In 2001, Indonesia was added to the Financial Action Task Force (FATF) list of Non-Cooperative Countries or Territories (NCCT), because many serious deficiencies were noted in its anti-money laundering (AML) framework. However, in view of the enactment of an AML Law in 2003 (Law No. 25) and implementation of reforms in the country's AML regime, the FATF removed the country from the NCCT list in 2005 and declared that Indonesia was implementing its AML regime on an ongoing basis. A 2008 report by the U.S. Department of State (DoS) indicates that Indonesia has made some progress in establishing an AML regime in the country; however, it has not yet made concerted efforts to combat terrorist financing. The report also laments that weak human and technical capacity, poor interagency cooperation, and rampant corruption remain significant impediments to the continuing development of an effective AML regime. Other deficiencies in the AML regime in Indonesia include: (1) insufficient legal basis to effectively combat terrorist financing; (2) inadequate law enforcement capabilities in investigating, prosecuting, and convicting money laundering/terrorist financing crimes; and (3) not being yet party to the United Nations (UN) Convention against Transnational Organized Crime. The U.S. DoS report recommends that Indonesia continue strengthening the country's AML regime at the highest governmental level, review and streamline the process of disseminating UN designations for terrorists, and identify, freeze and seize terrorist assets. A proposed amendment to the AML Law, per the report, still falls short when measured against international standards. Despite the rather negative outlook portrayed by the 2008 U.S. DoS report, there is little information publicly available addressing Indonesia's compliance with the FATF's recommendations on anti-money laundering and combating the financing of terrorism.

General Overview

The 2008 U.S. DoS report notes that the FATF had added Indonesia to its list of NCCT in June 2001, due to "a number of serious deficiencies in Indonesia's Anti-Money Laundering (AML) framework, including the lack of a basic set of AML provisions and the failure to criminalize money laundering." However, Indonesia subsequently enacted AML legislation and embarked on the implementation of reforms to its AML regime. In light of these developments, the FATF removed the country from its list of NCCT on February 11, 2005. The FATF mentions in a 2005 report that "in October 2003, Indonesia enacted legislation amending Law 15/2002 that addressed the main legal deficiencies by removing the threshold for defining the proceeds of crime, improving Suspicious Transaction Reports (STR) requirements by penalizing unauthorized disclosure of such reports, and enhancing measures for international co-operation" (p. 7). Further, the country is implementing its AML regime on an ongoing basis.

The 2008 U.S. DoS report enumerates the deficiencies in the Indonesian anti-money laundering/combating the financing of terrorism (AML/CFT) regime and suggests some improvements. Per the report, Indonesia has made some progress in establishing an AML regime in the country, but it has not yet made concerted efforts to combat terrorist financing. Indonesia has diligently conducted sustained public awareness campaigns, promulgated disclosure requirements for banks and other financial services providers, and is involved via the Indonesian Financial Transaction Reports and Analysis Center (Pusat Pelaporan dan Analisis Transaksi Keuangan, or PPATK). The PPATK is a credible anti-corruption drive. These efforts at the national level have enhanced public awareness on money laundering and, to some extent, terrorist financing. However, the report laments that "weak human and technical capacity, poor interagency cooperation, and rampant corruption in business and government remain significant impediments to the continuing development of an effective anti-money laundering regime." The report recommends that Indonesia continue to strengthen the country's AML regime at the highest governmental level. Various steps to be taken by the country suggested by the report are: (1) continue to improve capacity of the law enforcement agencies; enhance interagency cooperation in analyzing STRs and cash transaction reports; and investigate and prosecute cases so as to attain deterrence for money laundering or terrorist-financing crimes; (2) review and streamline the process of disseminating UN designations for terrorists and identify, freeze and seize terrorist assets; and (3) become a party to the UN Convention against Transnational Organized Crime.

The 2008 U.S. DoS report observes that Indonesia is "neither a regional financial center nor an offshore financial haven" however, its "poorly regulated financial system, cash-based economy, the lack of effective law enforcement, and widespread corruption" make it vulnerable to money laundering and terrorist financing. Money laundering in Indonesia is mostly linked to nondrug criminal activity such as gambling, prostitution, bank fraud, theft, credit card fraud, maritime piracy, sale of counterfeit of goods, illegal logging, and corruption. Smuggling is also rampant in Indonesia, aided by a vast coastline and a corrupt law enforcement and customs infrastructure.

The key money laundering law in Indonesia, per the 2008 U.S. DoS report, is Law No. 15 of 2002. It made money laundering a criminal offense. It also established a clear legal basis for freezing and confiscating the proceeds of crime, and spelled out 15 predicate offenses. It was amended in 2003 by Law No. 25 of 2003 to address concerns of the FATF. The amendment spells out a new, expanded definition of money laundering and removes the threshold for proceeds of crime. Further, the October 18, 2002, emergency counter-terrorism regulation, the Government Regulation in Lieu of Law of the Republic of Indonesia (Perpu) No. 1 of 2002 on Eradication of Terrorism, criminalizes terrorism and provides the legal basis for the government to take action against terrorists, including tracking and freezing their assets. The 2008 U.S. DoS report mentions a proposed amendment to the AML Law submitted to the parliament in October 2006. The report notes that, when enacted, the new law will provide the PPATK with more investigative powers and the authority to block transactions suspected to be related to money laundering. The Law will also have provisions for civil asset forfeiture. The U.S. DoS report, however, notes that "despite these provisions, the draft amendments appear to have remaining gaps when measured against current AML/CTF international standards."

The Indonesian financial intelligence unit (FIU) is the PPATK. It was created in April 2002 under the AML Law No. 15 of 2002. Prior to its establishment and transfer of operation in October 2003, the Special Unit for Banking Investigation of Bank Indonesia (UKIP-BI) performed the function of receiving and analyzing STRs from the banking sector. The PPATK has been a member of the Egmont Group of FIUs since June 2004. It is also a member of the Asia/Pacific Group (APG) on Money Laundering. As noted by the 2008 U.S. DoS report, Indonesia is a party to the 1988 Vienna Convention, the 1999 UN International Convention for the Suppression of the Financing of Terrorism and the 2003 UN Convention against Corruption. The government of Indonesia has signed but not yet ratified the UN Convention against Transnational Organized Crime (Palermo Convention).

The 2008 U.S. DoS report provides some statistics on Indonesia's AML enforcement efforts. As of November 2007, the PPATK had received approximately 12,000 STRs from 112 banks, 7 rural banks, and 82 nonbank financial institutions, of which roughly 5,000 were received during 2007. The agency was reported as stating that it had also received over four million cash transaction reports from 132 banks, 48 moneychangers, 35 rural banks, 5 insurance companies, and 2 securities companies. Further, the Directorate of Customs and Excise submitted more than 2,137 reports to the PPATK on the cross-border transfer of cash, as of December 2007. The reports came from two airports, Jakarta Cengkarang and Denpasar, the seaports of Batam and Tanjung Balai Karimun, and from Bandung, Batam and Denpasar. As of July 2007, the Indonesian National Police (POLRI) had conducted 20 investigations based on cross-border currency reports. The PPATK analyzed 888 STRs and forwarded a total of 521 cases to law enforcement agencies on their basis. In October 2004, one Indonesian was convicted and sentenced in an Indonesian court to 4 years of imprisonment on terrorism charges for his role in the financing of the August 2003 bombing of the Jakarta Marriott Hotel.

The Principles

1. Legal Systems and Related Institutional Measures

II

The 2008 U.S. DoS report states that Law No. 15 of 2002 concerning the Crime of Money Laundering makes money laundering a criminal offense. As such there are 15 predicate offenses under the Law, including narcotics trafficking and other major crimes. To further address FATF concerns, Indonesia passed Law No. 25 of 2003 amending Law No. 15 of 2002. The new Law spells out a new definition of the offense as "an offense for anyone to deal intentionally with assets known, or reasonably suspected, to constitute proceeds of crime with the purpose of disguising or concealing the origin of the assets." The new law also removed the threshold requirement for the proceeds of crime. Nonetheless, there is little information publicly available as to Indonesia's compliance with this principle.

Per the 2008 U.S. DoS report, the October 18, 2002 emergency counter-terrorism regulation, the Government Regulation in Lieu of Law of the Republic of Indonesia on Eradication of Terrorism, criminalizes terrorism and provides the legal basis for the government to take action against terrorists, including tracking and freezing their assets. An individual convicted of intentionally providing or collecting funds used partially or wholly for terrorist acts can be sentenced for a minimum of three years and a maximum of 15 years imprisonment. However, the report observes that the regulation "appears to suffer from a number of deficiencies." Indonesia's AML law criminalizes the "proceeds of crime" and terrorism does not always generate "proceeds." Terrorist financing can therefore not be considered fully a predicate offense for money laundering. The terrorist financing offense must be linked to a specific act of terrorism, and the prosecution must prove that the offender specifically intended that the funds be used for acts of terrorism. This regulation is necessary because Indonesia's anti-money laundering law criminalizes the laundering of "proceeds" of crimes, but it is often unclear to what extent terrorism generates proceeds.

Indonesia's FIU, the PPATK, was established under Law No. 15 in April 2002 with the power and responsibility of preventing and eradicating money laundering. It became operational in October 2003. It is an independent agency receiving, analyzing, and evaluating currency and STRs. It also provides assistance and advice to law enforcement authorities and issues publications. Further, it develops AML/CFT policies and regulations. The U.S. DoS report attests that the PPATK "continues to make progress in developing its human and institutional capacity."

The 2008 U.S. DoS report observes that the government of Indonesia "has limited formal instruments to trace and forfeit illicit assets." Any confiscation of assets requires criminal justice proceedings and a court order. The government is also legally handicapped to trace and freeze assets of terrorist individuals or organizations on the UN Security Council Special Resolution (UNSCR) 1267 Sanctions Committee's consolidated list. Further, Indonesia lacks administrative or judicial methods to implement UNSCR 1267 and UNSCR 1373. The Bank Indonesia (BI), Indonesia's central bank, circulates the consolidated list to all banks operating in Indonesia, but the process is highly cumbersome and inefficient, and is therefore not timely. Financial institutions are also not provided with guidance on what to do once the assets are discovered. Investigations to prove that the assets need to be frozen or forfeited are lengthy, while criminal procedures are ad hoc and confusing. The report goes on to add that Law No. 15 establishes "a clear legal basis for freezing and confiscating the proceeds of crime." As amended by Law No. 25, Law 15 authorizes investigators, prosecutors, and judges to freeze any asset reasonably suspected of being proceeds of crime. With sufficient evidence gathered on examination of the defendant in court, the judge may order the sequestration of such assets. In the case of the death of the defendant before the verdict is pronounced, the assets may be confiscated.

The 2008 U.S. DoS report mentions a proposed amendment to the AML Law submitted to the parliament in October 2006. The report hopes that, when enacted, the new law will provide the PPATK with more investigative powers and the authority to block transactions suspected to be related to money laundering. The Law will also have provisions for civil asset forfeiture. The report, however, notes that "despite these provisions, the draft amendments appear to have remaining gaps when measured against current AML/CTF international standards."

On the subject of the physical movement of currency, Law No. 15 stipulates that any person taking cash into or out of Indonesia equal to or more than 100 million Rupiah or its equivalent in another currency must report it to the Director General of Customs and Excise. The Director General of Customs and Excise must forward these reports to the PPATK within five business days, along with details of the person's identity. Other pertinent requirements and procedures with regard to inspection, prohibition, and deposit of Indonesian Rupiah into or out of the country are contained in the BI regulation 3/18/PBI/2001 and Directorate General of Customs and Excise Decree No.01/BC/2005. The Decree provides implementation guidance for the 2004 Ministry of Finance Regulation No.624/PMK. 2004. However, the U.S. DoS report finds that the cash declaration requirements do no cover bearer-negotiable instruments, as required by FATF's Special Recommendation IX. Also, the authorities may only restrain cash in the case of false declaration by the passenger or their failure to disclose. Even so, the amount is returned after a small administrative penalty. Money suspected of financing terrorism or suspected to be proceeds of crime cannot be stopped, restrained, or seized. Despite numerous investigations into cross-border currency reports, detection is paltry and criminal penalties are limited and barely applied.

2. Preventive Measures - Financial Institutions

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Despite a lot of descriptive information, there is little information addressing Indonesia's actual compliance with the requirements of this principle. According to the 2008 U.S. DoS report, Law No. 15 obliges financial service providers to submit STRs and cash transaction reports to the PPATK. Law No. 25 expands the STR requirements by including attempted or unfinished transactions. The period to file an STR has also been shortened to three days or less after the identification of such transaction. The law makes it an offense to disclose STR information to third parties and penalizes it with a maximum five-year imprisonment sentence and a maximum fine of one billion Rupiah. However, STR on suspected terrorist financing is not provided for in the law.

The BI also has issued Regulation No. 3/10/PBI/2001 entitled "The Application of Know Your Customer [KYC] Principles" in 2001. The regulation contains requirements for banks relating to obtaining information on and verification of prospective customers, including third party beneficial owners; establishing special monitoring units and appointing compliance officers to implement the new rules; and maintaining the necessary information systems to help them comply with the law. In addition, the BI has issued an Internal Circular Letter No. 6/50/INTERN in 2004 concerning Guidelines for the Supervision and Examination of the Implementation of KYC and AML by Commercial Banks and a Circular Letter to Commercial Banks No. 6/37/DPNP also in 2004 concerning the Assessment and Imposition of Sanctions on the Implementation of KYC and other Obligations Related to Law on Money Laundering Crimes. The BI is also preparing Guidelines for Money Changers on Record Keeping and Reporting Procedures, and Money Changer Examinations to be given by the BI examiners. The BI requires banks to report all foreign exchange transactions and foreign obligations to the BI.

The 2008 U.S. DoS report further notes that Law No. 15 exempts reporting, investigation, and prosecution of money laundering from the provisions of Indonesia's bank secrecy laws that stipulate that bank account holder information be kept confidential, except under limited circumstances. The PPATK is exempted from the laws in its functions of receiving and requesting STRs and conducting investigations of financial service providers. Also, financial service providers are exempted from the requirements of the secrecy laws in discharging their reporting obligations and are provided protection from civil or criminal action against disclosure. BI Regulation No. 2/19/PBI of 2000 provides an additional mechanism to access confidential information from financial institutions. The PPATK is charged with the authority to conduct supervision and monitor compliance with AML/CFT regulations by financial services. It also advises and assists relevant authorities on information obtained by the PPATK. The 2008 U.S. DoS report adds that Indonesia enacted its first Witness and Victim Protection Law No. 13 in August 2006. Further, the AML Law and Government Implementing Regulation No. 57 of 2003 provide protection to whistleblowers and witnesses.

The BI, per the 2008 U.S. DoS report, circulates the consolidated lists under UNSCR 1267 and UNSCR 1373 to all banks operating in Indonesia, but the interagency process is highly cumbersome and inefficient, and is therefore not timely. Financial institutions are also not provided with guidance on what to do once the assets are discovered. Banks complain about the difficulty of identifying UNSCR 1267 and UNSCR 1373 consolidated list accounts. The 2005 FATF report informs in this context that BI Regulations 5/23/PBI/2003 and 6/1/PBI/2004 impose know your customer requirements on rural banks and money changers respectively. Capital Market Supervisory Agency (Badan Pengawas Pasar Modal, or Bapepam) Decree No. 02/PM/2003 of January 2003 contains KYC and STR requirements for securities companies, mutual fund companies, and custodian banks. The MoF's Decree No. 45/KMK.06/2003, of January 2003 contains the KYC and STR requirements for insurance, pension funds and financing companies. The 2005 U.S. DoS report stated that the PPATK has issued AML and STR guidelines for non-bank financial service providers and money remittance agents in Indonesia.

The 2008 U.S. DoS report mentions a proposed amendment to the AML Law, submitted to the parliament in October 2006. The report hopes that, when enacted, the new law will provide the PPATK with the authority to block any financial transaction suspected to be related to money laundering.

3. Preventive Measures - Designated non-Financial Business and Professions

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The 2008 U.S. DoS report mentions a proposed second amendment to Indonesia's AML Law No. 15, submitted to the parliament in October 2006. The report hopes that, when enacted, the new law will require nonfinancial service businesses and professions (NFBPs) that could potentially be involved in money laundering, such as car dealers, real estate companies, jewelry traders, notaries, and public accountants, to file STRs. There is, however, little further information publicly available as to Indonesia's compliance with this principle.

4. Legal Person and Arrangements & Non-Profit Organizations

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According to the 2008 U.S. DoS report, Indonesia "has begun to take into account... charitable and nonprofit entities in its strategy to combat terrorist financing and money laundering." The report notes that the government has "initiated a dialogue with charities and nonprofit entities to enhance regulation and oversight of those sectors." There is, however, little further information publicly available as to Indonesia's compliance with this principle.

5. National and International Co-operation

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There is insufficient information publicly available addressing Indonesia's compliance with this principle. The 2008 U.S. DoS report observes that the PPATK "actively pursues broader cooperation" with relevant Indonesian agencies. In this effort, the PPATK has signed 16 domestic memoranda of understanding (MoUs) to facilitate information exchange related to financial intelligence with the following entities: the Attorney General's Office (AGO), BI, Bapepam, MoF, Directorate General of Financial Institutions, Directorate General of Taxation, Director General for Customs and Excise, Ministry of Forestry Center for International Forestry Research, POLRI, Supreme Audit Board (BPK), Corruption Eradication Committee, Judicial Commission, Directorate General of Immigration, State Auditor, Directorate General of the Administrative Legal Affairs, Department of Justice and Human Rights, National Anti-Narcotics Board, and the Province of Aceh.

The 2008 U.S. DoS report further notes that Indonesia is an active member of the APG and as of 2008 is serving as one of its co-chair. The report informs that the APG conducted its second mutual evaluation of Indonesia in November 2007 and it will be adopted in July 2008. The PPATK has also been a member of the Egmont Group of FIUs since June 2004. It has, per the report, "pursued broader cooperation through the MoU process" and has entered into 23 MoUs with other Egmont FIUs. The PPATK has also entered into an Exchange of Letters enabling international exchange with Hong Kong. The Indonesian Regional Law Enforcement Cooperation Centre was established in 2005 "to develop the operational law enforcement capacity needed to fight transnational crimes."

As noted by the 2008 U.S. DoS report, Indonesia enacted Law No. 7 in 2007 to implement the 1988 Vienna Convention, to which it is a party. The country also has enacted Law No. 22 of 1997 concerning Drugs and Psychotropic Substances, which makes the possession, purchase, or cultivation of narcotic drugs or psychotropic substances for personal consumption a criminal offense. Indonesia is a party to the 1999 UN International Convention for the Suppression of the Financing of Terrorism and a party to the 2003 UN Convention against Corruption. The country has signed but not yet ratified the UN Convention against Transnational Organized Crime (Palermo Convention).

Per the 2008 U.S. DoS report, Indonesia has signed Mutual Legal Assistance Treaties with Australia, China, and South Korea. Indonesia also joined other ASEAN nations in signing the ASEAN Treaty on Mutual Legal Assistance in Criminal Matters on November 29, 2004, but the treaty has not yet been ratified by the Government of Indonesia. Additionally, Law 25 of 2003 also provides for mutual legal assistance (MLA) in money laundering cases, using the mandatory powers of the court. The Law also obliges the PPATK to implement international conventions and recommendations relating to AML. Further, as the report finds, Indonesia enhanced the country's MLA capabilities by enacting the country's first Mutual Legal Assistance Law No. 1 in 2006, "which establishes formal, binding procedures to facilitate MLA with other states."