Financial Crime World

Indonesia’s Battle Against Money Laundering and Terrorist Financing: Facts and Measures

Indonesia, the fourth most populous country in the world, has been making considerable strides in combating money laundering and terrorist financing within its borders. According to the latest [Mutual Evaluation Report (MER)](# mutual-evaluation-report) by the Financial Action Task Force (FATF), Indonesia’s legal framework to counteract these illicit activities is robust and effective. However, challenges remain, particularly in the areas of asset recovery, risk-based supervision, and proportionate and dissuasive sanctions.

Indonesia’s Anticorruption Efforts

Indonesia’s commitment to counteracting financial crimes can be traced back to 1998, when the country enacted its first money laundering legislation. Since then, lawmakers have passed new regulations to strengthen the legal framework:

These measures include establishing mechanisms for financial intelligence sharing and cooperation with international partners.

PPATK’s Role in Detecting Suspected Transactions

The Indonesian Financial Transaction Reports and Analysis Center (PPATK), the country’s primary financial intelligence unit, has been playing a crucial role in detecting and reporting suspicious financial transactions. In 2021 alone:

Challenges Remain

While Indonesia has made progress in implementing countermeasures, weaknesses still exist. The MER identified room for improvement in areas such as asset recovery and the application of proportionate and dissuasive fines or sanctions:

Asset Recovery

Indonesia’s low asset recovery rate, which stands at around 1-3%, is a concern. The government has pledged to improve its framework for asset recovery:

  • Beginning discussions with FATF and other international partners regarding best practices and potential technical assistance.
  • Strengthening its policy framework for confiscating proceeds of crime.

Risk-Based Supervision

FATF has encouraged Indonesia to strengthen its risk-based supervision by reviewing and updating relevant laws and regulations.

Conclusion

Indonesia’s journey to combat money laundering and terrorist financing is an ongoing one. While the country has made significant progress in recent years, challenges persist. With a strong commitment to implementing the FATF’s recommendations and international cooperation, Indonesia remains positioned to make further strides in its efforts to counteract these illicit financial activities.

References

Suspicious Transaction Reports (STRs)

Strictly speaking, a Suspicious Transaction Report (STR) is not a financial transaction but a report made by a financial institution or designated non-financial business or profession (DNFBP) to the relevant regulatory authority regarding a transaction that may involve money laundering or terrorist financing.

Financial Intelligence Sharing

Financial intelligence sharing refers to the exchange of confidential information between financial institutions and regulatory authorities to detect, prevent, and investigate money laundering, terrorist financing, and other financial crimes.

Money Laundering and Terrorist Financing Prevention Act

This is the primary legislation in Indonesia that criminalizes money laundering and terrorist financing. It also establishes the financial intelligence unit (PPATK) and sets out its mandate and powers.

Risk-Based Supervision

Risk-based supervision is an approach to financial supervision in which regulators assess the risks that financial institutions pose to consumers and the financial system and allocate resources accordingly. In the context of combating money laundering and terrorist financing, risk-based supervision involves assessing the risks that financial institutions pose in this regard and implementing measures to mitigate those risks.

United Nations Convention against Transnational Organized Crime

The United Nations Convention against Transnational Organized Crime, adopted in 2000, is a multilateral treaty that seeks to prevent and counter organized crime, including money laundering and terrorist financing. Indonesia ratified the convention in 2011.

Mutual Evaluation Report (MER)

A Mutual Evaluation Report (MER) is a document prepared by the FATF (or one of its regional bodies) assessing the adequacy and effectiveness of a country’s measures to counter money laundering and terrorist financing. The evaluation is based on a set of 40 recommendations, which are periodically updated. A country’s compliance with each recommendation is rated as either “compliant,” “partially compliant,” or “non-compliant.”