Indonesia’s Financial Institutions Under Scrutiny: Risk Assessment Reveals Strengths and Weaknesses

A recent financial risk assessment has shed light on Indonesia’s progress in combating money laundering and terrorist financing, highlighting both strengths and areas that require improvement.

Progress Made

The country’s legal framework is considered strong, with robust domestic inter-agency coordination and cooperation, as well as good results in international cooperation. The Financial Action Task Force (FATF) praised Indonesia’s understanding of the risks it faces and its development of risk-based policies and strategies to mitigate them.

Areas for Improvement

However, the assessment identified significant risks from domestic crimes such as corruption, narcotics, tax evasion, and forestry crimes, which are major contributors to money laundering. The presence of terrorist organizations and their supporters within the country poses a high risk of terrorism financing.

• Risk-based supervision needs to be improved, particularly in:
  • Money changing
  • Money or value transfer services
  • Non-financial sectors
• Effective and dissuasive sanctions are needed across all sectors.
• Indonesia must ensure accurate information on the ultimate owners of all companies is available to law enforcement.

Commendations

The Indonesian Financial Intelligence Unit was commended for providing high-quality, timely, and targeted financial intelligence to law enforcement agencies, which has been instrumental in investigating money laundering, terrorist financing, and other crimes.

Areas for Further Improvement

• Improvements are needed in the investigation and prosecution of different types of money laundering activities, particularly:
  • Recovering assets located abroad or linked to forestry or environmental crime
• Indonesia needs to improve its understanding of the risk of abuse of its non-profit sector for terrorism financing and take proportionate measures without disrupting legitimate charitable activities.
• Key gaps remain in Indonesia’s legal framework for targeted financial sanctions on proliferation financing.

Conclusion

While Indonesia has made significant progress in combating money laundering and terrorist financing, there is still much work to be done to strengthen its financial institutions’ risk assessment and mitigation strategies. The country will continue to work towards fulfilling FATF membership requirements by addressing these weaknesses.