Corruption in Indonesia
THE ROLE OF ANTI MONEY LAUNDERING REGIME ON COMBATTING CORRUPTION IN INDONESIA Presented By. Mr. Yunus Husein
Head of Indonesian Transaction Report and Analysis Centre (INTRAC) Cosmos Club.
Washington DC. Wednesday, October 25th. 2005.
Ladies and Gentlemen.
I would like to thank the Indonesian Embassy in Washington DC, especially the Economic Affairs Section and the World Bank’s South East Asia Group’s Executive Director’s Office for inviting me to give this address on the topic of corruption and money laundering. The choice of this topic is appropriate because of the challenges corruption poses to the Indonesian economy.
Corruption and money laundering are increasingly becoming a global phenomenon and this is not only a threat to the Indonesian economy, but it has potential to threaten Indonesia’s civil and political spheres. Since, corruption is universally perceived to be the biggest human induced threat facing humanity at the moment; corruption has emerged as a notable cause of poverty and deprivation in most of the “developing world”.
As mentioned by Richard Holloway on his book “Stealing from the People”, I might say that Indonesians may not be conscious of the fact that their life cycles are caught up in an intricate network of corruption. This fact is true from the time an Indonesian child is born until he enters the grave. This true from the time an Indonesian person wakes up with the sun and goes to sleep with the moon. This cycle of criminal acts range from simple things such as taking money from safe deposits boxes, skimming from project funds, marking up costs, demanding commissions from contractors, selling licenses, as well as giving blank shares to public officials. The more sophisticated operations include money laundering, defrauding family controlled banks, issuing law, regulation, and policies to benefit certain groups, and favor trading between political power blocks and large business. The Indonesia people are sadly caught in this web of pain and sorrow.
However, our government seeks to change this pattern. For instance, the economic reforms initiated by the Government of Indonesia in year 2000, following the 1997 economic and political down turn, have led to major changes in the environment in which Indonesian live today. The effective implementation of these new policies, however, depends on the government’s ability to restructure its regulatory and infrastructure agencies and to reorient their staffs.
Yet, with this restructuring, the Government of Indonesia began to realize the powerful destructive force of the crime of money laundering. In seeking to battle the deep levels of corruption, the Indonesian government recognized that both the public and private sectors must build a united front to interest and polices, an anti-money laundering regime, to defeat this dark problem.
As background, money laundering, as a crime of global dimension is a new concept in many countries, including Indonesia. The magnitude of its impact on the economy of a country encourages countries and world organizations to commit significant resources to the prevention and eradication of this crime.
Every criminal needs to “launder” the proceeds of crime, but where organized crime, drug trafficking and corruption are involved; the consequences of money laundering are bad for business, development, government and the rule of law.
Money laundering is conventionally defined as any process that is carried out to disguise or conceal the nature or source of or entitlement to money or property from criminal activities. Although countries have developed different money laundering definitions in their statutes, is important that any useful definition should recognize that crime of any nature is an act against society.
As such, to launder any proceeds from unlawful activity or the contravention of any law followed by laundering should be encompassed in the definition.
The definition of money laundering that encompasses any unlawful activity would be well inclusive and would provide law enforcement with a wider legal arm. Thus, corrupt officials seek to hide their ill gotten gain by laundering it.
Yet, it is my agency’s duty to help to prevent criminals from disguising these illegal funds.
In these efforts, the Indonesia legislature passed and issued Law Number 15 Year 2002 concerning The Crime of Money Laundering as Amended by Law Number 25 Year 2003 (AML Law). This law is a strong foundation on which Indonesia has built its an anti-money laundering regime. This legislation strictly declares that money laundering is a crime.
Based on the law, Pusat Pelaporan dan Analisis Transaksi Keuangan (PPATK), also known as the Indonesian Financial Transaction Reports and Analysis Center (INTRAC), was established with the authority to execute the Government’s policy on prevention and eradication of money laundering, while simultaneously building an anti-money laundering regime in Indonesia.
This authority strongly supports the emphasis on maintaining financial stability and reducing predicate crimes. Currently, the AML is under review for amendment. These AML amendments will increase pressure against criminals and further prevent them from benefiting from criminal proceeds.
The amended Law broadened the definition of “STR” to include any transaction related proceed of crime, enhanced international cooperation and included an anti-tipping off provision.
The combating of money laundering should revolve around ensuring the ability of law enforcement agencies to find, freeze and forfeit the laundered money. In addition, the wide scope of affected stakeholders in anti money laundering efforts requires an unprecedented level of co-operation both at national and international levels.
International cooperation has increased where many governments and jurisdictions have committed themselves to take action. The international organizations (such as the World Bank, USAID) are committed to helping.
Another important ingredient for the effective combating of money laundering is the need for political commitment, as well as support from affected industries and general stack holder. It worth to note that PPATK is a member of other organized global regime toward combating money laundering such as Egmount Group. Further, the Government of Indonesia is a member of the Asian Pacific Group (APG) on money laundering demonstrating its commitment to international cooperation.
Further, to ensure that Indonesia is not lagging behind in coordinating its internal efforts in the international war against money laundering; in 2004 we have created the National Coordination Committee (NCC) on Anti-Money Laundering which consists of ministerial level members. This group is chaired by Coordinating Ministers for Political, Legal and Security Affairs. The NCC has indeed recognized the need to combat money laundering and essential for ensuring that the Indonesian government must respond to money laundering as a global problem. In addition, there is various interagency cooperation in the local and international community (such as MoU between PPATK and Indonesian Central Bank, Head of National Police, Attorney General, Indonesian Capital Market Authority, KPK and MoU with 10 foreign FIUs) have been made by PPATK which we believe is critical to the success and in advancing the cause for the fight against money laundering.
In relation with the cooperation between KPK and PPATK, both agencies had shares information to assist individual mission. For instance, KPK has made 64 inquiries to PPATK regarding Corruption suspect and their asset. In response, PPATK has followed the inquiries by analyzing these suspected accounts. PPATK so far has responded 50 inquiries from KPK. Conversely, PPATK has sent KPK 8 spontaneous investigative lead regarding corruption suspect identified by PPATK. Finally, PPATK has also made 1 inquiry to KPK and KPK has answered to this inquiry.
To extend the cooperation, MoU signing will be expanded in the near future to increase cooperation among PPATK and others FIUs. Though cooperation will not be limited by the MoU signing, PPATK will cooperate with any foreign FIU by using reciprocity principle which is followed by all FIU in the world.
The pressures that the Indonesian financial institutions are being subjected to for compliance with KYC and anti money laundering requirement, makes me to want to compliment to those institutions for living up to those requirements despite cost involve in some instance. I might not be able to mention how much cost affected to the reporting institutions in relation to the reporting obligation under the AML Law, but as far as my office’s research in one way or another financial institutions in Indonesia, have been working to ensure compliance with the important aspect of customer due diligence and have been improving on their institutional capacity to ensure that their systems and personnel are geared for their discharge of their responsibilities as reporting institutions.
In the past years since Indonesia’s criminalization of money laundering and the enforcement of anti money laundering policy, evidence from the reported suspect transactions has given indication of promising development. As of 30 September year 2005, PPATK has received 2.734 STR from 97 Banks, 1 rural bank, and 43 non bank financial institutions. Total 1.408.216 CTR received from 112 banks, 21 Money Changer, 8 rural banks and 2 insurances companies. Extended to that, we have received 464 cross border report from Indonesian customs authority.
There have now been a total of 355 cases referred by PPATK to the Police and the AGO as of 30 September 2005. Since PPATK has been making these referrals, there has been one successful prosecution involving terrorism, 19 successful prosecutions involving bank fraud and/or corruption and 2 successful prosecutions for money laundering offence. Each of these prosecutions was based on the referral of STR and related information by PPATK, and involved money laundering activities, with conviction on the predicate crimes. Sentences in these cases range from 4 months in prison, to the death sentence. Fifteen of the twenty-one cases had sentences imposed of 8 years in prison or more, including the case involving money laundering offence that was imposed of 8 years in prison. There are presently 30 (thirty) cases that are in the prosecution process. Seven of these cases relate to corruption and money laundering, twelve relate to bank fraud and money laundering, and eleven cases relate to money laundering offenses only.1
We expect these legal action and reports from financial institution will significantly increase following extensive campaign toward the existing of the anti-money laundering regime in Indonesia.
Thus, Indonesia has increased its enforcement against money laundering in concrete and significant ways.
We are aware that our duties are crucial, not only for today, but for the future. Therefore, as a new government institution, PPATK needs to communicate and socialize its vision and mission, and expects support from all stakeholders to achieve its goals. Yet, our mission extends to the battle against corruption.
We see that both money laundering and corruption are interlinked. Unfortunately, corruption in Indonesia has been around for a very long time and will be around in the future unless governments can figure out effective ways to combat it. This is not going to be easy. Although the study of the causes and consequences of corruption has a long history in economics, going back 60 years (after Indonesian independence from the Dutch colonialism in 1945) this is hardly surprising since most corruption is systematically developed. As a consequence, corruption is notoriously hard to measure. But, if left unchecked, these crimes could increase organized crime’s economic power in developing countries such as Indonesia. In other words, the social consequences for allowing corruptors taking benefit by laundering their money could spell disaster for stability and rule of law.
Regarding international cooperation against corruption, Indonesia has been consistent to convey its full support to the UN Convention against Corruption as part of its overall commitment to democratic principles and good governance. Indonesia was one of the signatory countries of the Convention on 18th December 2003 in New York. In addition, on 9 December 2004, Indonesian President released Presidential Instruction Number 5/2004 which directs all Government agencies, including the National Commission for Corruption Eradication (KPK), to intensify their efforts in combating corruption.
The instruction also dictates establishment of National Plan of Action on Combating Corruption 2004-2009.
Nevertheless, money laundering empowers corruption and organized crime. Corrupt public officials need to be able to launder bribes, kick-backs, public funds and, on occasion, even development loans from international financial institutions. Organized criminal groups need to be able to launder the proceeds of drug trafficking and commodity smuggling. Corruptors use money laundering channels to get cash to buy their assets and fund their life styles.
The social consequences of allowing corruptors the capacity to launder money can be disastrous. Taking criminal proceeds from corrupt public officials is one of the best ways to stop them in their tracks.With this interconnection between corruption and money laundering, Indonesia has taken these actions in battling these crimes. Some examples are:
– Coordinating Minister for Political, Legal and Security Affairs issued Decree No. Kep-54/Menko/Polhukkam/ 5/2004 concerning the Integrated Team for Criminal and Suspect of Corruption Offence (asset tracing) as amended by the Decree No. Kep-21/Menko/ Polhukkam/4/2005 dated 18 April 2005. The Integrated Team’s task is to pursue targeted criminals and suspects of corruption case that are determined 18 persons at the moment. The team is chaired by the Deputy Attorney General and the member consists of Criminal Investigation Department within Police, Attorney General’s Office, PPATK, Ministry of Law and Human Rights, and Department of Foreign Affairs.
– On May 2005, the President launched a new anti-corruption agency to boost his armory in his ongoing campaign against endemic graft. By the Presidential Decree No.11/2005 dated 2 May 2005, the Coordination Team for Corruption Eradication, which has been given the acronym of Timtas Tipikor (Tim Koordinasi Pemberantasan Tindak Pidana Korupsi), was formed by virtue of a presidential decree and inaugurated at the State Palace in Jakarta. The team is tasked to investigate 16 state firms/enterprises for possible irregularities in their operations. Timtas Tipikor is directly under the President’s responsibility and is to report to him once every three months or whenever summoned. The team has been given two years to carry out its tasks, although this may be extended. The new team must work in coordination with the KPK and other relevant agencies to avoid the overlapping of tasks. In addition to KPK, the team is also expected to cooperate with BPK and the PPATK.
– Currently Police, AGO and KPK are investigating and prosecuting many big corruption cases that involve several high-rank officials and government’s institutions or enterprises. Some of suspects have been arrested and the assets have been frozen and seized. The investigation and prosecution process has involved PPATK in providing financial intelligence.
By working to combat money laundering, the Indonesian Government jointly takes crucial steps to fight against corruption and all the related crimes. The active role of the Indonesian AML regime is a key mission for PPATK.
Through the force of the AML Regime, PPATK helps other regulatory and enforcement bodies in Indonesia to implement legislation on money laundering and to develop and maintain the mechanisms that combat this crime. The AML regime encourages anti-money laundering policy development, monitors and analyses the problems and responses, raises public awareness about money laundering (including raising the participation of financial institution in combating money laundering), and enhance the judicial actions toward such crimes.
Additionally, PPATK is contributing to Indonesia’s efforts in several important ways to combat corruption, consistent with its core areas of competence in money laundering. As a newly established institution, driven by the faith of the Indonesian people, PPATK is an administrative type FIU (Financial Institution Unit): the central reporting for receiving information, analyzing, and disseminating reports to the investigator and prosecutorial authorities—all there are critical elements in the fight against corruption and money laundering in Indonesia. In addition, PPATK’s role in conducting financial sector assessments, providing technical assistance in the financial sector, and exercising audit or surveillance to the financial institution is particularly helpful in increasing suspicious and cash transaction report compliance with the AML.
Law and in developing programs to help financial institutions address their obligation to implement “Know Your Customer” (KYC) principles as required by regulators.
Realizing that the eradication of corruption is necessary, nearly every Indonesian presidential and vice presidential candidate made corruption eradication an item on their list of priorities during the last election campaign.
Legally, war against corruption was declared when Law No. 28/1999 on the establishment of a state free from corruption, collusion and nepotism was ratified. Support for the eradication of corruption became stronger with the ratification of Law No. 31/1999, as amended by Law No. 20/2001 on the eradication of corruption as a criminal offense. A big leap in the effort to eliminate corruption seemed to be envisioned with the ratification of Law No. 30/2002 on the Corruption Eradication Commission (KPK-in Indonesian term).
However, I understand that all of these laws will not suffice to speed up the elimination of corruption in my country. Indonesia has been unfortunately listed as one of the most corrupt state in Asia. Many Indonesians believe that the roots of corruption are difficult to expose because the legislation is unclear and open to interpretation and sides with the corruptors. Others say the some of our legal enforcers are not really committed to fighting corruption. From this viewpoint, it may be said that rampant corruption is attributable to the great leniency that our laws and law enforcers show toward corruptors.
Nevertheless, our President is using his power to take on this problem. For instance, he has asked the police to cooperate with prosecutors’ offices, the Development Finance Comptroller, PPATK and other related state institutions to combat corruption and to recoup all lost state funds.
Pursuant to the stipulation of Article 2, Paragraph 2 of Law No. 31/1999, which has been amended by Law No. 20/2001, corruption committed in particular circumstances can carry the death penalty. It is also important to note that you may also refer to the Article 2, Paragraph 1 of the AML Law stipulates that corruption is one of the predicates which can be resulted as money laundering crime when the money derived from such crime deposited to the financial institution or even invested to any wealth.
In the context of national interest on combating corruption, enactment of the AML Law is a reassurance that the government and private sector are not part of the problem, but rather are part of the solution in the economic, financial and banking sector.
We realize that the initiative to combat corruption reveals that this problem is very complex and more complicated than assumed before. The resistance is great because it impressed as if corruption has rushed into all human life.
I would like to conclude by emphasizing that corruption and money laundering are crimes which affect every individual, business and destroys trust in the government. If left unchecked, it potentially fuels crime and ultimate erodes confidence in the rule of law and transparency. Combating these offenses require first and foremost, the crafting of appropriate laws and the creation of national and international capacity and the coordination thereof. At the end, enhancing or empowering the anti-corruption/money laundering regime, we hope that corruption at all levels of government will be eliminated.
Although Indonesia faces many challenges, its people are committed to creating a better future. A future of transparency and honesty; a future of cooperation and vision; a future based on law, not greed. It is this better day that we all, citizens, business people, and government workers vow to build brick by brick, day by day and year by year. It is this better world that we desire for our children so that they escape the vicious circle of corruption. It is this better world we shall all live in together.
I truly thank you for your kind of attention.
Washington DC. 12 October 2005