Cablegate: Indonesia - Incsr Ii, Money Laundering and Financial

DE RUEHJA #3140/01 3170834
R 130834Z NOV 07





E.O. 12598: N/A

REF: STATE 137250

1. This report responds to reftel request for an anti-money
laundering and financial crimes update for INCSR II.

Background and Overview

2. Although neither a regional financial center nor an offshore
financial haven, Indonesia is vulnerable to money laundering and
terrorist financing due to a poorly regulated financial system, the
lack of effective law enforcement and widespread corruption. Most
money laundering in the country is connected to non-drug criminal
activity such as gambling, prostitution, bank fraud, piracy and
counterfeiting, illegal logging and corruption. Indonesia also has
a long history of smuggling, facilitated by thousands of miles of
un-patrolled coastline and a law enforcement system riddled with
corruption. The proceeds of these illicit activities are easily
parked offshore and only repatriated as required for commercial and
personal needs.

3. Banks and other financial institutions now routinely question the
sources of funds or require identification of depositors or
beneficial owners. Financial reporting requirements were put in
place in the wake of the 1998 Asian financial crisis when the GOI
became interested in controlling capital flight and recovering
foreign assets of large-scale corporate debtors or alleged corrupt
officials. As a result of Indonesia's ongoing efforts to implement
the reforms to its Anti-Money Laundering (AML) regime, the Financial
Action Task Force (FATF) removed Indonesia from its list of
Non-Cooperative Countries and Territories (NCCT) on February 11,
2005 and subsequent special FATF monitoring on February 11, 2006.
The removal of Indonesia from the NCCT list and special monitoring
recognized a concerted, interagency effort supported by President
Susilo Bambang Yudhoyono to further develop Indonesia's nascent AML

Laws and Regulations on Illicit Money Flows

4. In April 2002, Indonesia passed Law No. 15/2002 Concerning the
Crime of Money Laundering, Indonesia's anti-money laundering (AML)
law, which made 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 PPATK to develop policy and regulations to
combat money laundering and terrorist finance. This law stipulated
important provisions to enhance an anti-money laundering regime,
such as:

A) The criminalizing of money laundering activities;

B) The obligation of Providers of Financial Services to submit
Suspicious Transaction Reports (STR) and Cash Transaction Reports

C) Reporting, investigation, prosecution and justice for criminal
offences of money laundering are exempted from the provisions of
bank secrecy that are stipulated in Indonesia's Banking Law;

D) Placed the burden of proof, that assets were not from criminal
activities on the defendant (instead of the prosecution having the
burden of proving that the assets were derived from criminal
activities, the onus is on the criminal to prove that the source of
funds is legitimate to
purchase assets);

E) Established the Financial Transactions Reports and Analysis
Center (PPATK) as an independent agency with the duty and authority
to prevent and eradicate criminal offences of money laundering;

F) Established a clear legal basis for freezing and confiscating the
proceeds of crime.

Financial Transaction Reports and
Analysis Center (PPATK)

JAKARTA 00003140 002 OF 007

3. PPATK, fully functional since October 2003, continues to make
steady progress in developing its human and institutional capacity.
The PPATK receives, maintains, analyzes, and evaluates currency and
suspicious financial transactions, provides advice and assistance to
relevant authorities, and issues publications. Total STRs obtained
by PPATK from providers of financial services and total reporting
parties develop from year to year aggressively. As of July 2007,
the PPATK has received approximately 3,385 suspicious transactions
reports (STRs) from 181 institutions. The volume of STRs has
increased from an average of 10 per month in 2002, to 484 per month
in 2007. The agency also reported that it had received over 3.6
million cash transaction reports (CTRs).

4. As of July 2007, there were 493 cases referred by PPATK to the
Police and the AGO. Thus far, 32 cases/defendants have been
successfully prosecuted, which seven of them were charged by money
laundering offence. We believe the figure is a positive signal to
produce timely outcomes of prosecutions for money laundering
offenses: one case involving terrorism; 24 cases involving bank
fraud and/or corruption in connection with money laundering; and
eleven final judgments for money laundering offenses.

5. Indonesia's Anti-Money Laundering and Counter Terrorism Finance
(CTF) Donors' Coordination Group, co-chaired by the PPATK and the
Australian Agency for International Development (AUSAID), has become
a model for AML/CTF donors' coordination groups in other countries.
Since Indonesia's removal form the NCCT list, donors and the
Government of Indonesia (GOI) have placed greater emphasis on more
practical training; technical and capacity building assistance for
the non-bank financial sector, police, prosecutors and judges; cash
smuggling; and regulation of charities and money changers. The Asia
Pacific Group (APG) in July 2006 named PPATK Chairman Yunus Husein
as a co-chair of the regional FATF style organization for a two-year
term. In November 2006, Indonesia hosted the annual APG Typologies

6. The PPATK is actively pursuing broader cooperation with relevant
GOI agencies. The PPATK has signed ten 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
(BAPEPAM), the Ministry of Finance Directorate General of Financial
Institutions, the Directorate General of Taxation, DGCE, the
Ministry of Forestry Center for International Forestry Research, the
Indonesian National Police, the Supreme Audit Board (BPK), and the
Corruption Eradication Committee. Government through the
Presidential Decree No. 1/2004 established National Coordinating
Committee on the prevention and eradication of the crime of money
laundering as cooperating forum among relevant institutions in
handling money laundering and terrorist financing.

Crime of Money Laundering

7. In September 2003, Parliament passed Law No. 25/2003 amending Law
No. 15/2002 Concerning the Crime of Money Laundering that addressed
many FATF concerns. Amending Law No. 25/2003 provides a new
definition of 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 origins of the assets, as seen in
Articles 1(1) and 3. The amendment removes the threshold
requirement for proceeds of crime and expands the definition of
proceeds of crime to cover assets employed in terrorist activities.
Article 1(7)(c) expands the scope of regulations requiring STRs to
include attempted or unfinished transactions. Article 13(2)
shortens the time to file an STR to three days or less after the
discovery of an indication of a suspicious transaction.

8. Article 17A makes it an offense to disclose information about the
reported transactions to third parties, which carries a maximum of
five years' imprisonment and a maximum of one billion rupiah
(approximately $110,000). Articles 44 and 44A 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

JAKARTA 00003140 003 OF 007

implement provisions of international conventions or international
recommendations on the prevention and eradication of money
laundering. The GOI in March 2006 enacted Indonesia's first Mutual
Legal Assistance (MLA) Law (No. 1/2006), establishing formal,
binding procedures to facilitate MLA with other states.

9. A proposed amendment to the law was submitted to the Parliament
in October 2006. If passed, it would require non-financial service
businesses and professionals who potentially could be involved in
money laundering -- such as car dealers, property companies, jewelry
traders, notaries and public accountants -- to report suspicious
transactions. The current law requires only banks and financial
service companies to report suspicious transactions. The amendment
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. This would be the third amendment to the law.

Know Your Customer

10. As bank supervisor, Bank Indonesia (BI), the Indonesian Central
Bank, is responsible for the supervision of the implementation of
AML policy, which includes implementation of Know Your Customer
(KYC) principles in the banking industry. Bank Indonesia's
objective in this matter is to ensure that banks are not being
utilized as targets and or mediums for money laundering activities
since banks are the financial institutions most used by money
launderers. In addition, Bank Indonesia is also authorized to
supervise Non-Bank Money Changers given the fact that Money Changers
are the next likely group to be used for money laundering, and Money
Remittance business. This is also in line with the MoonexQu dering
Law and international standards, which states th`t o*ey Changers
shall also be subject to KYC principlesand AML.

11. BI issued Regulation No. 3/10/PBI/001, "The Application of Know
Your Customer Priniples," on June 18, 2001. This regulation
requies banks to obtain information on prospective custmers,
including third party beneficial owners, an to verify the identity
of all owners, with persnal interviews if necessary. The
regulation als requires banks to establish special monitoring unts
and appoint compliance officers responsible fr implementation of
the new rules and to maintainadequate information systems to comply
with the aw. Finally, the regulation requires banks to anayze and
monitor customer transactions and reportto BI within seven days any
"suspicious transactons" in excess of Rp 100 million (approximately
$1,000). The regulation defines suspicious transacions according
to a 39-point matrix that include key indicators such as unnusual
cash transaction, unusual ownership patterns, or unexplained
chages in transactional behavior. BI specifically requres banks to
treat as suspicious any transaction to or from countries "connected
with the producion, processing and/or marrket for drugs or

12. BI has issued an Internal Circular Leter 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 Sanction on the Implementation of KYC
and other Obligation Related to Law on Money Laundering Crime. BI is
also preparing Guidelines for Money Changers on Record Keeping and
Reporting Procedures and Money Changer Examinations given by BI

Cross Border Cash Carrying
13. Other mandatory reports in Indonesia AML regime, such as Cross
Border Cash Carrying reports, have also been increasing
significantly. Currently, banks must report all foreign exchange
transactions and foreign obligations to BI. 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 (approximately
$11,000) or more, or the equivalent in another currency, which must
be reported to the Director General of Customs and Excise (DGCE).
These reports must be given to the PPATK in no-later-than five

JAKARTA 00003140 004 OF 007

business days and contain details of the identity of the person.

14. Indonesian Central Bank regulation 3/18/PBI/2001 and the DGCE
Decree No.01/BC/2005 concerning the Reporting Procedure of Cross
Border Cash Carrying, launched on January 2005, contain the
requirements and procedures of inspection, prohibition, deposit of
Indonesia Rupiah into or out of Indonesia. The Decree provides
implementing guidance for Ministry of Finance Regulation
No.624/PMK.04/2004 of December 31, 2004, which requires individuals
who import or export more than rupiah 50 to 100 million in cash
(approximately $5,500-$11,000) to report such transactions to
Customs. This information is to be declared on the Indonesian
Customs Declaration, 524 Forms BC 3.2 have been filed with Customs
and submitted to PPATK by the end of 31 December 2005 and 1,432
Forms by the end of 31 December 2006.

15. As of 30 June 2007, 1,855 Forms BC 3.2 have been filed with
Customs and submitted to PPATK. The reports were derived from 2
(two) airports, namely Jakarta Cengkareng and Denpasar, 2 (two)
seaports, namely Batam and Tanjung Balai Karimun, and 1 (one) post
office in Bandung. Up to 31 July 2007 PPATK obtained 1,887 reports
from DGCE, derived from five jurisdictions of Customs: Jakarta,
Tanjung Balai Karimun, Bandung, Batam and Denpasar. And up to 31
July 2007, Indonesian National Police has conducted investigation of
20 cases derived from reporting of Cross-Border Cash Carrying

Bank Information, Disclosure and Records

16. There is a mechanism to obtain access to confidential
information from bank through BI Regulation Number 2/19/PBI/2000 on
September 7, 2000 concerning "Requirements and Procedure for Written
Order or Permission to Access Confidential Bank Information." PPATK
has the authority to conduct supervision and monitoring compliance
of providers of financial services. PPATK may also advise and
assist relevant authorities concerning information obtained by the
PPATK in accordance with the provisions of this Law No 15/2002.
Thus, there are mechanisms governing information exchange between
the Directorate General for Taxation (DG Tax) and PPATK by
considering limitations stipulated under Laws and regulations
related with these two agencies and the MOU between them. The Law
also stipulates some provisions in which PPATK shall have authority
to request suspicious transactions reports and additional
information from providers of financial services.

17. Banks and non-bank financial institutions (NBFI) shall keep and
maintain documents and records related to its customers for at least
five years after the closing of a customer's account. 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 now 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,
and Article 15 of their anti-money laundering legislation gives
providers of financial services, their officials and employees
protection from civil or criminal action in making such disclosures.

Freezing, Blocking and Seizing Assets

18. Indonesian laws provide only limited authority to block or seize
assets. Under BI regulations 2/19/PBI/2000, police, prosecutors, or
judges may order the seizure of assets of individuals or entities
that have been either declared suspects, or indicted for a crime.
This does not require the permission of BI, but, in practice, for
law enforcement agencies to identify such assets held in Indonesian
banks, BI's permission would be required. In the case of money
laundering as the suspected crime, however, bank secrecy laws would
not apply, according to the anti-money laundering law.

JAKARTA 00003140 005 OF 007

19. The GOI has limited formal instruments to trace and forfeit
criminal and civil assets. Under the Indonesian legal system, all
types of confiscations against all types of assets must be taken
through criminal justice proceedings and be based on a court order.
This confiscation process is initiated with freezing and seizing
process against said assets. Thus, the GOI has the authority to
trace and freeze assets of individuals or entities on the UNSCR 1267
Sanctions Committee's consolidated list, and through BI, has
circulated the consolidated list to all banks operating in
Indonesia, with instructions to freeze any such accounts.

20. When new names are added to the 1267 list, however, the GOI's
multi-step process through three agencies is currently too complex
and inefficient to send out asset-freezing instructions in a timely
manner. The interagency process to issue freeze orders, which
includes the Foreign Ministry, Attorney General, Police, and BI,
takes several weeks or more from UN designation to bank
notification. Banks also note that without very specific
information, the preponderance of similar names and inexact
addresses, along with the lack of a unique identifier (such as the
U.S. social security number) in Indonesia make identifying correct
accounts very difficult. The implementation of this process has not
led to the discovery of accounts or assets of individuals or
entities on UN 1267 consolidated list. However, during the course
of terrorism investigations, the Indonesia police have located and
frozen accounts of individuals on the UN 1267 consolidated list.

21. Article 32 of Law Number 15 Year 2002 as amended by Law Number
25 Year 2003 provides that investigators, public prosecutors and
judges are authorized to freeze any assets which 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 which have
not already been sequestered by the investigator or public
prosecutor concerned. In addition, Article 37 provides for a
confiscation mechanism if the defendant dies prior to the rendition
of judgment. Goods forfeited shall be defined as goods owned by the
accused derived from an offence and goods intentionally used to
commit an offence.

22. In October 2006, the GOI submitted to Parliament additional
amendments to Law No. 15/2002 that would provide the PPATK with
preliminary investigative authority and the ability to temporarily
freeze assets. The amendments are intended to provide technical
investigative support to police and prosecutors and to deter capital
flight. The GOI in August 2006 enacted Indonesia's first Witness
and Victim Protection Law (No. 13/2006). Indonesia's AML Law and
Government Implementing Regulation No. 57/2003 also provide
protections to whistleblowers and witnesses.

23. 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. 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.

24. The Special Detachment 88 of the Indonesian National Police and
the Task Force of Terrorism and Transnational Organized Crime of the
AGO maintain the statistic related to financing of terrorism. The
Indonesian police have ordered the freezing of accounts owned by
individuals suspected of connection with acts of terrorism. These
individuals include Ali Gufron, Parlindungan Siregar, Utomo
Pamungkas, Abdul Azis, Nasaruddin Bin Abdul Jalil, Faithi Bin Abu
Bakar Bafana, Siliwangi, Ramiah Nasution, Susmiati, Tursiak,
Syarifah Zarniyah, Sujiati, Edi Indra, Fahjry, Hernianto, Muthmainah
and Hussein. Also accounts belonging to a company PT Yasa Edukatama.

25. National Police investigators have investigated some

JAKARTA 00003140 006 OF 007

perpetrators of the crime of terrorism, in which some of them are
involved in Bali Bombing Attacks I and II, terrorist attack in J. W
Marriott Hotel, terrorist attack in the residence of Philippines
Ambassador, terrorist attack in Australian Embassy. National Police
investigators investigated such perpetrators and convicted them for
the crime of terrorism, not terrorist financing with a consideration
that the criminal sanction of terrorism crime is more serious than
terrorist financing. If investigators require information on the
flow of fund related with terrorist attacks, National Police
investigators always coordinate with PPATK. 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.

Alternative Remittance Systems

26. The GOI has recently begun to take into account alternative
remittance systems or charitable or nonprofit entities in its
strategy to combat terrorist finance and money laundering. The
PPATK has issued guidelines for non-bank 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 GOI has initiated a dialogue with
charities and nonprofit entities on improving regulation and
oversight of those sectors.

International Agreements and Arrangements

27. Indonesia is an active member of the Asia/Pacific Group on Money
Laundering (APG) and the Bank for International Settlements. BI
claims that it voluntarily follows the Basel Committee's "Core
Principles for Effective Banking Supervision." The GOI has enacted
Law Number 7 Year 1997 to implement the 1988 Vienna Convention
against the Illicit Traffic in Narcotic Drugs and Psychotropic
Substances. In addition the GOI also has enacted Law Number 22 Year
1997 concerning Drugs and Psychotropic Substances, which makes the
possession, purchase or cultivation of narcotic drugs or
psychotropic substances for personal consumption a criminal offence.

28. The GOI has signed, but not yet ratified, the UN Convention
against Transnational Organized Crime. In 2006 Indonesia formally
ratified two International Conventions regarding terrorism: The
International Convention for the Suppression of Terrorist Bombing,
1997, was ratified by Law Number 5 Year 2006 and The International
Convention for the Suppression of the Financing Terrorism, 1999, was
ratified by Law Number 6 Year 2006. Cooperation between the
Indonesian law enforcement agencies and its foreign counterparts is
intended to prevent and combat the crime of money laundering, which
is a trans-national crime.

29. Bilateral arrangements on mutual legal assistance on criminal
matters will facilitate the seizure of such assets as governed in
Law Number 1 Year 2006 concerning Mutual Legal Assistance in
Criminal Matters. Currently, Indonesia has concluded bilateral
treaties with Australia, the People's Republic of China and Republic
of Korea. Investigators, public prosecutors or judges have the
authority to order banks or financial service providers to freeze
the assets of any person believed or with reason to believe to be
the proceeds from acts of terrorism and/or crimes related to
terrorism, irrespective of the amount or value.

30. In June 2004, PPATK became a member of the Egmont Group and has
entered into MoUs with 22 (twenty two) FIUs. As such, it is bound
to share financial intelligence with other members in accordance
with the organization's charter. The PPATK is actively pursuing
broader cooperation with other Financial Intelligence Units (FIUS)
and has MOUs with Thailand, Malaysia, Republic of Korea,
Philippines, Romania, Australia, Belgium, Italy, Spain, Poland,
Peru, Mexico, China, Burma, Canada, South Africa and the Cayman
Islands. 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, and Indonesia joined other ASEAN nations in signing the
ASEAN Treaty on Mutual Legal Assistant in Criminal Matter on

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November 29, 2004. 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.

31. Regarding international mechanisms, Article 43 of Government
Regulation in Lieu of Law (Perpu) Number 1 Year 2002 concerning the
Eradication of Criminal Acts of Terrorism as Enacted to be the Law
Number 15 Year 2003 provides international cooperation with other
countries in the field of intelligence, police, and other technical
cooperation to combat terrorism and financing of terrorist in
according to prevailing relevant laws. In this regard, the foreign
authority shall address the request in writing to the Indonesian
investigator, which, after been reviewed, the investigator will
order the bank or the financial service provider wherein the suspect
has the asset, to freeze it. The bank or the financial service
provider shall then immediately freeze the asset.

32. In addition, there is other system applied, which is exchange
information and intelligence between countries that is crucial for
the effective combating the financing of terrorist and terrorism, in
which such exchange has been promoted inter-alia within the context
of International Criminal Police Organization (ICPO) - INTERPOL. The
investigators shall conduct a freezing if it relates with assets
located in other jurisdiction and then asking for assistances from
Interpol and there has been existing mechanism thru INTERPOL for

Continuing Challenges

33. Sustained public awareness campaigns, new bank and financial
institution disclosure requirements, and the PPATK's support for
Indonesia's first credible anticorruption drive have led to
increased public awareness about money-laundering and, to a lesser
degree, terrorism finance. Weak human and technical capacity, poor
interagency cooperation, and corruption, however, still remain
significant impediments to the continuing development of an
effective and credible AML regime.

34. 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 and custodial and
administrative sentences and penalties. As part of this effort,
Indonesia should review the adequacy of its Code for Criminal
Procedure and Rules of Evidence and enact legislation to allow the
use of modern techniques to enter evidence in court proceedings.
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.


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