Financial Crime World

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Compliance Risks Loom Large for Indonesian Financial Institutions

Indonesia’s financial institutions are facing significant compliance risks, according to a recent assessment by the Financial Action Task Force (FATF). While the country has made progress in combating money laundering and terrorist financing, it still faces numerous challenges that must be addressed.

Money Laundering Risks

The majority of Indonesia’s money laundering risk stems from domestic crimes such as:

  • Corruption
  • Narcotics trafficking
  • Tax evasion
  • Forestry-related offenses

Indonesia also faces a high terrorism financing risk due to the presence of terrorist organizations and their supporters within its borders.

Challenges and Recommendations

Indonesia has developed robust policies and strategies to mitigate these risks, including strong domestic inter-agency coordination and cooperation. However, the country must:

  • Improve asset recovery efforts
  • Enhance risk-based supervision and imposition of proportionate sanctions across all sectors

Financial Intelligence Unit (FIU) Efforts

The Indonesian Financial Intelligence Unit has provided high-quality financial intelligence to law enforcement agencies for use in investigations into money laundering, terrorist financing, and other offenses. However, more work is needed to ensure that:

  • Accurate information on the ultimate owners of all companies is available to law enforcement
  • Criminals are permanently deprived of the proceeds of their crimes

Terrorist Financing Efforts

Indonesia has made progress in detecting, investigating, and prosecuting terrorist financing cases, including a focus on returning foreign terrorist fighters and de-**radicalization efforts. However, the country must:

  • Improve understanding of the risk of abuse of its non-profit sector for terrorism financing purposes
  • Take proportionate measures to address this issue without discouraging or disrupting legitimate charitable activities

Indonesia has taken steps to address shortcomings in its legal framework for targeted financial sanctions on proliferation financing, but some key gaps remain. The country must continue to work towards fulfilling the FATF’s membership requirements to ensure that it is able to effectively combat money laundering and terrorist financing.

Conclusion

Overall, while Indonesia has made significant progress in combating these compliance risks, there is still much work to be done to ensure that its financial institutions are adequately protected from illicit activities.