Australian businesses working in the international financial arena already need to consider whether a party with whom they wish to do business is affected by, or comes from, a jurisdiction that applies adequate anti-money laundering and counter terrorist financing (AML/CTF) standards and, if so, what compliance with those standards entails. This applies to Indonesia which is (as at March 2006) Australia's 13th largest merchandise trading partner with 400 Australian companies operating in the country.
Overview
Indonesia introduced AML legislation in 2002 and in February 2005 it was removed from the Financial Action Task Force (FATF) blacklist (a list that it had been on since 2001). In February 2006, FATF announced that it no longer intended to monitor the Indonesian AML regime.
The Head of the Indonesian Financial Transaction Reports Analysis Center (PPATK) has indicated that AML reforms are being considered.
The AML/CTF regime
The Indonesian AML/CTF regime is contained in the following legislation:
Law No. 15 of 2002 on Money Laundering Crimes (as amended by Law No 25 of 2003) (the Money Laundering Law)
The Money Laundering Law:
- sets out a number of criminal offences;
- includes customer identification requirements;
- sets out the functions and powers of PPATK, the Indonesian financial intelligence unit established under the legislation as an independent agency for the collection and analysis of information with a referral power for prosecution;
- imposes a reporting obligation on financial services providers; and
- provides for freezing and confiscation of assets.
Money laundering offences
The money laundering offences are contained in Articles 3 to 7 of the Money Laundering Law, which provides that it is an offence for any person (natural or legal) to:
- knowingly place, transfer, spend, donate, apply, export, or exchange or commit other acts with, assets that are known or reasonably suspected by the person to be proceeds of crime, with the purpose of disguising or concealing the origins of the assets;
- attempt, assist or conspire to do any of the above acts;
- receive or control the placement, transfer, payment, donation, application, storage or exchange of assets known, or reasonably suspected by the person, to constitute the proceeds of crime;
- in the case of Indonesian citizens or corporations, provide outside of Indonesia, assistance, opportunities, facilities or information for carrying out the crime of money laundering.
'Proceeds of crime' is defined as assets derived from the commission of specified predicate offences. Article 2 of the Money Laundering Law lists 25 types of predicate offences, including corruption and taxation offences, drug trafficking, forestry and environmental offences, terrorism, and any offence that attracts a penalty of four years or more. Assets used directly or indirectly for terrorist activities are also specified as proceeds of crime.
For each money laundering offence the penalty is a fine of up to Rp15 billion (approximately US$1.6 million) and imprisonment for up to 15 years. If an offence is committed by a corporation, (defined widely so as to include foundations1) the penalty is increased by one-third. In addition to these sanctions, convicted corporations may be dissolved or have their business licences revoked.
Managers who commit these offences on behalf of corporations are liable along with the corporation itself, although it seems that only those managers who are directors or (perhaps) commissioners of the corporation (and their agents) will, in fact, be liable.2
A corporation itself is not liable for the money laundering activities of its managers if those activities occur outside the scope of the corporation's business activities as set out in its articles of association or applicable regulations.3
Reporting obligations
Article 13 of the Money Laundering Law imposes a reporting obligation. Specifically Article 13(1)(a) requires financial services providers (who are defined as any person providing services in the financial field or other services in relation to finance, including but not limited to, banks, financial institutions, securities companies, mutual fund managers, custodians, trust agencies, depository and settlement agencies, foreign exchange traders, pension funds, insurance companies and the Post Office) to make a suspicious transaction report to PPATK within three days of becoming aware of any suspicious financial transaction. A suspicious financial transaction is defined as a transaction that:
- deviates from a customer's profile and ordinary transaction patterns;
- can reasonably be suspected of being conducted to avoid reporting requirements; or
- whether or not completed, uses assets that can reasonably be suspected of constituting proceeds of crime.
Additionally, Article 13(1)(b) requires financial service providers to report cash financial transactions (which include transactions conducted in cash or using other monetary instruments and whether conducted in a single transaction or by several transactions in one day) of Rp500 million (approximately US$53,000) or more to PPATK no later than 14 days from the date of the transaction.
Some transactions, such as inter-bank transactions, government and central bank transactions, salary and pension payments and PPATK exempted transactions, are excluded from the cash reporting requirements.
The penalty for failure to make a suspicious transaction or cash financial report is a fine of up to Rp1 billion (approximately US$106,000).
Additionally, Article 16 requires cash imports or exports of Rp100 million (approximately US$10,600) to be reported to the Directorate General of Customs and Excise. Failure to do so attracts a fine of up to Rp300 million (approximately US$31,800).
Secrecy provisions
Articles 14 and 15 provide that the ordinary bank secrecy provisions do not apply to financial service providers when they comply with Article 13 and that they (their officials and employees) are exempt from civil or criminal actions brought as a result of their compliance with those reporting obligations.
Article 17A criminalises tipping off by making it an offence (punishable by a fine of up to Rp1 billion and imprisonment for up to 5 years) for directors, officials or employees of financial service providers to disclose to customers or to third parties that a suspicious transaction report is contemplated or has been made.
Reporting parties are provided with specific protection in that:
- PPATK, investigators, judges and prosecutors must keep their identity secret;
- a breach of this requirement entitles the reporting party to claim compensation;4 and
- they must be provided with protection.
Customer identification
Customer identification requirements are contained in Article 17. Article 17(1) provides that customers of financial service providers who engage in a business relationship with the provider must provide details of their full and correct identity (which, in this context, includes name, address, gender, age, religion and occupation) and provide supporting documents. In this context, 'business relationship' includes opening accounts, transferring funds, the disbursement of cheques, purchase of travellers cheques, buying and selling foreign currency, deposits and other financial services.
Articles 17(2) and (3) require financial service providers to establish whether their customers are acting for themselves or another party and, if so, to identify and obtain supporting documentation on the third party.
Article 17(4) provides that banks must also request identification information and documents in accordance with any laws or regulations. The relevant regulations are (as at May 2006):
- Bank Indonesia (BI) Regulation No. 3/10/PBI/2001 concerning Know Your Customer (KYC) Principles, as amended by BI Regulation No. 3/23/PBI/2001 and BI Regulation No. 5/21/PBI/2003; and
- Regulation No. V.D.10 issued by Bapepam (the Indonesian capital market regulator).
These are discussed below at Regulations and Guidelines.
Record keeping
Records and documentation relevant to the identification of customers must be retained for a period of five years from the termination of the business relationship.
Law No 15 of 2003 on Stipulation of Government Regulation in lieu of Law No.1 of 2002 on Combating Criminal Acts of Terrorism as Legislation.
Article 11 of Law No.15 of 2003 criminalises the intentional provision or collection of funds with the objective they be used, or with the reasonable likelihood that they will be used, partly or wholly for criminal acts of terrorism.
Article 13 makes it an offence to intentionally provide assistance to a terrorist, which includes providing or lending goods or other assets to the terrorist.
Offences under Articles 11 and 13 are punishable by imprisonment for a minimum period of three years to a maximum period of five years.
If a terrorist offence is committed by a corporation the penalty is up to Rp1 trillion (approximately US$10.6 million) and the directors of a corporation convicted of a terrorist offence are personally liable for the corporate penalty.
Regulations and Guidelines
Bank Indonesia, Bapepam and the Ministry of Finance have issued AML regulations applicable to the financial services industry.
Bapepam Regulation No.V.D.10 (as amended by Decree of the Chairman of Bapepam No. 02/PM/2003) on Know Your Customer Principles, which applies to securities companies, mutual fund managers and custodian banks, sets out customer identification and verification, transaction monitoring and suspicious transaction reporting obligations.
In the banking sector, BI has issued regulations on Know Your Customer Principles, namely: BI Regulation No.3/10/PBI/200, as amended by BI Regulations No.3/23/PBI/2001 and No.5/21/PBI/2003. These Regulations are based on the FATF Recommendations and Core Principle No.15 of the Basel Committee on Banking Supervision. The text of the Regulations (in English) can be found at:
The BI regulations also provide sanctions in accordance with the Banking Law for failure to comply with the regulations.
Other relevant regulations and guidelines include:
- BI Regulation No 3/3/2001, which sets out monitoring and reporting cross border financial requirements;
- BI Regulations 5/23/PB1/2003 and 6/1/PB1/2004, which impose KYC requirements on rural banks and money changers, respectively;
- Ministry of Finance Decree 45/KMK.06/2003, which contains KYC requirements for insurance, pension funds and financing companies;
- Decree of Director General of Financial Institutions No. Kep-2833/LK/2003 on Direction of Drafting Guidelines on KYC Implementation. (The Directorate General of Financial Institutions has merged with Bapepam);
- Circular Letter No. 6/37/DNP, which deals with the application of KYC principles and others relating to the Law on Money Laundering; and
- Circular Letter No 6/41/DPM, which deals with licensing, KYC principles, and non-bank money changers.
Links to the above can be found on the Bank Indonesia website and Bapepam Online.
PPATK has also issued a number of guidelines on cash transaction and suspicious reporting procedures.5 These can be found at the PPATK website.
Recent Initiatives
In an interview with the Jakarta Post on 19 February 2006, the head of PPATK indicated that further draft AML legislation is being considered. The proposed legislation will amend the Money Laundering Law (No 25 of 2003) by extending PPATK's powers to include investigating money laundering cases, freezing assets and stopping transactions. Other possible amendments include the extension of the Money Laundering Law to non-bank institutions such as public accountants, property agents and developers, jewellery and antique shops, car dealers, lawyers and non-governmental agencies by requiring them to report suspicious transactions.
Footnotes
- Article 1(3) defines corporations as 'organized groups of people and/or assets either incorporated or not incorporated as legal entities.'
- The criminal liability of 'managers' is restricted to those who hold functional positions, i.e. those authorised to act by virtue of the company's articles of association. Article 4(2) and the Elucidation of the Law refer.
- Article 4(3).
- See: Government Regulation No. 57 of 2003 on the Procedure for Special Protection of Reporting Parties and Witnesses in Criminal Acts of Money Laundering; and Decree of Chief of Indonesian Police No.17 of 2005 on Procedures for Conducting Special Protection for Reporting Parties and Eyewitnesses in Money Laundering Crimes.
- Decree of Chairman of PPATK (Indonesian Financial
Transaction and Analysis Centre - 'INTRAC') No. 3/9/KEP.PPATK/2004 on Cash
Financial Transactions Exempted From Reporting Obligations.
Decree of Chairman of PPATK No. 3/1/KEP.PPATK/2004 on Guidelines for Cash Transaction Report and Procedures for Reporting for Financial Providers.
Decree of Chairman of PPATK No 2/7/KEP.PPATK/2003 on Guidelines for Reporting Suspicious Transactions for Money Changers and Money Transfer Services.
Decree of Chairman of PPATK No. 2/6/KEP.PPATK/2003 on Guidelines for Reporting Suspicious Financial Transactions for Financial Providers.
Decree of Chairman of PPATK No 2/5/KEP.PPATK/2003 on Guidelines for Identifying Suspicious Financial Transactions for Money Changers and Money Transfer Services.
Decree of Chairman of PPATK No. 2/4/KEP.PPATK/2003 on Guidelines for Identifying Suspicious Financial Transactions for Financial Providers
Decree of Chairman of PPATK No. 2/1/KEP.PPATK/2003 on General Guidelines for Preventing and Combating Acts of Money Laundering for Financial Providers.
