Financial Crime World

Indonesia: Strengthening the Fight against Financial Crimes and Ethics

Recognition of Indonesia’s Efforts against Money Laundering and Terrorist Financing

[Paris, April 27, 2023]

Indonesia’s commitment to preventing money laundering (ML) and terrorist financing (TF) has been acknowledged by the Financial Action Task Force (FATF) for its strong legal foundation and effective use of financial intelligence and international cooperation. However, there are areas for improvement, particularly in asset recovery, risk-based supervision, and proportionate sanctions.

Primary Risks: Corruption and Terrorist Financing

Indonesia’s primary money laundering risks stem from domestic crimes, including:

  1. Corruption
  2. Narcotics
  3. Tax evasion
  4. Forestry crimes

Additionally, the country faces significant terrorism financing risks due to the presence of terrorist organizations and their supporters.

Mitigating Money Laundering Risks: Policies, Strategies, and Key Regulatory Bodies

Indonesia has implemented risk-based policies and strategies to mitigate money laundering risks, with notable successes in inter-agency coordination and international cooperation. The following entities play a crucial role in Indonesia’s AML/CFT system:

  1. Financial Services Authority (OJK)
  2. Indonesian Financial Intelligence Unit (FIU)
  3. Ministry of Economy and Finance

While larger financial institutions, virtual asset service providers, and banks have a good grasp of the risks, understanding is more varied in other sectors.

Enhancing Risk-Based Supervision and Effective Sanctions

Indonesia could prioritize the following steps for a more comprehensive and effective approach against money laundering:

  1. Risk-based supervision: Ensure all sectors are covered by risk-based supervision.
  2. Proportionate sanctions: Implement effective sanctions across all sectors, not just financial institutions.
  3. Access to accurate company ownership information: Guarantee law enforcement access to accurate information on the ultimate ownership of companies.

Combating Money Laundering: Enhancing Investigative Efforts and Asset Recovery

The Indonesian Financial Intelligence Unit (FIU) plays a vital role in providing financial intelligence to support money laundering, terrorism financing, and other investigations. However, Indonesia should:

  1. Improve investigative efforts into various money laundering activities, especially those related to forestry crimes.
  2. Confiscate illegally-obtained assets permanently, particularly those located abroad or associated with forestry or environmental crimes.

Strengthening Terrorist Financing Efforts

Indonesia’s efforts to combat terrorist financing have been effective, focusing on returning foreign terrorist fighters and de-radicalization initiatives. However, to strengthen these efforts, Indonesia should:

  1. Improve its understanding of potential abuse of the non-profit sector for terrorism financing.
  2. Adopt proportionate measures to prevent terrorism financing without hindering legitimate charitable activities.

Addressing Proliferation Financing

Indonesia has made progress in addressing shortcomings in its legal framework for financial sanctions against proliferation financing (PF), but significant gaps remain. The country will continue to implement actions to meet FATF membership requirements.