Financial intelligence unit

Financial intelligence unit

The comprehensive amendments to Indonesia's Anti-Money
Laundering (AML) Law of 2002 that were enacted last month only
just spared the country from the harsh counter measures the
Paris-based Financial Action Task Force (FATF) had threatened to
impose.

Indonesia remains in the FATF list of noncooperative countries
and territories. This means that financial institutions in
developed countries affiliated with the Organization for Economic
Cooperation and Development (OECD) are still required to give
special attention to businesses and transactions with persons,
companies and financial institutions in Indonesia.

The FATF, the OECD anti-money laundering arm, which held its
latest plenary meeting in Stockholm early this month, did take
note of the significant improvements in Indonesia's AML law and
regulatory framework. However, as the FATF has yet to see how
the reforms will be implemented, it gave Indonesia four months to
show its records and performance for further evaluation in
February.

In this context, the launching on Monday of the Financial
Transaction and Report Analysis Center, which in many other
countries is called financial intelligence unit, will go a long
way in demonstrating to the international community Indonesia's
strong commitment to combat money laundering. As a politically
independent body, the Indonesian financial intelligence unit will
play a crucial role in the campaign against money laundering.

Indonesia indeed has yet to demonstrate its political will to
fight money laundering, because almost 20 months after the
enactment of the AML law in March, 2002, not a single money-
laundering case has thus far been brought to court even though
the country is perceived as one of the most corrupt in the world.

The Special Investigation Unit at Bank Indonesia, which had
performed the function of a financial intelligence unit from
April 2002 until Monday, had submitted 82 suspicious transactions
involving Rp 2.4 trillion (US$280 million) to the state police
for further investigation and five cases have been filed with the
Attorney General's Office. But none of them have reached the
court.

True, investigations and prosecution of money-laundering
practices require special technical competence to analyze complex
financial transactions and to construct strong legal evidence.
Yet Indonesia's records so far seem to have been too poor to be
blamed only on a lack of technical competence.

Many, including analysts at Bank Indonesia's Special
Investigation Unit, suspect that corruption either within law
enforcement agencies such as the police and Attorney General's
Office or within financial companies had been partly responsible
for the miserably weak enforcement of the AML law.

Lack of cooperation from law enforcement agencies and
financial institutions could be the main obstacle in the fight
against money laundering in the country. For example, over the
past 20 months only 38 of 138 commercial banks reported
suspicious transactions to the central bank's Special
Investigation Unit.

Even though the AML law has been strengthened by the recent
amendments, the financial intelligence unit will never be able to
perform its function properly without full cooperation from all
financial institutions, law enforcement agencies and all other
state institutions related to financial services such as customs
and tax services and stock market watchdog, etc.

Moreover, more clear-cut directives have yet to be issued to
create a conducive environment for cracking down on money
launderers and to give better protection for witnesses testifying
against suspected money launderers and the identity of those who
report suspicious transactions.

The government should further strengthen the financial
intelligence unit with a high-powered national coordinating
committee to secure full cooperation from other state
institutions. Cooperation and coordination are indeed important
because sharing of information among law enforcement agencies,
financial regulators and financial institutions is quite vital
for an effective AML system.

The staffing, organization and remuneration system of the
financial intelligence unit should steadily be strengthened to
enable it to help financial institutions build up a strong AML
mechanism and to ensure that they fully comply with the "know
your customer" guidelines to detect suspicious transactions.