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Indonesia’s AML/CFT Regime

Overview

The Republic of Indonesia (Capital – Jakarta) is a country in Southeast Asia bordering East Timor, Malaysia and Papua New Guinea. It is the world’s largest island country, with more than seventeen thousand islands. It is the fourth most populous jurisdiction in the world. With a GDP of more than 1 trillion USD (as of 2017), Indonesia is Southeast Asia’s largest economy.

Category Value
Population 269.1 million (in 2019)
GDP Growth Rate# 5.17% (in 2018)
Inflation# 3.32% (May 2019)
Currency Indonesian Rupiah (IDR)
Currency Exchange Rate* 1USD =14,269.70 IDR
World Bank Ease of Doing Business 2018 Rank 73, out of 190 countries
Transparency International’s Corruption Perception Index 2018 Rank 38, out of 180 countries
#Source: Bank Sentral Republik Indonesia *Source: www.xe.com (On June 13, 2019)

Banking Industry

As of March 2018, Indonesia had 115 commercial banks and 1,630 rural banks. The four largest banks are state-owned holding over 45% of bank assets. The banking sector contributed around 78% of total financial sector assets in the country (as of Dec 2018).

The Financial Services Authority (“Otoritas Jasa Keuangan” or OJK) regulates key aspects of the banking and financial system, including bank regulation and supervision, whereas Bank Indonesia (BI), the Central Bank of Indonesia, regulates payment systems and conducts foreign exchange supervision.

Indonesia has been encouraging the development of Islamic banking and the Indonesian Islamic banking sector currently has 13 full-service Islamic banks, 21 banks with Islamic finance units, and 167 Islamic rural banks.

Last year, the government warmed to the idea of foreign takeovers and mergers, pushing banks to consolidate in order to strengthen the national banking system. Mergers and acquisitions in the banking industry are projected to continue, as foreign investors from Japan and South Korea have begun to acquire local banks, while big state-owned and private banks have shown interest in acquiring the smaller ones.

As of December 2018, Non-Performing Loans (NPLs) stood at 2.37% which can be considered moderate and manageable. Capital levels of Indonesian banks are in the range of 22.97% (as of December 2018) which is comfortably higher than what is mandated as per BCBS norms.

AML/CFT Regime

Indonesia became a member of the Asia/Pacific Group on Money Laundering (APG) in August 1999 and held the rotating APG Co-chair role from 2006 to 2008. The last mutual evaluation of Indonesia was conducted in November 2017.

Indonesia was placed under “jurisdictions with strategic AML/CFT deficiencies” by FATF in 2012 as the jurisdiction was deemed weak in terms of measures to combat ML/TF risks. In 2015, the country was taken out of this list due to progress in regulation.

Based on APG’s Mutual Evaluation Report on Indonesia (September 2018), there is a high risk of terrorist financing in the country. The report identified corruption, narcotics and taxation as the three main money laundering generating predicate offences in the country. In the non-financial sector, real estate and motor vehicles possess the highest quantum of risk. Indonesia’s geographic location along with its vast coastline, numerous islands and a vast number of difficult to control locations makes it vulnerable to smugglers and drug traffickers using the same for illegal entry and exit.

Basel AML Index

In 2018, Indonesia was ranked 52 on the Basel AML Index, published by the Basel Institute on Governance, which provides risk ratings based on the quality of a country’s framework for AML and CFT and related factors such as perceived levels of corruption, financial sector standards and public transparency. Out of 129, a rank of 1 denotes the highest risk of money laundering and terrorist financing in the country, while 129 would be the lowest risk.

Indonesian Financial Transaction Reports and Analysis Centre (INTRAC)

Indonesia established a Financial Intelligence Unit (FIU) called the Pusat Pelaporan dan Analysis Transaksi Keuangan (PPATK), also known as the Indonesian Financial Transaction Reports and Analysis Centre (INTRAC) in 2002. INTRAC first became known in Indonesia in Act No. 15 of 2002 on Money Laundering.

INTRAC exists as an independent body and is directly responsible to the President.