AML Compliance Guidelines: Indonesia

Indonesia, a newly industrialized, upper‐middle‐income country, is Southeast Asia’s largest economy and the region’s only G20 member. Political stability combined with a series of legislative and structural reforms has fueled years of exponential growth, ranking Indonesia as the 8th largest economy in the world and establishing it as a regional hub for trade.

Rapid economic growth not only stimulated international trade and cross-border transactions, it also transformed the financial landscape by accelerating the use of digital banking, fintechs, and financial services. This transformation, combined with historical gaps in regulatory supervision, made its financial system vulnerable to exploitation by financial criminals.

In February 2010, the Financial Action Task Force (FATF) placed Indonesia under increased monitoring, citing vulnerabilities and strategic deficiencies in its Anti-Money Laundering and Counter-Terrorist Financing (AML/CFT) framework. Subsequently, on 26 June 2015, the FATF announced Indonesia’s exclusion from the “greylist”, welcoming significant progress in improving its AML/CFT regime.

Though Indonesia has been a member of the Asia Pacific Group (APG) since 2001, a FATF-style regional body, it only secured full FATF membership in October 2023, recognizing Indonesia’s efforts of years of structural and legislative reforms to mitigate risks of money laundering and terrorism financing through its financial system.

The 2023 FATF Mutual Evaluation Report concluded that Indonesia is fully or largely compliant with 35 out of 40 FATF recommendations, whereas five remain partially compliant. The report highlighted the need for improved risk-based supervision, especially of money exchanges, money or value transfer services (MVTS), and non-financial sectors, and the availability of accurate beneficial owner information to law enforcement.

The report also highlighted the need to improve the investigation and prosecution of different money laundering activities and confiscation of assets, particularly those located abroad or generated from forestry or environmental crimes.

These findings from the MER signal that the framework of AML in Indonesia will be reshaped to address these identified gaps, resulting in enhanced supervision of vulnerable sectors (e.g., money changers, MVTS, and non-financial industry) and a more proactive stance on enforcement and asset recovery. In the following sections, we’ll discover the key AML/CFT regulations, governing bodies, businesses subject to AML Laws, and their obligations towards AML compliance.

Challenges specific to Indonesia include high corruption indices, complex corporate structures, and the prevalence of cash-based transactions, all of which can complicate compliance efforts.

Legal Framework for AML/CFT in Indonesia

Key AML/CFT Laws

Law No. 8 of 2010 (AML Law)

Indonesia’s AML law is Law No. 8 of 2010 on the Prevention and Eradication of Money Laundering Crimes. This is the primary legislation that criminalizes money laundering and stipulates measures for its detection and prevention. It also lists activities subject to AML laws and their obligations regarding money laundering prevention.

Law No. 9 of 2013 (CTF Law)

Law No. 9 of 2013, regarding the Prevention and Eradication of Terrorism Financing Crime, underpins Indonesia’s commitment to peace and global security. This law criminalizes terrorism financing and stipulates strict penalties for related offenses. It also outlines the responsibilities of the supervisory and regulatory authorities and mandates due diligence and reporting requirements for entities operating in the financial system.

Penalty For Money Laundering In Indonesia

Money laundering is (money laundry adalah) a criminal offense under Law No. 8 of 2010 and carries severe penalties. Individuals convicted of money laundering may face imprisonment of up to 20 years and fines as high as Rp10 billion. For corporations, the penalties are even steeper, with fines reaching up to Rp100 billion.

What is money laundering (apa itu pencucian uang) in simple words? Pencucian Uang Artinya or Money laundering means concealing the true origin of property generated from illegal sources to make it appear legitimate.

Regulatory Framework for AML Compliance in Indonesia

The regulatory framework for AML/CFT in Indonesia is well-developed and involves multiple authorities. The Financial Services Authority, or Otoritas Jasa Keuangan (OJK) supervises and ensures compliance with AML/CFT standards among financial institutions. At the same time, the Bank of Indonesia (BI) regulates AML/CFT obligations for non-bank payment systems and non-bank money changers.

Commodity Futures Trading Regulatory Agency (BAPPEBTI) regulates and supervises futures trading and crypto assets service providers. The Financial Intelligence Unit, or the Pusat Pelaporan dan Analisis Transaksi Keuangan (PPATK), plays a key role in analyzing suspicious transaction reports and supporting law enforcement in investigating and ultimately securing prosecution of financial criminals.

Agencies authorized to investigate predicate offenses are also responsible for investigating linked money laundering cases. These agencies include, among others, the Indonesian National Police (POLRI), the Public Prosecutor’s Office, the Corruption Eradication Commission (KPK), the National Anti-Narcotics Agency (BNN), and the Directorate General of Taxes and the Directorate General of Customs and Excise of the Ministry of Finance of the Republic of Indonesia.

These laws and governing bodies form the basis of an interdependent AML/CFT regulatory framework in Indonesia. Non-compliance with these laws, regulations, and guidelines by the supervisory authorities may lead to severe administrative or criminal penalties, including substantial fines and imprisonment. The consequences are not limited to administrative or civil penalties, businesses may lose public trust and face operational disruptions.

Entities Required to Comply

AML regulations in Indonesia apply to a broad spectrum of entities from financial and non-financial sectors (hereinafter reporting institutions):

Financial Institutions: Banks, insurance companies, securities firms, money changers, money or value transfer services, non-bank financial institutions, pawn brokers, investment management and investment advisors, crypto asset service providers, and other entities involved in financial services are mandated to implement AML/CFT measures.

Designated Non-Financial Businesses and Professions (DNFBPs): This category includes real estate agents, dealers in precious metals and stones, motor vehicle traders, arts and antique goods traders, auction houses, lawyers, and accountants.

Key AML Compliance Obligations

Entities subject to AML regulations in Indonesia must adhere to several core requirements:

1. Risk Assessment
Indonesian AML laws require applying a risk-based approach (RBA) to the AML/CFT framework per the FATF recommendations. The risk assessment process is the building block of a practical risk-based approach. The risk level of each customer should be assessed by considering different risk factors associated with customers, products or services, geographic areas, and delivery channels.

2. Customer Due Diligence (CDD): 

1. Identify and verify the customers and beneficial owners
2. Establish and verify the identity of such other party if the customer is acting on someone else’s behalf
3. Establish the source of funds for the transaction
4. Establish the  purpose and intended nature ofthe  business relationship or transaction
5. Ensure information, data, and documents obtained for customer due diligence are kept up-to-date

The obligation to conduct KYC must be performed at times when:

1. Engaging in a business relationship with customers
2. There’s a financial transaction of Rp100 million or more
3. There’s a suspicion of money laundering or terrorism financing
4. The reporting entity doubts the correctness of the information provided by the customer

3. Enhanced Due Diligence: EDD is necessary for high-risk customers, such as Politically Exposed Persons (PEPs) including in the following categories:

1. PEPs and their relatives and close associates (RCAs)
2. High risk countries (determined by FATF, OECD, World Bank, etc)
3. High risk products or services (priority customers & anonymous transactions)
4. Appointing 3rd parties to open or operate a business relationship or transaction

Politically Exposed Person (PEP)
PEPs in Indonesia are divided into three categories defined as follows:

• A Domestic PEP is an individual who holds or has held a prominent public function in Indonesia
• A Foreign PEP is an individual who holds or has held a prominent public function in a foreign country.
• An International Organization PEP is an individual who holds or has held a prominent public function in an international organization.

Enhanced Due Diligence measures required for PEPs also apply to their relatives and close associates. Reporting institutions must have policies and procedures to identify whether a potential customer, existing customer, or Beneficial Owner is a PEP. Compliance with this obligation can be achieved by opting for services of reliable AML solutions in Indonesia.

4. Ongoing Monitoring: Transaction monitoring is crucial to detecting and reporting suspicious transactions or behavior. This involves detecting transactions that do not match the institution’s knowledge about the customer, in particular, transactions that are unusually large, complex or lack legitimate economic or legal purpose.

5. Sanctions Screening
As a member of the United Nations, Indonesia adheres to the sanctions implemented by UN Security Council Resolutions. In addition to the UN Sanctions, reporting institutions must comply with the local watchlist. This watchlist is (watchlist adalah) sometimes referred to as the Indonesian Sanctions lists. The watch list is (watch list adalah) published by PPATK on its website in two different categories, namely:

1. List of Suspected Terrorists and Terrorist Organizations (DTTOT)
2. List of Funding for the Proliferation of Weapons of Mass Destruction (WMD)

Reporting institutions must block all assets and transactions linked directly or indirectly to the individuals or organizations listed on the local and UN Sanctions lists. If a positive match is found with the applicable sanctions lists, the reporting institution should immediately implement blocking measures and report them as Suspicious Financial Transaction Reports to PPATK.

The obligation to ensure compliance with updated sanctions lists without delay determines how often AML screening in Indonesia needs to be conducted. To achieve compliance with updated sanction lists, reporting institutions are expected to screen all new customers during the onboarding stage and rescreen existing customers on an ongoing basis whenever the sanctions list is updated or changed.

6. Suspicious Activity Reporting (SAR): Reporting entities must promptly file the following reports to PPATK, enabling authorities to take timely and appropriate action.

1. Suspicious Financial Transactions Report (LTKM)
2. Cash Financial Transactions (LTKT) for cash transactions that equal or exceed Rp500 million
3. Transactions from/to overseas (LTKL)

7. Record-Keeping: Reporting entities must obtain and retain records of customer identification documents, transactions, and compliance activities for up to 5 years after terminating such a business relationship.

High-Risk Areas for Money Laundering in Indonesia

According to the 2021 National Risk Assessment (NRA), Indonesia has significant risks of money laundering, which vary across different industries and geographical regions. Key high-risk areas include banking, real estate, and foreign exchange trade, as well as specific regions like Java and Jakarta. The primary source of money laundering proceeds comes from domestic predicate offenses such as corruption, narcotics, fraud, and forestry/environmental crimes.

Best Practices for AML and Sanctions Compliance

Ensuring effective AML and sanctions compliance is not only a regulatory obligation but also a crucial part of sound business practices. Businesses should adopt the following strategies to ensure compliance with AML regulations in Indonesia:

• Adopt a risk-based approach to fulfill regulatory obligations and ensure efficient allocation of resources.
• Implement advanced AML services in Indonesia to automate processes like sanctions screening, PEP screening, and transaction monitoring to monitor and detect high risk clients and transactions vigilantly.
• Leveraging adverse media screening to monitor predicate offenses including narcotics, corruption, and forestry/environmental crimes that generate a significant part of illegal proceeds.
• Regularly train employees on internal policies, financial crime typologies, and regulatory requirements.
• Establish comprehensive internal controls and procedures, including independent audits and reviews to measure the effectiveness of AML/CFT compliance.