Indonesia’s Financial Institution Compliance Policies Face Scrutiny Amid Money Laundering Concerns

The Financial Action Task Force (FATF) has recently assessed Indonesia’s progress in tackling money laundering and terrorist financing, highlighting both successes and areas for improvement.

Progress and Challenges

Indonesia has made significant strides in combating money laundering and terrorist financing, with a good understanding of the risks it faces and robust policies to mitigate them. However, there are still gaps in its asset recovery, risk-based supervision, and proportionate sanctions processes.

Money Laundering Risk

Indonesia’s money laundering risk is primarily driven by domestic crimes, while terrorism financing risk is fueled by the presence of terrorist organizations and their supporters in the country.

Supervision and Regulation

The country’s financial supervisory authorities have developed an anti-money laundering and combating the financing of terrorism (AML/CFT) framework, which has been praised for its risk-based approach. However, there is room for improvement in the supervision of:

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

Information Availability

Indonesia needs to ensure that accurate information on the ultimate owners of all companies is available to law enforcement agencies, a crucial step in combating money laundering and terrorist financing.

Financial Intelligence Unit

The country’s financial intelligence unit has been commended for providing high-quality, timely, and targeted financial intelligence to law enforcement. However, more needs to be done to improve the investigation and prosecution of different types of money laundering activities.

Terrorism Financing Risk

Indonesia has successfully detected, investigated, and prosecuted cases in line with its risk profile. The country’s strategy includes a focus on returning foreign terrorist fighters and de-radicalization efforts. However, there is still room for improvement in understanding the risk of abuse of the non-profit sector for terrorism financing.

Legal Framework and Sanctions

Indonesia has taken steps to address gaps in its legal framework for targeted financial sanctions on proliferation financing but still faces key challenges. The country will continue its work to fulfill FATF’s membership requirements as it moves forward with implementing its AML/CFT policies and procedures.

Recommendations for Improvement

To strengthen its financial institution compliance policies, Indonesia should prioritize:

• Asset recovery
• Risk-based supervision
• Proportionate sanctions

Only through a comprehensive approach can the country ensure the integrity of its financial system and protect its citizens from these serious threats.