Money laundering and terrorist financing<\/p>\n
Anwar Nasution, Senior Deputy Governor, Bank Indonesia<\/p>\n
Combating money laundering in Indonesia is more difficult with
\nthe introduction of a wide range of international and domestic
\nderegulation and the rapid changes in technology. Long before
\nIndonesia deregulated the banking system in 1988 and reformed the
\ntrade and industrial policies in the 1990s, the country adopted a
\nliberal capital account transactions and free exchange rate
\nsystem in early 1970.<\/p>\n
Aside from producing benefits to the economy, these liberal
\nsystem and technological advancement also allow the predators of
\nmoney laundering and terrorism to abuse them for transnational
\ncriminal activities. Control of such activities is more difficult
\nfor the country like Indonesia given its strategic geographic
\nlocation.<\/p>\n
The currently difficult and noisy transition from
\nauthoritarian regime of the past to democratic political system
\nand the transition from centralized government to decentralized
\nsystem are expected to add to already difficult problems.<\/p>\n
Strengthening prudential rules and regulations is an essential
\npart of the efforts to rebuild the banking industry that had
\ncollapsed during the crisis in 1997-1998. Along this line, the
\ncentral bank sets up a time bound specific targets to adopt and
\nimplement the Basel rules and regulations on banking supervision.
\nTransmission of market information is improved by upgrading the
\naccounting standards and improvements in the legal system.<\/p>\n
To implement the new rules of the game, Bank Indonesia now
\nthoroughly investigates the sources of bank capital, check the
\nmoral background and the technical expertise of the controlling
\nshareholders and management of the banks and check the suspicious
\ntransactions made by their customers. Improvements in the
\nregulatory system help prevent the banking industry from being
\nused as a mean and target of criminal activities.<\/p>\n
The legal foundation for closely watched suspicious
\ntransactions of the banks' customers is laid down in Bank
\nIndonesia's regulation on Know Your Customers (KYC) issued on
\nJune 18, 2001 and amended on Dec. 13, 2001. The KYC regulation
\nrequires banks to set up policy and procedure guidelines for
\ncustomer identification, suspicious and cash transaction report
\nand monitoring, customer data and profile updating, bank risk
\nmanagement and staff training.<\/p>\n
Each bank is obliged to set up a special unit and to assign a
\nmanager to implement the KYC principles and report suspicious
\ntransactions to the relevant authorities. Through implementing
\nthe KYC principles, banks are able to identify its customer
\nprofile and make sure that the source of funds are not coming
\nfrom illegal activities. The banks are obliged to report
\nsuspicious transactions to Bank Indonesia for further
\ninvestigation and to be reported to the relevant authorities.<\/p>\n
At present, all of the 145 national commercial banks have
\napplied standard guidelines as required by the KYC regulation.
\nSome banks need some more time to update information on their
\nexisting customers pending to modernization of their information
\ntechnology and training of their staffs.<\/p>\n
To comply with its international commitments, Indonesia, on
\nApril 17, 2002, passed the Law No. 15 on Money Laundering Crime
\nand will be followed by the implementing regulations. The law
\nidentifies 15 predicated crimes as money laundering and
\npunishable criminal acts, namely: corruption, bribery, smuggling
\nof goods, smuggling of workers, smuggling of immigrants, banking
\noffenses, narcotics offenses, psycotrophic substance offenses,
\nslavery and trade in women and children, illegal trading in arms,
\nkidnapping, terrorism, theft, embezzlement, and fraud.<\/p>\n
The law prescribes that suspicious transactions are to be
\nreported to yet to be established PPATK (the Center for Financial
\nTransaction Reports and Analysis) for further analysis,
\ninvestigation and reported to the relevant law enforcement
\nagencies. The PPATK should be in operations six months after the
\ninauguration the head of PPATK or utmost October 2003. Being the
\nimplementer of international commitments on the KYC principles,
\nBank Indonesia has been active in the drafting of the Law of
\nMoney Laundering.<\/p>\n
Indonesia is in the process of addressing the deficiencies in
\nits KYC regulation and the Law on Money Laundering to make
\ncombating money laundering effective. A number of required
\nimprovements have been identified for the revision of the KYC
\nregulation and amendment of the Law on Money Laundering. These
\ninclude extension of their coverage to non-bank institutions and
\nnon-financial service providers such as rural banks, money
\ntransfers and travel agents.<\/p>\n
The threshold for the proceeds of crime, presently at Rp 500
\nmillion, should be dropped, and need to be redefined not only
\ncovering 15 predicate crimes but will cover broader criminal
\nactivities. Witness and reporting parties of the criminal
\nactivities should be legally protected. The time for submitting
\nthe suspicious transactions should be shortened to seven days
\nfrom the present 14 days. The improvements in the KYC and the Law
\nof Money Laundering and their implementation will hopefully
\nremove Indonesia from the list of the Non Cooperative Countries
\nand Territories (NCCTs) of Financial Action Task Force (FATF) of
\nthe OECD (Organization for Economic Cooperation and Development).<\/p>\n
Being on the list of the NCCTs has raised premium for
\nIndonesian economic agents in doing transactions in international
\nfinancial markets. At the same time, such improvements in the
\ncriminal law, financial supervision and customer identification
\nwill meet the requirement of the Patriot Act of the United
\nStates.<\/p>\n
Bank Indonesia regulation on the KYC principles is implemented
\nby its Special Unit for Banking Investigation (UKIP). The UKIP
\nworks closely with the police, attorney general office and other
\nlaw enforcement agencies and employs retired police officers and
\nprosecutors as consultants to guide its works. The Law on Money
\nLaundering stipulates that the UKIP shall act as a financial
\ninvestigation unit for suspicious transactions until the
\ncommencement of operations of the PPTAK.<\/p>\n
In cooperation with other law enforcement agencies, Bank
\nIndonesia helps forward the Attorney General Office' order to
\nbanks operating in Indonesia to detect and trace the accounts of
\nthose persons and entities in the list of the United Nation
\nSecurity Council. So far, none of the person or and entity whose
\nname appeared on the list has opened an account in Indonesian
\nbanks.<\/p>\n
At its own initiatives, the Special Investigation Unit (UKIP)
\nof Bank Indonesia has analyzed and investigated 135 suspicious
\ntransaction reports (STRs) as reported by 20 commercial banks.
\nNine out of these STRs of six banks have criminal indications and
\nlast month Bank Indonesia reported these STRs to the police for
\nfurther investigation. Three out of these nine STRs have
\nindications related to cross border terrorist financing.<\/p>\n
In cooperation with other government agencies, Bank Indonesia
\nhas been active organizing seminars and training sessions all
\nover the country to disseminate the KYC regulation and the Law on
\nMoney Laundering to general public.<\/p>\n
Implementing the new regulations and legislation on money
\nlaundering and terrorist financing requires upgrading of our
\ncapacity to implement them.<\/p>\n
The article is an excerpt from a speech presented in Bali at
\nThe Conference on Combating Money Laundering and Terrorist
\nFinancing on Dec. 17-18, 2002.<\/p>",
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"sponsor": "Okusi Associates",
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