R 150259Z DEC 08
FM AMEMBASSY JAKARTA
TO SECSTATE WASHDC 0966
DEPT OF TREASURY WASHDC
DEPT OF JUSTICE WASHINGTON DC
AMEMBASSY SINGAPORE

UNCLAS JAKARTA 002251 
 
 
DEPARTMENT FOR EAP/MTS, INL, SCT, EEB/ESC/TFS 
TREASURY FOR FinCEN and T.RAND 
SINGAPORE FOR S. BAKER 
JUSTICE FOR AFMLS, OIA and OPDAT 
 
E.O. 12958: N/A 
TAGS: KCRM EFIN KTFN SNAR ID
 
SUBJECT:  INDONESIA 2008-2009 INCSR PART II, MONEY LAUNDERING AND 
FINANCIAL CRIMES 
 
Ref: (A) Juncker-Silensky/Wyler/Williams/Bezek/Ott e-mail 
     (B) State 10381 
 
¶1.  The following information was previously relayed via 
unclassified e-mail with tracked changes from the 2007-2008 INCSR 
(ref A), as requested by ref B. 
 
¶2.  As noted in ref A, report provided the USD equivalent figures 
reflecting an exchange rate of IDR 12,000/USD.  The rupiah has been 
extremely volatile as a result of the current financial crisis and 
the equivalent USD figures should be updated prior to final 
publication to reflect the prevailing exchange rate. 
 
¶3.  Begin text: 
 
Indonesia 
 
Although neither a regional financial center nor an offshore 
financial haven, Indonesia is vulnerable to money laundering and 
terrorist financing due to gaps in financial system regulation, 
cash-based economy, the lack of effective law enforcement, and 
corruption. Most money laundering in the country is connected to 
nondrug criminal activity such as gambling, prostitution, bank 
fraud, theft, credit card fraud, maritime piracy, sale of 
counterfeit of goods, illegal logging, and corruption. Indonesia 
also has a long history of smuggling, a practice facilitated by 
thousands of miles of un-patrolled coastline, weak law enforcement 
and poor customs infrastructure. The proceeds of illicit activities 
are easily parked offshore and only repatriated as required for 
commercial and personal needs. 
 
In April 2002, Indonesia passed Law No. 15/2002 Concerning the Crime 
of Money Laundering, making money laundering a criminal offense. The 
law identifies 15 predicate offenses related to money laundering, 
including narcotics trafficking and most major crimes. Law No. 
15/2002 established the Financial Transactions Reports and Analysis 
Centre (PPATK), Indonesia's financial intelligence unit (FIU) to 
develop policy and regulations to combat money laundering and 
terrorist financing. 
 
Law No. 15/2002 stipulated important provisions to enhance 
Indonesia's anti-money laundering regime, such as: obligating 
financial service providers to submit suspicious transactions 
reports and cash transaction reports; exempting reporting, 
investigation and prosecution of criminal offenses of money 
laundering from the provisions of bank secrecy that are stipulated 
in Indonesia's banking law; placing the burden of proof on the 
defendant; establishing the PPATK as an independent agency with the 
duty and the authority to prevent and eradicate money laundering; 
and establishing a clear legal basis for freezing and confiscating 
the proceeds of crime. 
 
In September 2003, Parliament passed Law No. 25/2003, amending Law 
No. 15/2002, to further address FATF's concerns. Law No. 25/2003 
provides a new definition for the crime of money laundering, making 
it an offense for anyone to deal intentionally with assets known, or 
reasonably suspected, to constitute proceeds of crime with the 
purpose of disguising or concealing the origin of the assets. The 
amendment removes the threshold requirement for proceeds of crime. 
The amendment further expands the scope of regulations by expanding 
the definition of reportable suspicious transactions to include 
attempted or unfinished transactions. The amendment also shortens 
the time to file a suspicious transactions report (STR) to three 
days or less after the discovery of an indication of a suspicious 
transaction. However, there is no clear legal obligation to report 
STRs related to terrorist financing. The amendment makes it an 
offense to disclose information about the reported transactions to 
third parties, which carries a penalty of imprisonment for a maximum 
of five years and a maximum fine of IDR one billion (approximately 
U.S. $83,500). 
 
Additionally, Articles 44 and 44A of Law 25/2003 provide for mutual 
legal assistance with respect to money laundering cases, with the 
ability to provide assistance using the compulsory powers of the 
court. Article 44B imposes a mandatory obligation on the PPATK to 
implement provisions of international conventions or international 
recommendations on the prevention and eradication of money 
laundering. In March 2006, the GOI expanded Indonesia's ability to 
provide mutual legal assistance by enacting the first Mutual Legal 
Assistance (MLA) Law (No. 1/2006), which establishes formal, binding 
procedures to facilitate MLA with other states. 
 
A proposed second amendment to the AML law was submitted to the 
parliament in October 2006. If passed, it would require nonfinancial 
service businesses and professionals who potentially could be 
involved in money laundering, such as car dealers, real estate 
companies, jewelry traders, notaries and public accountants, to 
report suspicious transactions. The amendments also would include 
civil asset forfeiture and give more investigative powers to the 
PPATK, as well as the authority to block financial transactions 
suspected of being related to money laundering. Despite these 
provisions, the draft amendments appear to have remaining gaps when 
measured against current AML/CTF international standards.  The 
amendment continued to be discussed in Parliament in mid-2008. 
On April 17, 2007, Indonesia adopted a National Strategy 2007-2011 
for the prevention and eradication of money laundering.   The GOI 
held two National Coordination Committee meetings in December 2007 
and May 2008 to coordinate implementation of the national strategy. 
Indonesia's FIU, PPATK, established in April 2002, became 
operational in October 2003 and continues to make progress in 
developing its human and institutional capacity. The PPATK is an 
independent agency that receives, analyzes, and evaluates currency 
and suspicious financial transaction reports, provides advice and 
assistance to relevant authorities, and issues publications. As of 
end-October 2008, the PPATK had received 20,741 (STRs) from 118 
banks, 14 rural banks, and 103 nonbank financial institutions. 
Approximately 8,700 of these STRs were received during 2008. The 
agency also reported that it had received a total of over six 
million cash transaction reports (CTRs) from 133 banks, 55 
moneychangers, 51 rural banks, nine insurance companies, and three 
securities companies. PPATK have submitted a total of 612 cases to 
various law enforcement agencies based on their analysis of 1,215 
STRs. 
 
Nineteen cases involving the money laundering offense have been 
successfully prosecuted to date.  Sentences included imprisonment of 
up to six to eight years and fines up to IDR 500 million (about U.S. 
$41,700).  STRs have triggered prosecution of additional cases 
involving corruption, banking fraud and other financial crimes.  The 
Transnational Crime Coordination Center reports that the Indonesia 
National Police have conducted 133 inquiries in 2008 (through 
September) of financial crimes which have money laundering as an 
element.  PPATK reports there has been one case which has resulted 
in successful prosecution to date in 2008.  The case, brought in 
central Jakarta court in January 2008, involved money laundering and 
banking fraud and included three defendants. Defendant I (Sefrie 
Roring) received 12 years imprisonment and a fine in the amount of 
IDR 10 billion (about U.S. $835,000). Defendant II (Sahat Mangasi 
Sianipar) received 8 years imprisonment and a fine in the amount of 
IDR 10 billion. Defendant III (Hengky Martinus Roring) received 10 
years imprisonment and a fine in the amount of IDR 10 billion. 
These defendants collected funds from customers without a license 
from Bank Indonesia and did not return the funds to the victims. 
Therefore they were suspected of laundering the proceeds of fraud. 
 
The PPATK actively pursues broader cooperation with relevant GOI 
agencies. The PPATK has signed a total of 22 domestic memoranda of 
understanding (MOUs) to assist in financial intelligence information 
exchange with the following entities: Attorney General's Office 
(AGO), Bank Indonesia (BI), the Capital Market Supervisory Agency - 
Financial Institutions (BAPEPAM-LK),  the Directorate General of 
Taxation, Director General for Customs and Excise, the Ministry of 
Forestry Center for International Forestry Research, the Indonesian 
National Police, the Supreme Audit Board (BPK), the Corruption 
Eradication Commission, the Judicial Commission, the Directorate 
General of Immigration, the State Auditor, the Directorate General 
of the Administrative Legal Affairs Department of Law and Human 
Rights, the Anti-Narcotics National Board, the Province of Aceh, the 
Commodity Futures Trading Supervisory Agency, Elections Supervisory 
Body, Banking University Perbanas Surabaya, University of Surabaya, 
and Gajah Mada University. 
 
Bank Indonesia (BI), the Indonesian Central Bank, issued Regulation 
No. 3/10/PBI/2001, "The Application of Know Your Customer 
Principles," on June 18, 2001. This regulation requires banks to 
obtain information on prospective customers, including third party 
beneficial owners, and to verify the identity of all owners, with 
personal interviews if necessary. The regulation also requires banks 
to establish special monitoring units and appoint compliance 
officers responsible for implementation of the new rules and to 
maintain adequate information systems to comply with the law. BI has 
issued an Internal Circular Letter No. 6/50/INTERN, dated September 
10, 2004 concerning Guidelines for the Supervision and Examination 
of the Implementation of KYC and AML by Commercial Banks. In 
addition, BI also issued a Circular Letter to Commercial Banks No. 
6/37/DPNP dated September 10, 2004 concerning the Assessment and 
Imposition of Sanctions on the Implementation of KYC and other 
Obligations Related to Law on Money Laundering Crimes. BI is also 
preparing Guidelines for Money Changers on Record Keeping and 
Reporting Procedures, and Money Changer Examinations to be given by 
BI examiners. Currently, banks must report all foreign exchange 
transactions and foreign obligations to BI.  Similar regulations for 
non-bank financial institutions have also been implemented.  The 
decree of the head of the Capital Market and Financial Institutions 
Supervisory Agency No. KEP-313/BL/2007, dated August 28, 2007, 
amended Regulation No. V.D.10 to strengthen KYC principles.  PPATK 
and Bapepam-LK, in collaboration with the MCC Threshold Program and 
USAID, carried out an extensive KYC campaign for non-bank financial 
institutions in 2008. 
 
With respect to the physical movement of currency, Article 16 of Law 
No. 15/2002 contains a reporting requirement for any person taking 
cash into or out of Indonesia in the amount of 100 million Rupiah or 
more, or the equivalent in another currency, which must be reported 
to the Director General of Customs and Excise. These reports must be 
given to the PPATK in no later than five business days and contain 
details of the identity of the person. Indonesia Central Bank 
regulation 3/18/PBI/2001 and the Directorate General of Customs and 
Excise Decree No.01/BC/2005 contain the requirements and procedures 
of inspection, prohibition, and deposit of Indonesia Rupiah into or 
out of Indonesia. 
 
The Decree provides implementing guidance for Ministry of Finance 
Regulation No.624/PMK. 2004 of December 31, 2004, and requires 
individuals who import or export more than IDR 100 million in cash 
(approximately U.S. $8,500) to declare such transactions to Customs. 
This information is to be declared on the Indonesian Customs 
Declaration (BC3.2). The cash declaration requirements do no cover 
bearer negotiable instruments as required by FATF's Special 
Recommendation IX. In addition, cash can only be restrained if the 
passenger fails to disclose or a false declaration is made. In most 
cases, the cash is returned to the traveler after a small 
administrative penalty is applied. There is no clear authority to 
stop, restrain or seize money that is suspected of promoting 
terrorism or crime or constitutes the proceeds of crime. As of 
end-October 2008, the PPATK has received more than 2,764 reports 
from Customs on cross border cash carrying issues. The reports were 
derived from airports in Jakarta and Denpasar, the seaports of Batam 
and Tanjung Balai Karimun, Bandung, Batam, Denpasar, Medan and 
Dumai. Despite these reports, detection capacity remains weak and 
criminal penalties are limited and are not being applied. 
Indonesia's bank secrecy law covers information on bank depositors 
and their accounts. Such information is generally kept confidential 
and can only be accessed by the authorities in limited 
circumstances. However, Article 27(4) of the Law No. 15/2002 
expressly exempts the PPATK from "the provisions of other laws 
related to bank secrecy and the secrecy of other financial 
transactions" in relation to its functions in receiving and 
requesting reports and conducting audits of providers of financial 
services. In addition, Article 14 of the Law No. 15/2002 exempts 
providers of financial services from bank secrecy provisions when 
carrying out their reporting obligations. Providers of financial 
services, their officials, and employees are given protection from 
civil or criminal action for making required disclosures under 
Article 15 of the anti-money laundering legislation. 
There is a mechanism to obtain access to confidential information 
from financial institutions through BI regulation number 
2/19/PBI/2000. PPATK has the authority to conduct supervision and 
monitoring compliance of providers of financial services. PPATK may 
also advise and assist relevant authorities regarding information 
obtained by the PPATK in accordance with the provisions of this Law 
No. 15/2002. 
 
The GOI has limited formal instruments to trace and forfeit illicit 
assets. Under the Indonesian legal system, confiscation against all 
types of assets must be effected through criminal justice 
proceedings and be based on a court order.  Banking legislation 
pending with the House of Representatives would allow BI to take 
freezing action on its own authority.  BI officials expect this 
legislation to be approved in 2009.  The GOI has no clear legal 
mechanism to trace and freeze assets of individuals or entities on 
the UNSCR 1267 Sanctions Committee's consolidated list, and there is 
no clear administrative or judicial process to implement this 
resolution and UNSCR 1373. While the BI circulates the consolidated 
list to all banks operating in Indonesia, this interagency process 
is too complex and inefficient to send out asset-freezing 
instructions in a timely manner. In addition, no clear instructions 
are provided to financial institutions as to what will happen when 
assets are discovered. Banks also note that without very specific 
information, the preponderance of similar names and inexact 
addresses, along with lack of a unique identifier in Indonesia, make 
identifying the accounts very difficult. Attempts to use a criminal 
process are confusing and ad hoc at best, and rely on lengthy 
investigation processes before consideration can be given to 
freezing or forfeiting assets.  Indonesia has a draft asset 
forfeiture bill, which, if enacted, would give a wide range of 
powers to investigating officials to identify and trace property. 
 
Comprehensive figures for assets frozen, seized and/or forfeited are 
not compiled in a central location.  The Corruption Eradication 
Commission reports that it seized, froze or confiscated assets in 
corruption-related cases in the amount of IDR 404 billion (about 
U.S. $33.7 million) in 2008, through October 31.  This compares to 
assets of IDR 45 billion (about U.S. $3.8 million) in 2007 and IDR 
12.7 billion (about U.S. $1.06 million) in 2006. 
Article 32 of Law No. 15/2002, as amended by Law No. 25/2003, 
provides that investigators, public prosecutors and judges are 
authorized to freeze any assets that are reasonably suspected to be 
the proceeds of crime. Article 34 stipulates that if sufficient 
evidence is obtained during the examination of the defendant in 
court, the judge may order the sequestration of assets known or 
reasonably suspected to be the proceeds of crime. In addition, 
Article 37 provides for a confiscation mechanism if the defendant 
dies prior to the rendition of judgment. 
 
In August, 2006, the GOI enacted Indonesia's first Witness and 
Victim Protection Law (No. 13/2006). Members have been chosen in 
2008 for a new Witness and Victim Protection Body, established by 
this law.  Indonesia's AML Law and Government Implementing 
Regulation No. 57/2003 also provide protection to whistleblowers and 
witnesses.   An additional implementing regulation, No. 44/2008, 
issued May 2008, addressed provision of compensation, restitution 
and assistance to witnesses and victims.  The October 18, 2002 
emergency counter-terrorism regulation, the Government Regulation in 
Lieu of Law of the Republic of Indonesia (Perpu), No. 1 of 2002 on 
Eradication of Terrorism, criminalizes terrorism and provides the 
legal basis for the GOI to act against terrorists, including the 
tracking and freezing of assets. The Perpu provides a minimum of 
three years and a maximum of 15 years imprisonment for anyone who is 
convicted of intentionally providing or collecting funds that are 
knowingly used in part or in whole for acts of terrorism. However, 
the terrorist financing regulation appears to suffer from a number 
of deficiencies. For example, the terrorist financing offense must 
be linked to a specific act of terrorism and the prosecution must 
prove that the offender specifically intended that the funds be used 
for acts of terrorism. This regulation is necessary because 
Indonesia's anti-money laundering law criminalizes the laundering of 
"proceeds" of crimes, but it is often unclear to what extent 
terrorism generates proceeds. Terrorist financing is therefore not 
fully included as a predicate for the money laundering offence. In 
October 2004, an Indonesian court convicted and sentenced one 
Indonesian to four years in prison on terrorism charges connected to 
his role in the financing of the August 2003 bombing of the Jakarta 
Marriott Hotel.  The PPATK issued Decision No. 
Kep.13/1.02.2/PPATK/02/08, dated February 4, 2008, regarding 
Guidelines on Identification of Suspicious Financial Transactions 
related to Terrorism Financing for Financial Service Providers. 
The GOI has begun to take into account alternative remittance 
systems and charitable and nonprofit entities in its strategy to 
combat terrorist financing and money laundering.  Bank Indonesia 
issued circular letter 8/32/DASB, issued December 20, 2006, 
requiring registration of non-bank money remitters since January 1, 
¶2007.  BI intends to issue another circular in 2008 which will 
replace this registration system with a licensing system, effective 
January 1, 2009.  Currently 13 non-bank money remitters have 
registered with BI, and several others have pending registration 
applications.  The PPATK has issued guidelines for nonbank financial 
service providers and money remittance agents on the prevention and 
eradication of money laundering and the identification and reporting 
of suspicious and other cash transactions. The PPATK issued Decision 
no. KEP-47/1.02/PPATK/06/2008, dated June 2, 2008, regarding 
Guidelines on the Identification of High Risk Products, Customers, 
Business and Countries for Financial Service Providers. The GOI has 
initiated a dialogue with charities and nonprofit entities to 
enhance regulation and oversight of those sectors. 
 
BI also issued the following provisions concerning money changers to 
improve implementation of Recommendation 5 on Customer Due Diligence 
and Record Keeping:  BI Regulation No. 9/11/PBI/2007, dated 
September 5, 2007; BI Circular Letter No. 9/23/DPM, dated October 8, 
2007, concerning the permit procedure, implementation of KYC 
principles, supervision, reporting and imposition of sanctions for 
non-bank money changers; BI Circular Letter No. 9/36/DPND, dated 
December 19, 2007, concerning the permit and reporting procedures 
for banks which perform business activity as money changers; and BI 
Circular Letter No. 9/38/DPBPR, dated December 28, 2007, concerning 
the permit and reporting procedure for rural banks and sharia rural 
banks which perform business activity as money changers.  PPATK and 
BI carried out an authorized money changer awareness campaign during 
the second half of 2007 and the first half of 2008, in collaboration 
with the Millennium Challenge Corporation Threshold Program and 
USAID. 
 
BI has effective legal powers and policies in place to ensure that 
shell banks are not permitted, although there is no explicit 
legislative prohibition on establishing a shell bank in Indonesia. 
The bank licensing procedures followed by BI effectively precludes 
establishment of a shell bank and BI Regulation 3/10/PBI/2003 as 
amended by 5/21/PBI/2002 provides that banks in Indonesia are 
required to refuse to open an account and/or conduct transactions 
with any prospective customer incorporated as a shell bank. 
Bearer shares appear to remain a feature of the Indonesian financial 
system, as the law previously permitted both bearer and registered 
shares. The new Limited Liability Company Law (Law 40/2007), August 
16, 2007, prohibits bearer shares.  This provision, in conjunction 
with the new Investment Law, prevents parties from making nominee 
arrangements.  Complete implementing regulations have not yet been 
issued for the new law and the process for removing bearer shares 
from the system is not clear.  Previously issued bearer shares 
appear to remain valid. 
 
The Indonesian government has established a number of special 
economic zones to attract both foreign and domestic investment.  In 
2007, the House of Representatives approved establishment of FTZs in 
the Batam, Bintan and Karimun islands.  The GOI established a Batam- 
Bintan- Karimun Free Trade Zone Council and has made preparations 
for the implementation of free trade zone regulations.  Batam 
Island, located just south of Singapore, has long been a bonded zone 
in which investment incentives have been offered to foreign and 
domestic companies.  In 2007, 973 foreign companies and joint 
ventures had invested more than U.S. $1 billion in the zone. 
Numerous Indonesian authorities perform supervision over firms 
located in the special economic zones (the Investment Coordinating 
Board, the Ministry of Laws and Human Rights, the Ministry of 
Manpower, the Ministry of Finance).  Supervision includes confirming 
identities of investors.  In Batam, other authorities exercising 
supervision include the Batam Industrial Development Authority and 
the Municipality of Batam.  The GOI is currently in the process of 
drafting regulations providing wider authority for Customs & Excise 
officials to regulate the flow of goods through the new Batam FTZ, 
given the FTZ's vulnerability to smuggling. 
 
Indonesia is an active member of the Asia/Pacific Group on Money 
Laundering (APG), and currently serves as the co-chair. The APG 
conducted its second mutual evaluation of Indonesia in November 2007 
and the report was discussed and adopted at the APG Annual Meeting 
in July 2008. In June 2004, PPATK became a member of the Egmont 
Group. The PPATK has pursued broader cooperation through the MOU 
process and has concluded 27 MOUs, 25 of which were with other 
Egmont FIUs. The PPATK has also entered into an Exchange of Letters 
enabling international exchange with Hong Kong. Indonesia has signed 
Mutual Legal Assistance Treaties with Australia, China and South 
Korea. Indonesia joined other ASEAN nations in signing the ASEAN 
Treaty on Mutual Legal Assistance in Criminal Matters on November 
29, 2004, though the GOI has not yet ratified the treaty. The 
Indonesian Regional Law Enforcement Cooperation Centre was formally 
opened in 2005 and was created to develop the operational law 
enforcement capacity needed to fight transnational crimes. 
The GOI has enacted Law No. 7/2007 to implement the 1988 UN Drug 
Convention, to which it is a party. The GOI also has enacted Law No. 
22/1997 Concerning Drugs and Psychotropic Substances, which makes 
the possession, purchase or cultivation of narcotic drugs or 
psychotropic substances for personal consumption a criminal offense. 
The GOI is a party to the UN International Convention for the 
Suppression of the Financing of Terrorism and a party to the UN 
Convention against Corruption. The GOI has signed but has yet to 
ratify the UN Convention against Transnational Organized Crime. 
Indonesia is ranked 126 of 180 countries ranked in Transparency 
International's 2007 Corruption Perception Index. 
 
While the Government of Indonesia has made progress in constructing 
an AML regime, efforts to combat terrorist financing have been weak. 
Sustained public awareness campaigns, new bank and financial 
institution disclosure requirements, and the PPATK's support for 
Indonesia's first credible anti-corruption drive has led to 
increased public awareness about money laundering and, to a lesser 
degree, terrorist financing.  Increased prosecution of high-profile 
corruption cases in 2008 was an important advance in the GOI's 
efforts to eradicate pervasive corruption.  Further investment in 
human and technical capacity and greater interagency cooperation are 
needed to develop an effective anti-money laundering regime.  The 
highest levels of GOI leadership should continue to demonstrate 
strong support for strengthening Indonesia's anti-money laundering 
regime. In particular, the GOI must continue to improve capacity and 
interagency cooperation in analyzing suspicious and cash 
transactions, investigating and prosecuting cases, and achieving 
deterrent levels of convictions. As part of this effort, Indonesia 
should review and streamline its process for reviewing UN 
designations and identifying, freezing and seizing terrorist assets, 
and become a party to the UN Convention against Transnational 
Organized Crime. 
 
End text. 
 
¶4.  Post point of contact for the draft text is Economic Officer 
Debra Juncker (JunckerDA@state.gov; Tel: 62-21-3435-9074; Fax: 
62-21-3435-9935. 
 
HUME