Money laundering, big issue in RI
Money laundering, big issue in RI
Less than a week after the government presented an anti-money laundering bill to the House of Representatives late last month, the Paris-based Financial Action Task Force (FATF) on money laundering added Indonesia to its money laundering blacklist, thereby placing financial transactions with the country under closer international scrutiny. The Jakarta Post's reporters Yogita Tahil Ramani, Tertiani Z.B. Simanjuntak and Riyadi Suparno explore the extent of money laundering practices in the country. Related article on Page 6
JAKARTA (JP): Local traders at Tanah Abang market, Central Jakarta, say they have learned never to take foreigners at face value.
Ikhsan, a textile trader in Tanah Abang, claims that he knows many of his foreign customers use drug money to purchase textiles from him and he often charges them higher prices.
"We often check into the background of our regular customers. If they do drugs, we charge them more. They can afford it," Ikhsan told The Jakarta Post recently.
Purchasing textiles at Tanah Abang market with drug money is certainly one way to launder dirty money, which is the conversion of money derived from illegal business activities into legitimate funds. Law enforcement agencies are all aware of these methods used by criminals.
A veteran National Police detective for drug crimes, Sr. Comr. Wilhelmus Laturette, said that he had alerted all relevant government officials about the use of the textile trade as one of the ways drug suppliers or distributors laundered their dirty money.
Nevertheless, because of a poor legal framework for money laundering, Indonesia could not effectively deal with money launderers -- be they drug lords, white-collar criminals, tax evaders, embezzlers, bank defrauders or professional gamblers.
Therefore, it is not surprising that Indonesia is included on FATF's list of countries and territories considered uncooperative in adopting measures to eradicate money laundering.
In addition to money laundering, Indonesia is still struggling to tackle street crimes and other standard offenses.
"It is not difficult to imagine that Indonesia, which is still facing many problems in dealing with street, traditional or predatory crimes, now has to deal with white collar crime, especially offenses involving international networks or advanced technology," said Harkristuti Harkrisnowo, a legal expert from the University of Indonesia, at a recent seminar on money laundering.
She explained that the complex system of money laundering generally involves three steps: placement, layering and integration.
Placement involves money launderers placing their dirty money within the financial system through banks, insurance companies, securities firms and other financial institutions.
Then the launderers obscure the source of their dirty money through a number of complex layering methods, usually using friends, cronies and numerous foundations and companies.
These layering activities usually involve various funds transfers from one bank to another or to other financial institutions, often from one country to another.
After the layering process, the launderers then integrate the already laundered money into their legitimate businesses and use it as legitimate funds.
In the course of their activities, these money launderers hide behind bank secrecy regulations, which are permitted under Indonesia's banking laws.
Bank secrecy
The launderers exploit bank secrecy codes to transfer funds in and out of financial institutions in order to clean and hide dirty money. Under the Banking Secrecy Law, the launderers' accounts remain confidential. Until the court or law enforcement agencies order a bank to disclose information about an account, no one can discover who owns the account, how much is deposited or where the funds originated from.
Some have suggested that Indonesia's banking system is a haven for money launderers as the banks are not subject to adequate supervision or regulation. Several Indonesian banks have been victimized in scandals that may have been prevented if adequate safeguards had been in place.
The Bank Bali scandal, which helped bring down former president B.J. Habibie, constitutes a prime example of complex money laundering practices.
A 1999 report commissioned by the government found that nearly US$80 million secretly withdrawn from Bank Bali was transferred into the accounts of former Indonesian President Habibie's senior aides, as well as his own political party.
The Bank Bali scam "entailed a large money laundering operation aimed at hiding numerous beneficiaries," according to the 1999 International Narcotics Control Strategy Report, released in March 2000 by the Bureau for International Narcotics and Law Enforcement Affairs of the U.S. State Department, Washington DC.
Claims that Indonesia's banking system is used as a means to launder money are supported by a FATF report, which states: "Given the absence of appropriate legislation and the regime of strict bank secrecy in Indonesia, money laundering is only part of the financial crime that prevails there, essentially in the shape of large-scale fraud and corruption."
The Indonesian banking authority, Bank Indonesia, responded to the criticism by saying that it has regulations in place requiring all commercial banks to report transactions involving more than Rp 100 million (about US$9,000) or any suspicious transactions to the central bank.
However, this regulation, dubbed by the central bank as "know your customer", has failed to prevent money laundering practices such as the Bank Bali scam.
Law enforcement agencies would argue that they lack legal grounds to move against money launderers. A claim which has some foundation.
In June, the Indonesian government presented a bill on money laundering to the House of Representatives for deliberation. The bill mandates the establishment of an independent commission, which will have extensive powers to investigate and prosecute anyone suspected of involvement in money laundering practices.
The commission will be answerable to the House of Representatives.
The bill requires all financial institutions, including banks, securities companies and insurance companies, to report all cash transactions worth at least Rp 100 million to the commission within 14 days.
The failure of financial institutions to report transactions of Rp 100 million will be fined a minimum of Rp 250 million and a maximum of Rp 1 billion.
The bill stipulates that people convicted of money laundering could be jailed for between five and 25 years and be fined between Rp 5 billion and Rp 15 billion.
Once the bill is passed into law and law enforcers are effectively pursuing money launderers, some experts have warned that Indonesia will see a huge capital outflow from the country's financial system.
They contend that much of Indonesia's capital inflows constitute dirty money being laundered in the country and warn that, once the dirty money is withdrawn from Indonesia, the country's economy will be severely affected.
However, those concerns are not warranted now as private investors, especially legal multinational corporations and financial investors, have already pulled out of the country because of the economic and political crises.
The time seems to have arrived for Indonesia's law enforcers to target money launderers, especially those involved in the drug trade.
Moreover, according to a 1997-1998 FATF report, Indonesia, along with Malaysia, is singled out as a country requiring particular attention because of, among others, the increasing number of gaming and gambling businesses, and cases of drug trafficking.
Official National Police data confirms this trend. The police recorded 3,478 drug-related cases last year, a huge jump from the 1,833 recorded in 1999. This year alone, 862 drug-related cases were recorded as of March.
The challenge, however, does not stop here. Many corrupt Indonesians launder their money using the help of master financial transaction manipulators, employing an extensive and complex money laundering system involving overseas banks, mostly banks in tax havens such as the Bahamas, the Cayman Islands, the Cook Islands and the Marshall Islands.
Some even use banks in countries such as Switzerland and Austria to launder money, according to a National Police detective for economic crimes.
"Economic criminals and drug lords tend to open Swiss or Austrian bank accounts or what we call 'accounts in the islands' which are on top of the list when it comes to secrecy and security regulations," a police detective for economic crimes said earlier this week, requesting anonymity.
Often, the overseas banks extend loans to these launderers, with their money in the bank accounts held as collateral. The criminals then open legitimate businesses using those loans and effectively turn the dirty money into clean money.
In Indonesia, the detective added, the primary method for money laundering in most cases is long-term deposits in banks here.