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.