Cleaning up dirty money<\/p>\n
Indonesia, which has so far been ranked among the most corrupt
\ncountries in the world, has now gained notoriety as a suspected
\nconduit for money laundering. This is defined as the processing,
\nthrough the banking system, of the proceeds of crime, in order to
\ndisguise their illicit origin.<\/p>\n
The Paris-based Financial Action Task Force (FATF), an agency
\nset up in 1989 by 29 developed countries to wage an international
\ncrusade against money laundering, added Indonesia last week to
\nits blacklist of jurisdictions considered uncooperative in the
\ncrusade against money laundering.<\/p>\n
There is no hard figure for the amount of illicit cash pumped
\nthrough bank accounts by the underworld, but FATF has estimated
\nit to be as much as US$1.5 trillion per year.<\/p>\n
Intensive monitoring and investigation by international
\nagencies has revealed that money laundering is much more
\nwidespread than previously thought: hitherto, it was seen as
\nsomething that involved only drug dealers and unknown banks in
\nbanana republics located in tiny island states, such as those in
\nthe Caribbean and in Latin America.<\/p>\n
In fact, as a recent report by the Democrats in the U.S.
\nSenate disclosed, even a bank as well known as Citibank
\n(Citigroup) had, in its aggressive efforts to attract wealthy
\ncustomers in far-flung corners of the world, failed to crack down
\nadequately on money laundering. Citigroup subsequently admitted
\nits embarrassment over the failure, the report said, as quoted by
\nthe Economist weekly news magazine in its mid-April issue.<\/p>\n
Likewise, the object of laundering is no longer limited to
\ndrug money, but also other ill-gotten gains obtained through
\ncorruption and tax evasion.<\/p>\n
Insofar as domestic transactions are concerned, Indonesia has
\nlong been a haven for money laundering by residents, due to the
\nabsence of any surveillance of bank transactions. One can deposit
\nor transfer any sum of money to or from one bank to another in
\nIndonesia without any questions being asked about the source of
\nthe money. Even someone who brings in an unusually large sum of
\nbank notes for deposit to a local bank rarely raises any
\nsuspicion. Bank staff seem afraid that by asking too many
\nquestions, customers might take their money elsewhere.<\/p>\n
Only transfers of foreign exchange or rupiah into or out of
\nIndonesia worth over $10,000 have to be reported each month by
\ncommercial banks to Bank Indonesia. Even this compulsory
\nreporting requirement was enforced only last March, and was
\ndesigned purely for monitoring purposes, to help the central bank
\ndesign its monetary policies, and not to detect suspicious
\ntransactions.<\/p>\n
But Indonesia has now entered the spotlight, especially as the
\ninternational fight against money laundering has accelerated
\nsince the establishment of FATF in 1989.<\/p>\n
To be effective, the drive against money laundering should be
\nmade world-wide because it has grown in parallel with the
\nglobalization of the financial market. The blacklist issued by
\nFATF annually is a way of forcing countries to cooperate.<\/p>\n
Blacklisted countries, especially flagrant offenders, could be
\nsubject to vetoes on licenses for overseas outlets of their
\nbanks, or entirely ostracized by the international financial
\nmarket.<\/p>\n
Globalization has indeed allowed money to be shifted in
\nseconds between banks in different parts of the world, but it
\nalso has created huge opportunities for crooks to hide or \"clean
\nup\" their money by shifting it around the globe.<\/p>\n
Even though Indonesia has not yet been classified as a
\nflagrant offender, it is nonetheless encouraging to note the
\nquick and positive response from the government to the FATF
\nwarning.<\/p>\n
A money-laundering bill was submitted recently to the House
\nof Representatives, but it will take some time before entering
\nthe statute book. But Bank Indonesia has just issued regulations
\nand guidelines on banking practices to curb laundering through
\nwhat is now internationally known as the \"know your customers\"
\nprinciple. The guidelines will help banks to detect any
\nsuspicious transactions.<\/p>\n
The focus on bank transactions is indeed the right approach,
\nbecause banks have widely been used as the main channel through
\nwhich crooks try to \"clean up\" their hot money. Private banking
\nhas especially been targeted as a major laundering channel, as
\nsome of the clients can be extremely wealthy people who want
\ntheir affairs to be handled very discreetly.<\/p>\n
Banks should be forced to play a proactive role in rooting out
\nmoney laundering by drawing up guidelines or protocols in order
\nto establish a \"know your customers\" practice. This means that
\nthe bank should find out who it is that wants an account before
\nhe opens it, and where the money has come from and what will
\nhappen to it, but all without violating banking secrecy and
\nbreaching privacy.<\/p>",
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