Fighting dirty money

Those who still don't believe that foreign, rather than domestic, pressures are often more effective to force the Indonesian government to pursue reform measures, simply look at the speed and urgency in which the House of Representatives had acted to strengthen the antimoney laundering (AML) law of 2002.

The House on Tuesday approved a series of amendments to the law not because of the politicians' great concern about the rampant laundering of dirty money in the country but due to strong threats from the developed nations to impose hefty risk premiums on all transactions with Indonesian parties.

The government White Paper on reform agenda, which was unveiled on Monday, also stipulates a comprehensive list of measures to be taken within the next few weeks to strengthen the AML regime.

Compare the House treatment of this AML legislation to that of many other bills, which are not less important and yet which have laid ignored for more than a year on the House document shelf.

The Paris-based Financial Action Task Force (FATF) on money laundering has threatened to take counter-measures against Indonesia unless the government strengthened its AML system. Such penalties would hamper international banking and trade transactions from Indonesia, which has been on the FATF list of non-cooperative countries and territories (NCCT) since 2001, together with eight other countries such as Nauru, Nigeria, Myanmar and the Cook Islands.

The United States, the leader of the global campaign against money laundering and terrorist financing, also has held up this country with a very powerful gun -- the U.S. Patriot Act, which could isolate Indonesia virtually from all international financial centers.

The amendments will provide the 2002 AML law with stronger teeth by: Giving more protection to those reporting suspicious transactions, shortening the reporting deadline for reporting suspicious transactions to three days, enhancing international cooperation in combating cross-border money laundering, removing the limit on the size of transactions that can be labeled as suspicious, broadening the categories of crimes defined as the source of dirty money.

These improvements will certainly gain a positive review from FATF at its next plenary meeting in Stockholm, Sweden, early next month and will consequently spare Indonesia from FATF's tough counter measures with their horrifying impacts.

However, the stronger legislation measures alone would not automatically lift Indonesia from the NCCT list as FATF still wants to see more evidence that Indonesia is really serious about combating dirty money. The best assessment Indonesia may get at the FATF meeting next month is being lifted out of the NCCT list but subject to close monitoring.

This is simply understandable, at least within the Indonesian context.

Amending the law is one thing and properly enforcing the law to achieve its goal is something else. For example, the government has significantly strengthened its anti-corruption law, yet very few major graft cases have been brought to court, even though Indonesia is perceived to be one of the most corrupt countries in the world.

Likewise, not a single money-laundering case has so far been brought to court, even though the Financial Transaction and Report Analysis Center (financial intelligence unit), which was set up last year to enforce the AML law, has thus far received more than 250 instances of suspicious financial transactions for further investigations and prosecution.

The problem is that the center, known under its local acronym PPATK, is not yet fully operational. It is inadequately funded. As a financial intelligence unit, which has to analyze complex financial transactions and which must work under a high degree of confidentiality, the PPATK should have employed highly-skilled and highly experienced financial experts with high integrity. But the center at present has less than 10 permanent staff and is poorly equipped.

PPATK will never be able to function effectively without full cooperation from law enforcement agencies as the police and public prosecutors but the acute lack of legal clarity about the PPATK function and scope of responsibility and authority makes it extremely difficult for this center to gain cooperation from other government agencies.

Hopefully, these deficiencies will be addressed by the four presidential decrees, which, according to the White Paper on reform measures, will be issued within the next few weeks to strengthen the AML system.

We are confident that FATF would not be too harsh on Indonesia but would treat it in gradual, proportionate and flexible manners as long as the government acts in good faith in fighting against money laundering.

After all, money laundering is still a new concept within Indonesian financial system. Financial institutions have yet to be trained to avoid dealing with criminal elements, to check the identity and legitimacy of clients.