NPOs) have been identified, but no targeted outreach or supervision has been conducted.

Key Findings

• The inspection process for financial institutions and DNFBPs is not effective in identifying high-risk entities.
• High-risk NPOs have been identified, but no targeted outreach or supervision has been conducted.

Transparency and Beneficial Ownership

Indonesia’s central registry for legal persons contains basic information on all types of legal persons, with notaries involved in the formation of most legal persons. However, the relatively low number of beneficial ownership (BO) registrations raises concerns about the overall effectiveness of the system. The use of “strawmen” has also been observed in a number of ML/TF cases.

Key Findings

• Indonesia’s central registry for legal persons contains basic information on all types of legal persons.
• The relatively low number of BO registrations raises concerns about the overall effectiveness of the system.
• The use of “strawmen” has been observed in a number of ML/TF cases.

International Cooperation

Indonesia has a strong framework for international cooperation and has entered into various bilateral and multilateral agreements for providing and seeking mutual legal assistance (MLA) and extradition. However, there have been instances of delays in the exchange of information on MLA requests.

Key Findings

• Indonesia has a strong framework for international cooperation.
• There have been instances of delays in the exchange of information on MLA requests.

Priority Actions

To address these challenges, Indonesia is advised to take the following priority actions:

Immediate Action

• Conduct targeted outreach to high-risk NPOs immediately upon assessing they are high risk, and on a recurring basis to ensure appropriate supervision and risk mitigation.

High-Level Operational Policy

• Develop high-level operational policy across competent authorities on initiating parallel ML investigations when investigating relevant predicate offences so as to better identify and pursue ML, particularly standalone ML.

By taking these actions, Indonesia can strengthen its efforts to combat ML/TF and protect the integrity of its financial system.