FATF AML Deficiency List
US Dept of State Money Laundering assessment
Non - Compliance with FATF 40 + 9 Recommendations
Corruption Index (Transparency International & W.G.I.)
Weakness in Government Legislation to combat Money Laundering
World Governance Indicators (Average Score)
Indonesia was removed from the FATF List of Countries that have been identified as having strategic AML deficiencies on 26 June 2015.
FATF Statement: 26 June 2015
The FATF welcomes Indonesia’s significant progress in improving its AML/CFT regime and notes that Indonesia has established the legal and regulatory framework to meet its commitments in its action plan regarding the strategic deficiencies that the FATF had identified in February 2010. Indonesia is therefore no longer subject to the FATF’s monitoring process under its on-going global AML/CFT compliance process. Indonesia will work with APG as it continues to address the full range of AML/CFT issues identified in its mutual evaluation report.
Compliance with FATF Recommendations
The last Mutual Evaluation follow-up Report relating to the implementation of anti-money laundering and counter-terrorist financing standards in Indonesia was undertaken in 2018. According to that Evaluation, Indonesia was deemed Compliant for 6 and Largely Compliant for 29 of the FATF 40 Recommendations. It was deemed Highly Effective for 0 and Substantially Effective for 5 of the Effectiveness & Technical Compliance ratings.
APG Yearly Typologies Report - 2015
Emerging Trends; Declining Trends; Continuing Trends (INCSR)
The banking industry is still being used by ML perpetrators to launder their proceeds of crime. However, it is a declining trend. As indicated in recent research, transfer via ATM, cash deposit and cash withdrawals are still used as transaction patterns. However, the increasing strictness of the regulation regarding banks created a new trend for ML, such as using mainly cash transactions (for example, using cash for asset purchase), and the use of non-banking financial industry, especially money changers and money remittance businesses.
Recently, the predicate crime of fraud and taxation is increasingly associated with ML, even though corruption is still the predicate crime mostly associated with ML.
US Department of State Money Laundering assessment (INCSR)
Indonesia is categorised by the US State Department as a Country/Jurisdiction of Primary Concern in respect of Money Laundering and Financial Crimes.
Indonesia remains vulnerable to money laundering due to gaps in financial system legislation and regulation, a cash-based economy, weak rule of law, and partially ineffective law enforcement institutions. Risks also stem from corruption and taxation cases, followed by drug trafficking, and to a lesser extent illegal logging, wildlife trafficking, theft, bank fraud, embezzlement, credit card fraud, and the sale of counterfeit goods. Proceeds from these predicate crimes are laundered through the banking, capital markets, real estate, and motor vehicle sectors. Proceeds are also laundered offshore in regional jurisdictions and then repatriated to Indonesia as needed.
Indonesia is making progress to counter vulnerabilities as authorities continue to release regulations geared towards a risk-based approach and there is, generally, a high level of technical compliance with AML standards. Only moderate improvements are needed on awareness and coordination between the government and financial sector. Areas for improvement remain analytical training for law enforcement, raising judicial authorities’ awareness of relevant offenses, increasing technical capacity to conduct financial investigations as a routine component of criminal cases, and more education for financial services sector personnel.
There are no international sanctions currently in force against this country.
BRIBERY & CORRUPTION
Rating (100-Good / 0-Bad)
Transparency International Corruption Index 37
World Governance Indicator – Control of Corruption 38
Indonesia's business environment suffers from widespread corruption. The efficiency of business operations is restricted by a corrupt judiciary, complicating the process of dispute settlement and weakening property rights protections. Extensive bribery in Indonesia's public service is a reason for concern for foreign investors: Corruption at the borders is cited by companies as a problem, and public officials often exploit ambiguous legislation to extort informal payments and bribes from companies in the process of registering a business, filing tax reports or obtaining permits and licenses. Corruption is also rampant in the natural resources sector owing to weak oversight. The Law on Eradication of Criminal Acts of Corruption criminalizes major acts of corruption - including active and passive bribery, abuse of office and extortion - and Indonesia's Criminal Code forbids embezzlement and gifts to public officials. Corruption legislation is poorly enforced and does not address facilitation payments. For further information - GAN Integrity Business Anti-Corruption Portal
Indonesia, the largest economy in Southeast Asia, has seen a slowdown in growth since 2012, mostly due to the end of the commodities export boom. During the global financial crisis, Indonesia outperformed its regional neighbours and joined China and India as the only G20 members posting growth. Indonesia’s annual budget deficit is capped at 3% of GDP, and the Government of Indonesia lowered its debt-to-GDP ratio from a peak of 100% shortly after the Asian financial crisis in 1999 to less than 25% today. Fitch and Moody's upgraded Indonesia's credit rating to investment grade in December 2011.
Indonesia still struggles with poverty and unemployment, inadequate infrastructure, corruption, a complex regulatory environment, and unequal resource distribution among its regions. President Joko WIDODO - elected in July 2014 – seeks to develop Indonesia’s maritime resources and pursue other infrastructure development, including significantly increasing its electrical power generation capacity. Fuel subsidies were significantly reduced in early 2015, a move which has helped the government redirect its spending to development priorities. Indonesia, with the nine other ASEAN members, will continue to move towards participation in the ASEAN Economic Community, though full implementation of economic integration has not yet materialized.
Agriculture - products:
rubber and similar products, palm oil, poultry, beef, forest products, shrimp, cocoa, coffee, medicinal herbs, essential oil, fish and its similar products, and spices
petroleum and natural gas, textiles, automotive, electrical appliances, apparel, footwear, mining, cement, medical instruments and appliances, handicrafts, chemical fertilizers, plywood, rubber, processed food, jewellery, and tourism.
Exports - commodities:
mineral fuels, animal or vegetable fats (includes palm oil), electrical machinery, rubber, machinery and mechanical appliance parts
Exports - partners:
Japan 12%, US 10.8%, China 10%, Singapore 8.4%, India 7.8%, South Korea 5.1%, Malaysia 5.1% (2015)
Imports - commodities:
mineral fuels, boilers, machinery, and mechanical parts, electric machinery, iron and steel, foodstuffs
Imports - partners:
China 20.6%, Singapore 12.6%, Japan 9.3%, Malaysia 6%, South Korea 5.9%, Thailand 5.7%, US 5.3% (2015)
Investment Climate - US State Department
While Indonesia’s population of 245 million, growing middle class, and stable economy remain attractive to U.S. investors, investing in Indonesia remains challenging.
Since October 2014, the Indonesian government under President Joko Widodo has prioritized boosting investment, including foreign investment, to support Indonesia’s economic growth goals, and has committed to reducing bureaucratic barriers to investment, including announcing the creation of a “one stop shop” for permits and licenses at the Investment Coordination Board. However, factors such as a decentralized decision-making process, legal uncertainty, economic nationalism, and powerful domestic vested interests create a complex and difficult investment climate. The Indonesian government’s requirements, both formal and informal, to partner with Indonesian companies and purchase goods and services locally, restrictions on some imports and exports, and pressure to make substantial, long-term investment commitments, also factor into foreign investors’ plans. While the Indonesian Corruption Eradication Commission has come under significant political pressure in the last year, it continues to investigate and prosecute high-profile corruption cases. Investors continue to cite corruption as an obstacle to pursuing opportunities in Indonesia.
Other barriers include poor government coordination, the slow rate of land acquisition for infrastructure projects, poor enforcement of contracts, an uncertain regulatory environment, and lack of transparency in the development of laws and regulations. New regulations are at times difficult to decipher and often lack sufficient notice and socialization for those impacted. The lack of coordination among ministries creates redundant and slow processes, such as for securing business licenses and import permits, and at times, conflicting regulations.
Indonesia restricts foreign investment in some sectors through a Negative Investment List. The latest version, issued in 2014, details the sectors in which foreign investment is restricted and outlines the foreign equity limits in a number of sectors. In February 2016 the Indonesian government announced a major revision to the Negative Investment List; however the revised regulation with details of this potential liberalization had not been issued as of May 2016. Thus for the time being, telecommunications, pharmaceuticals, e-commerce, film and creative industries, construction and other sectors remain closed to foreign investment. Energy and mining also face significant investment barriers.
Indonesia began to abrogate its more than 60 existing Bilateral Investment Treaty agreements (BITs) in February 2014, allowing the agreements to expire. While the United States does not have a BIT with Indonesia, the Indonesian government’s action reminds foreign investors of the unpredictability of Indonesia’s investment climate.
Despite these challenges, Indonesia continues to attract foreign investment. Private consumption is the backbone of the economy and the middle class is growing, making Indonesia a promising place for consumer product companies. Indonesia has ambitious plans to improve its infrastructure with a focus on expanding access to energy, strengthening its maritime transport corridors, which includes building roads, ports, railways and airports, as well as improving agricultural production, telecommunications, and broadband networks throughout the country. Indonesia continues to attract U.S. franchises and consumer product manufacturers.
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