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Indonesia: Anti-Money Laundering and Terror Funding Rules Tightened

(Oct. 3, 2017) On September 13, 2017, Bank Indonesia, known in Indonesian as Bank Sentral Republik Indonesia, issued a new regulation designed to further limit money laundering and financing of terrorism. (Indonesia Tightens Rules to Curb Money Laundering, Terror Funding, REUTERS (Sept. 13, 2017).)  The regulation applies to non-bank financial service providers, including institutions that issue credit cards, exchange currencies, or provide electronic money.  (Id.; Peraturan Bank Indonesia Nomor 19/10/PBI/2017 Tentang Penerapan Anti Pencucian Uang dan Pencegahan Pendanaan Terorisme bagi Penyelenggara Jasa Sistem Pembayaran Selain Bank dan Penyelenggara Kegiatan Usaha Penukaran Valuta Asing Bukan Bank [Bank Indonesia Regulation No. 19/10/PBI /2017 Concerning the Application of Anti-Money Laundering and the Prevention of Terrorism Financing for the Providers of Payment System Services Other Than Banks and Organizers of Non-Bank Foreign Exchange Activities] (Sept. 13, 2017), Bank Indonesia website.)

According to the summary published on the Bank’s website together with the full text of the Regulation, the Regulation was issued because payment systems, including foreign exchange methods, have become more complex due to technological development, increasing the risk of criminal activity such as money laundering and the funding of terrorism. These increased risks, the summary states, must be met with more effective measures that are coordinated so that their application is consistent.  (Ringkasan [Summary], Bank Indonesia website (last visited Sept. 28, 2017).)

Provisions

The Regulation requires financial service providers to have an updated list of alleged militants, including individuals and organizations linked to the spread of weapons of mass destruction; the providers then cross-check the list with their customer lists. They are mandated to assess the risks related to incoming and outgoing money transfers, based on the origin or destination country, and are prohibited from working with shell banks with no physical offices in the country in which they are legally established.  (Indonesia Tightens Rules to Curb Money Laundering, Terror Funding, supra.)

The providers must report any suspicious transactions to the authorities and could lose their licenses if they fail to conform to the rules. In addition, for failure to follow the provisions of the Regulation, the individual directors, commissioners, or shareholders could be subject to a five-year ban from the financial services industry.  (Id.)

Background

In 2012, Indonesia was put on the “blacklist” of the Financial Action Task Force (FATF) that includes countries that are considered “high-risk and non-cooperative jurisdictions.” However, because Indonesia adopted improved regulations in the next few years, it was taken off that list in 2015.  (Id.; Topic: High-Risk and Non-Cooperative Jurisdictions, FATF website (last visited Sept. 28, 2017).)

In March of this year, Indonesia’s Financial Services Authority (an independent government agency) introduced a regulation similar to the one recently adopted but applicable to banks, insurance companies, and financial conglomerates  (Indonesia Tightens Rules to Curb Money Laundering, Terror Funding, supra; Peraturan Otoritas Jasa Keuangan Nomor 12/POJK/01/2017, Tentang Penerapan Program Anti Pencucian Uang dan Pencegahan Pendanaan Terorisme di Sektor Jasa Keuangan [Regulation of the Financial Services Authority No. 12/POJK/01/2017, Concerning Implementing in the Financial Services Sector the Anti-Money Laundering and Prevention of Terrorism Financing Program] (Mar. 16, 2017), Financial Services Authority website.)