Financial Crime World

Indonesia’s Financial Crime Investigation Agencies Make Strides but Need Improvement

Indonesia has made significant progress in tackling money laundering and terrorist financing, thanks to a robust legal framework and effective use of financial intelligence and international cooperation. However, experts say that the country still needs to focus on improving asset recovery, risk-based supervision, and proportionate sanctions.

Domestic Money Laundering Risks

Domestic crimes such as corruption, narcotics, tax evasion, and forestry crimes pose significant money laundering risks for Indonesia, while terrorism financing risks are heightened by the presence of terrorist organizations and their supporters in the country. According to a recent assessment by the Financial Action Task Force (FATF), Indonesia has a good understanding of these risks and has developed policies and strategies to mitigate them.

Three Main Financial Supervisory Authorities

The country’s three main financial supervisory authorities have proactively developed an anti-money laundering and combating the financing of terrorism (AML/CFT) framework, and banks, larger financial institutions, and virtual asset service providers generally understand the risks they face. However, this understanding is more varied in other sectors, such as:

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

Improvement Needed

To address these shortcomings, Indonesia needs to improve risk-based supervision, particularly in high-risk sectors, and impose effective and dissuasive sanctions across all sectors. Additionally, the country should ensure that accurate information on the ultimate owners of all companies is available to law enforcement.

Financial Intelligence Unit

The Indonesian Financial Intelligence Unit provides high-quality financial intelligence to law enforcement for use in investigating money laundering, terrorist financing, and other offenses. However, experts say that Indonesia needs to improve its investigation and prosecution of different types of money laundering activities and ensure that it permanently deprives criminals of the proceeds of their crimes, particularly assets located abroad or from forestry or environmental crime.

Progress in Detecting and Prosecuting Terrorist Financing

Indonesia has also made significant progress in detecting, investigating, and prosecuting terrorist financing cases, although there is still room for improvement. The country’s strategy includes a focus on returning foreign terrorist fighters and de-radicalization programs. However, experts say that Indonesia needs to improve its understanding of the risk of abuse of its non-profit sector for terrorism financing and take proportionate measures without discouraging or disrupting legitimate charitable activities.

Indonesia has also taken steps to address shortcomings in its legal framework for targeted financial sanctions on proliferation financing but still faces some key gaps. The FATF assessed Indonesia in the context of its request for membership, and the country will continue its work to fulfill the requirements.

Overall, while Indonesia has made significant progress in tackling money laundering and terrorist financing, there is still room for improvement in areas such as asset recovery, risk-based supervision, and proportionate sanctions. By addressing these shortcomings, the country can further strengthen its financial crime investigation agencies and prevent the misuse of its financial system.