Financial Crime World

Indonesia’s Progress and Challenges in Preventing Terrorist Financing: A Compliance with UNSCR and FATF Recommendations

Authors:

  • Arie Afriansyah, Faculty of Law, Universitas Indonesia
  • Ahmad Ghozi, Faculty of Law, Universitas Indonesia
  • M Akila Wargadalem, Faculty of Law, Universitas Indonesia

Key Information

  • DOI: 10.59593/amlcft.2023.v2i1.49
  • Keywords: Indonesia, Terrorism, Financing, Money Laundering, Laws, Policies

Introduction

Indonesia, the most populous country in Southeast Asia, has witnessed an alarming surge in terrorist activities over the past few decades. In response, the Indonesian authorities have enacted various legislations and policies aimed at preventing the financing of terrorism (CFT) and money laundering (AML). This article examines the recent developments, challenges, and potential remedies in Indonesia’s anti-terrorist financing regime, with a particular focus on the implementation of international regulations such as UN Security Council Resolutions (UNSCR) and the Financial Action Task Force (FATF) recommendations.

The Role of UNSCR 2462 and Challenges in Implementation

In 2019, the UN Security Council adopted Resolution 2462, imposing additional measures on the Islamic State of Iraq and the Levant (ISIL) and Al-Qaida, including the prohibition on providing financial and other economic resources to these designated terrorist organizations. However, an analysis of the current state of Indonesia’s CFT regime reveals limited attention has been given to implementing this significant regulation.

Identifying Primary Financing Route for Terrorism and Potential Risks

Despite existing laws and policies, terrorists continue to exploit vulnerabilities in the Indonesian financial system to fund their activities. Two primary routes for terrorists to finance their activities in the country are exploiting charities and networks, such as hawalas, to transfer funds and the potential of unregulated digital currencies like cryptocurrencies (Fitriani et al., 2018).

Risks and Vulnerabilities in the Indonesian Financial System

The Indonesian Financial Services Authority (OJK) reported that the country faces a medium risk of being used as a source, destination, and transit route for CFT. Terrorism financing in Indonesia is facilitated through informal value transfer systems, illegal cash transactions conducted through financial institutions, and the proceeds of organized crimes and drug-related offenses (OJK, 2019).

Although Indonesia has established various legal frameworks to address terrorist financing, including Law Number 9/2013 regarding the prevention and eradication of terrorist financing and money laundering, the effectiveness of these measures is often undermined by weak implementation and enforcement.

Effective International Practices and Strategies

To enhance Indonesia’s anti-terrorist financing regime, the study explores effective international practices and strategies, such as strengthening the institutional framework, and enhancing international cooperation. The country can adopt a more proactive approach by engaging with international entities to ensure a coordinated effort to prevent and disrupt the financing of terrorism effectively.

Conclusion

This article concludes by discussing the importance of Indonesia adhering to international regulations such as UN Security Council Resolutions and FATF recommendations to effectively prevent terrorist financing. It also outlines various strategies the country can employ to strengthen its institutional framework and cooperate with international partners to address the challenges in this area.

References

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