FATF Status

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 Report relating to the implementation of anti-money laundering and counter-terrorist financing standards in Indonesia was undertaken in 2023. 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 4 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.

Overview

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 that lack coordination.  Risks also stem from terrorist financing, corruption, and tax avoidance, followed by drug trafficking, and to a lesser extent illegal logging, wildlife trafficking, theft, fraud, embezzlement, and the sale of counterfeit goods.  Criminal proceeds are laundered through the banking, capital markets, real estate, and motor vehicle sectors, and sent offshore for later repatriation.

Indonesia is making progress to counter vulnerabilities.  Authorities continue to release regulations geared toward a risk-based approach, and there is, generally, a high level of technical compliance with anti-money laundering/combating the financing of terrorism (AML/CFT) standards.  As to coordination between the government and financial sector, only moderate improvements are needed.  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.  In addition, to conduct meaningful asset tracing investigators and prosecutors need better access to complete banking records, a process hindered by the bank secrecy laws. 

Rating                                                                           (100-Good / 0-Bad)

Transparency International Corruption Index                           34

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’s 276 million population, USD 1 trillion economy, growing middle class, abundant natural resources, and stable economy are attractive features to U.S. investors; however, investing in Indonesia remains challenging according to business contacts. President Joko (or “President Jokowi”) Widodo, now in his second five-year term, has prioritized pandemic recovery, infrastructure investment, and human capital development. The government’s marquee reform effort — the 2020 Omnibus Law on Job Creation (Omnibus Law) — was ratified in March 2023. When fully implemented, the Omnibus Law is touted to improve competitiveness by lowering corporate taxes, reforming labor laws, and reducing bureaucratic and regulatory barriers. The United States does not have a bilateral investment treaty (BIT) with Indonesia.

In February 2021, Indonesia replaced its 2016 Negative Investment List, liberalizing nearly all sectors to foreign investment, except for seven “strategic” sectors reserved for central government oversight. In 2021, the government established the Risk-Based Online Single Submission System (OSS), to streamline the business license and import permit process. Indonesia established a sovereign wealth fund (Indonesian Investment Authority, i.e., INA) in 2021 that has a goal of attracting foreign investment for government infrastructure projects in sectors such as transportation, oil and gas, health, tourism, and digital technologies, with a large nexus to the Ministry of State-Owned Enterprises (BUMN).

Foreign investors find that restrictive regulations, legal and regulatory uncertainty, economic nationalism, trade protectionism, and vested interests complicate the investment climate. Foreign businesses may be expected to partner with Indonesian companies and to manufacture or purchase goods and services locally. Labor unions have protested new labor policies under the Omnibus Law that they note have weakened labor rights. Labor unions report that restrictions imposed on the authority of the Indonesian Corruption Eradication Commission (KPK) led to a significant decline in investigations and prosecutions in lieu of education and prevention. Investors cite corruption as an obstacle to pursuing opportunities in Indonesia.

Some U.S. investors describe the investment climate as much improved over the past decade, but point out that, other barriers remain, including bureaucratic inefficiency, delays in land acquisition and the tendering process for infrastructure projects, weak enforcement of contracts, and delays in receiving refunds for advance corporate tax overpayments. Investors worry that new regulations are sometimes imprecise and lack stakeholder consultation. Companies report that the energy and mining sectors still face investment barriers, and all sectors lack adequate IP protection and enforcement, and restrictions on cross border data flows remain.

Nonetheless, Indonesia continues to attract significant foreign investment and foreign business chambers report an optimistic view of expanding economic. Singapore, the United States, Japan, the Netherlands, and China (PRC, HK) were among the top foreign investment sources in 2022. Private consumption drives the Indonesian economy that is the largest in ASEAN, making it a promising destination for a wide range of companies, from consumer products and financial services to digital start-ups and e-commerce. Indonesia has ambitious plans to expand access to renewable energy, build mining and mineral downstream industries (focused on electric vehicles and related components), improve agriculture production, and enhance infrastructure, including building roads, ports, railways, and airports, as well as telecommunications and broadband networks. Indonesia continues to attract American digital technology companies, financial technology start-ups, franchises, health services producers and consumer product manufacturers.

The Indonesian Government implemented new taxes and pricing regulations over the past few years to curb carbon emissions and manage emissions from the forest and land use sector. In 2022, the Indonesian Just Energy Transition Partnership (JETP) pledged to support an ambitious and just power sector transition in Indonesia, consistent with international global warming targets.

Russia’s invasion of Ukraine has caused supply disruptions, including increases in global energy and food prices. Indonesia is affected through an increase in prices of traded goods. The government of Indonesia increased the price of subsidized fuel in September 2022, which caused increases in transportation and food prices and triggered a surge in the inflation rate to 5.95 percent in September. In response, Bank Indonesia (BI) increased their policy rate to 5.75 percent to contain inflation expectations. BI believes that the 5.75 percent rate is adequate to ensure core inflation remains within the range of 2-4 percent in the first half of 2023, and that consumer price index (CPI) inflation returns to the target corridor of 2-4 percent in the second half of 2023.

Country Links

Indonesian Financial Transaction Reports and Analysis Centre (PPATK)

Bank Indonesia

Financial Services Authority