Mutual Evaluation Report Summary – Indonesia

1 October 20233 Minute Read

Indonesia is the largest economy in Southeast Asia with a significant flow of money, which makes it vulnerable to financial crime. The money laundering risk for Indonesia comes primarily from domestic crimes such as corruption, narcotics, tax crimes as well as forestry crimes. The country faces high terrorism financing risks due to the presence of terrorist organisations and their supporters in the country.

Indonesia was placed under the Financial Action Task Force’s (FATF) blacklist and labelled as a high risk and non-cooperative jurisdiction. In 2015, however, it was removed from the list after significantly improving its anti-money laundering and counter-terrorist financing (AML/CFT) measures.

During the most recent Mutual Evaluation of Indonesia, the FATF assessed the anti-financial crime framework of the country in the context of its request to become a member. The country has observer status since 2018 and will continue working to fulfil the membership requirements.

Overall Ratings and Effectiveness

Indonesia has a strong legal, regulatory and institutional framework, with high technical compliance in most areas. Out of the 40 recommendations, which represent the level of implementation of each technical requirements set by the FATF, Indonesia has mostly largely compliant ratings. Some recommendations are faring better and are fully compliant while others are only partially compliant. The country was not rated non-compliant for any requirement.

When considering the effectiveness ratings, Indonesia achieved either a substantial or moderate level of effectiveness for the key Immediate Outcomes, which represent the key goals that an effective AML/CFT system should achieve.

The Indonesian Financial Intelligence Unit provides high quality, timely and targeted financial intelligence to law enforcement agencies for their investigations into money laundering, terrorist financing and other offences.

Main Deficiencies and Recommendations

In terms of priority actions, Indonesia needs to focus more on improving:

1. Asset recovery

The country should continue enhancing the capacity of its Asset Recovery Centre and law enforcement agencies to confiscate criminal assets that are in line with the identified financial crime risks in the national risk assessment.

In particular, law enforcement agencies should be looking at active and systematic use of international cooperation frameworks to recover proceeds of crimes committed in the country that have been laundered in other countries as well as effectively investigating money laundering activities with cross-border elements.

2. Risk-based supervision – of money changers, money or value transfer services and the non-financial sector

The country’s supervision programme including both on-site and offsite inspections, monitoring and follow up measures should be implemented following a risk-based approach for the individual supervised entities. Supervisory authorities should be making full use of their sanctioning powers when responding to regulatory violations by using dissuasive sanctions along with written warnings.

3. Oversight of the NPO sector

Another key issue still missing in Indonesia’s anti-financial crime framework since the last assessment is the need for enhanced targeted outreach and oversight for non-profit organisations (NPOs) that have been identified as most vulnerable to terrorist financing abuse. The updated 2022 NPO Sectoral Risk Assessment identifies 32 NPOs as high risk.